Investing tips are easy to come by, but few are geared to when the economy is in a period of uncertainty. With tensions in Europe affecting markets around the world, it can feel like it’s too dangerous to invest right now. But I believe this is the perfect time to prepare, pick up cheap shares, and be ready for when times are more certain in the future.
It’s all about the long game
Even in ordinary times, the stock market goes up and down in unpredictable ways. It may even trend down for a whole year. So, how are investors meant to feel comfortable parting with their hard-earned cash if there’s a chance it could drop in value? By remembering that investing over the long term is the goal.
Long-term investing means making a stock purchase and holding onto it for years and years, possibly even decades. This can be a tough proposition to some. I often struggle with imagining that far in the future. But it’s what gives me pause when the market isn’t moving the way I had hoped. All I have to do is look back in time at the share prices of companies like Amazon and Berkshire-Hathaway to see that they had their ups and downs.
Amazon grew in value by more than 5,000% in the last 12 years. Imagine how upset some investors must feel today if they sold their shares during the 2008 financial crash. Back then Amazon shares were worth around $150. Today, they’re worth $3,000.
Research, research, research
But how do investors build the confidence they need to hold steady through the storm?
The most important investing tip for any beginner is to look at a company’s financial status rather than its share price. These can usually be found with a quick Google search. Look at how much cash it has on hand, how much debt it owes. Look at the profit margins of the company then compare it with its competitors. Does the company offer a product that no one else does?
All of this information can help guide investors towards making a decision they can stick to. Warren Buffett himself believes that all investors should understand the business they’re buying.
Once an investor knows a business inside and out, they can feel comfortable knowing they want to buy it and hold it for years to come.
Buying when the market is down
No one can predict a market downturn, but when they come along that’s when it’s time to go shopping. If the business is sound, makes a good profit, and is likely to continue making sales during periods of contraction, there’s very little reason to think the share price won’t recover. Lots of investors refer to shares like this as ‘on sale’ and buy up as much as they can. This is how Warren Buffett usually makes his investments, although he’s been more cautious in recent years.
Of course, it’s scary watching a share drop in value. A part of my brain always cries out ‘What if it goes to zero?’ But when I’ve done my research and know that the company is profitable and growing, I can be confident that this share price movement is only temporary.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
