The 20% decline in SPY, the SPDR S&P 500 ETF Trust creates an opportunity.
By Michael Hooper
Calling all young people. Here is the opportunity of a lifetime. The stock market has crashed 20% due to fears over the coronavirus. Highly contagious, Covid-19 is a serious threat with about 1.4% to 3% of people dying from the virus. The coronavirus will slow down the economy. Profits will fall. The pandemic may get worse before it gets better. Eventually, some day, maybe six months now or a year from now, the numbers of sick and dying will go down. Just like the world fought the AIDS crisis, the world will come together to fight the coronavirus. If everyone does their part, we can recover from this.
Yet investors are selling stocks as if there is no tomorrow.
Stocks that used to be expensive are now cheap. For example, Evergy (EVRG), the electricity provider in Kansas and Missouri, was $72 per share before the crash. Today the stock is around $55 per share. That is a 23% decline. I imagine electricity sales will be steady, despite the corornavirus.
Berkshire Hathaway (BRK-B) was $220 per share before the crash. The stock recently traded at $182 per share. Berkshire Hathaway stock is trading close to book value. I am confident that the stock will eventually rebound sometime.
SPDR S&P 500 ETF trust (SPY) was trading over $320 per share before the crash and now is trading around $256 per share, down 20%.
If you have a long-term horizon, at least three to five years, this is a great opportunity for you. The S&P 500 is the large cap index. ETFs like SPY and iShares Core S&P 500 ETF (IVV) follow that index. Most money managers don't beat the index.
Buying stocks is easier than it ever has been. You can set up a brokerage account at Robinhood, Charles Schwab or Ameritrade for free. With as little as $500, you can start trading stocks. Indeed there is no trading fees. You may buy one share of Coca-Cola (KO) at $48 per share and pay no trading fee. This used to be impossible.
When I started buying stocks in the early 1990s, trading fees were $35 per trade, to buy stocks over the phone with Schwab. Online trades used to be $9.95 for a long time, then $4.95. Today there is no trading fee to buy a stock at Schwab.
There is no doubt the economy is going to slow down as a result of the coronavirus. Travel is falling rapidly. Public events are canceled. The Masters has postponed its famous golf tournament typically held in April. These cancellations will prevent the spread of the disease.
I worry about workers in the service sector, hotels, restaurants, bars and nightclubs. I went to The Goose recently, there seemed to be quite a few people there. If this virus spreads in Kansas, I imagine fewer people will be going out. I hope people don't lose their jobs. I suspect job losses will happen in some industries including the airline industry. Eventually, the US economy will recover.
I really think this is an opportunity for new investors and young people because they've got time on their side. They can ride out the ups and downs of the market because they aren't retiring soon. Older investors in retirement or near retirement may not have that much time to recoup from losses.
Here's some buying strategies for investors:
Buy stock on a regular basis. Don't sit on your hands and wait. Consider buying every week or every month. If you want 100 shares over time, buy 20 at a time until you own all 100. This is called dollar cost averaging. I did this in the last stock market crash in 2008-2009. I put $28,000 to work with about $2,000 going into the market every month until I had invested the entire amount. I didn't know it at the time, but I bought in February 2009 near the bottom of the market in March 2009. My investments in 2008-09 eventually tripled in value.
Diversify, own a variety of stocks and bonds. I like bond ETF iShares Core U.S. Aggregate Bond ETF (AGG).
Talk to a financial adviser. They can help you make better decisions.
Create a plan and stick with it.
Editors Note: The author owns SPY, IVV, BRKB, EVRG, KO and AGG.
