Stock Buying Tips in Economic Downturn

Wise Decisions in a Slowing Economy

If you are new to the stock market, you may be concerned about making wise investment choices. Nevermind that it appears that we are in a period of recession. You may be wondering if now is a good time to even attempt your hand at investing in stocks.

Never fear, it is possible to make right choices and to minimize your risk of loss during a tough economy. You may be thinking that in such tough economic times, stock values are sure to fall.

Here are some things to consider when making stock purchases in tough economic times:

First Consideration: Should you break open your piggy bank?

In a slowing economy (also known as a bear market), you really need to research the stock or stocks that is of interest to you. That is of utmost importance since overpaying for anything right now could jeopardize your portfolio.

Regardless, purchasing stocks is always somewhat of a risk, and no amount of caution or education is a guarantee for success. However, you can always try to make a purchase of some shares when a company that appears to have a promising future is offering stocks below tangible book value. Tangible book value takes into consideration what common shareholders can receive if the company fails and all of its assets are liquidated at their book values. It is a means of insurance, if you will, in the event that the company goes belly up. In tough economies such as the one we are currently experiencing, a company’s profits could decline or even become non-existent. If that should happen with a company that you have invested in, this can offer you some protection. There is also a chance that you can recover some or all of your investment through asset sales of the failed company.

Second Consideration: Variety really is the spice of life (or investing)

For as long as I can remember, we have all been told that we need to eat a variety of foods and have many colors on our plates in order to be healthy. This also applies to investing. So, taking what we already know, we simply need to remember to fill our investment plate (portfolio) with different industries. Don’t be afraid to check out investments abroad.

There is no way to know how long these tough economic times will last, and there is no way to predict the bottom with absolute certainty. So, to minimize your losses, remember what the nutritionists have been telling us for years. Fill your plate with variety.

Third Consideration: Stocks are tried and true

Stocks have, over the course of time, proven to be resilient and a good investment, but it takes time. If you have the money and the patience, your investment will eventually be rewarded, and investing in stocks can be a rewarding experience.

Fourth Consideration: More on resilience

When making stock purchase considerations, watch for companies who advertise because they will win consumers. During this tough economic time, consumers may not be spending money on “luxuries” such as cars, computers, electronics, etc., but they still need to spend their hard-earned money on necessities. Think food. Think utilities. Anything that falls into those two categories will outlast any recession.
So, pay attention when watching television, perusing newspaper ads, or listening to the radio. If you notice more advertising by a certain company (increased TV ads, i.e., Sweetbay Supermarkets, Walmart, Target), you may want to consider stock purchase, if available to the public because these companies will fare better than those companies who cut back advertising or did not increase their campaigns.

Fifth Consideration: Do your homework

Pay attention to what you hear on the news when stock reports are being issued. If a stock’s value is repeatedly reporting losses or on the decline, it would most definitely be a risky venture to buy any number of those stocks during an economic slowdown.