The past several weeks have tested the mettle of even the most experienced investor, with the ongoing uncertainty brought on by the outbreak of illness caused by the COVID-19 novel coronavirus. Since the market began its descent in mid-February, all of the major U.S. stock market indexes have fallen firmly into a bear market, each losing about 30%.
This raises a question that is surely on the mind of many investors: Should I buy stocks right now?
I believe the answer is "yes." It's important to note that equities may still have further to fall and things will likely get worse before they get better, but it isn't necessary to catch the exact bottom of the market in order to be wildly successful.
With all the doom-and-gloom headlines, it's easy to forget that life goes on, people are spending money, and businesses will make a comeback. Let's look at a few reasons why it might be a good time to buy.
1. People still need to buy things
The curious absence of toilet paper from store shelves notwithstanding, whether we are working remotely, quarantined at home, or out of school weeks early for the semester, the fact of the matter is that people still need to buy things: groceries, consumer staples, food, cleaners, and other household necessities. While there are some shortages, customers will still go shopping.
We've already seen some of the beneficiaries of this reality. Warehouse club Costco Wholesale (COST -1.54%) has been inundated by shoppers buying up essentials while preparing to ride out the pandemic for weeks at home. Another popular destination? Discount retailer Walmart (WMT 0.11%) has experienced a surge of demand and has been working round the clock to try to get household essentials to customers.
Even e-commerce giant Amazon.com (AMZN 0.25%) is adjusting to the unprecedented surge of demand, and will no longer accept shipments of non-essential items at its warehouses and fulfillment centers, in order to make room for household goods and medical supplies.
In the darkest of times, consumers still need to make purchases.
2. These goods (and others) must still be paid for
All this stockpiling of household goods, regular grocery shopping, and other buying that's occurring leads to another inevitable -- payments. These trips to the store, regardless of how frequent or infrequent, results in the necessary exchange of goods and services for cold, hard cash -- or far more often, some other payment method.
The most popular forms of payment these days are debit and credit cards, as well as fast-emerging digital payment methods, and these companies will continue to be the intermediaries between consumers and retailers of all sorts.
Payment processing facilitator Visa (V 0.84%) is one such company. It has a 53% market share in the U.S. in terms of network purchase volume and processed $1.95 trillion in payments in 2018. Mastercard (MA 1.19%) is another stalwart, representing about 22% market share and $811 billion in transactions. Another winner will likely be PayPal (PYPL -0.91%), a leader in digital payment transactions. While it's small by comparison, generating 3.5 billion transactions and $200 billion in total payment volume, more people are switching to digital payments, putting PayPal in the catbird seat.
As long as consumers are making purchases, payments will be a necessary part of the transaction.
3. This too shall pass
It would be far too easy to slip into a herd mentality, potentially falling for the siren song that the "sky is falling," but the reality is far different. The fact is life will go on.
Looking back at the recession of 2008-09 may provide some necessary insight into what investors can expect in the weeks and months that follow. The Great Recession, as it has come to be called, unofficially began when stocks started to fall in late 2007 and continued to slide until mid-2009. The major market indexes began their descent in late October 2007, before bottoming in early March 2009, with each dropping more than 50% from their previous highs.
From those dark days of March began something that no one could have foreseen -- the longest bull market in U.S. history. Investors who were making stock purchases when the market had fallen precipitously were handsomely rewarded, even if they didn't catch the exact bottom of the decline.
Time to be greedy?
In the 1987 movie Wall Street, Gordon Gekko -- a character immortalized by Michael Douglas -- famously said, "Greed, for lack of a better word, is good." His meaning was very different, but in this case, the message is appropriate. Legendary investor Warren Buffett has long counseled investors, "Be fearful when others are greedy. Be greedy when others are fearful." Now may be such a time.
Each of the major stock indexes is down about 30%, something that has historically happened about once every decade, providing investors with a compelling opportunity. With that as a backdrop, now might be the time to start investing in stocks. While the coronavirus pandemic has yet to fully run its course, the stock market bottom could be here before you know it.