Buy shares in the midst of a crisis is a risky bet, but which could be cost-effective in the long term.
Unprecedented for its global impact, the health crisis of the Covid-19 has quickly mutated into economic meltdown and financial. The financial centers around the world collapsed in a few weeks. But, unlike previous crises, which had rolled a crowd of small investors, encouraging them to desert the Stock market-many retail investors have this time chosen to acquire shares.
As pointed out by the financial markets Authority (AMF), "between 24 February and 3 April 2020, to 580,000 customers have purchased massive amounts of shares in the CAC 40 and the SBF 120. They have increased their volume of purchases means by 4, in overall volume multiplied by 3." Among these investors, the member of the stock Exchange there are 153 000 new investors to the profile, well established. They are predominantly young, have between 10 and 15 years less than that of the investor in the usual - under the age of 40 years for the customers of online brokers, under 50 years of age for the followers of the store network and invested amounts lower than their "elders".
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This return of individual investors, in a storm market, is a strong signal. But still it would be necessary to ensure that this trend heralds the emergence of a new "class" of shareholders and is not linked to behaviours before any opportunists. Because what makes the strength and reliability of the stock Exchange, it is the community of investors buying sustainably a company's stock because they believe in the quality of its management, its ability to achieve the earnings necessary to invest, innovate and ensure its development. In opposition to the speculators, who have no interest in the fundamentals of a company and does not seek to achieve a "good shot" on the short-term.
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To succeed in the stock Exchange, there must be proof of method and patience and a good knowledge of the functioning and reactions of the markets to better anticipate them. Has the image of these new holders of shares, a situation of crisis can prove to be a great opportunity to make his first step in and buy securities at a reasonable price. Because, in these times of turmoil, the financial markets have become totally irrational. They no longer play a role of selective filter on the values. The tsunami stock does not make any distinction, taking everything in its path. Whatever the profile, the sector of activity, the value of the team in place, the financial strength, the strength of the brand, nothing done, all stock prices plunge, without distinction.
In times of crisis, markets are extremely volatile
what Is this irrationality of the markets ? "It is above all caused by the strategies short-termist speculators and the emotion of some investors who panic and follow the movement. This situation is complemented by technical factors. First of all, a growing share of financial flows in the Stock market now is driven by algorithms trading sophisticated. They follow the 'trend' and amplify it, focusing on the purchase of securities that are rising and selling of stocks that are falling. Finally, in times of crisis, the markets become extremely volatile. This is prompting some funds to reduce their position and sell mechanically a part of their actions in order to limit the volatility of their portfolio, which must not exceed a certain threshold," said Guillaume Eyssette, director partner of the law firm Gefinéo, specialized on the long term investment.
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In this context of panic general, the investor who favours the long-term should, instead, stay calm, make choices, well thought out and borne. He must have the sense of analysis, understanding the business, identifying its potential for growth, to buy the good value. It also must have the sense of timing : buy the stock when its price is attractive. As highlighted in Guillaume Eyssette : "Before you invest in an action, I advise my clients to imagine that - once the title is purchased - the stock Exchange firm for a decade, and the listing is resumed after this period of ten years. Then ask the question : in such conditions, am I ready to invest ? If you do not feel comfortable, it is better to avoid placing your money in this society."
Between 12 march and 2 June, the shares of Airbus rose to 34 times below the 55 €
once you've got your eye on four or five reputable companies, one solution is to set a threshold at which you are willing to buy the action, and to refer to it regardless of the fluctuations in the Stock price. To help you better understand, let's take as an example the evolution of the price of the title Airbus between march 12 and June 2, 2020, as illustrated on the chart. Prior to the pandemic, this course peaked above 130 €. At the worst moment of the crash, the 18 march, the share recorded a minimum price of 48 € : a fall of over 60% ! Admittedly, the aircraft is positioned in a market hit by the pandemic, its order book will fall. But, given his technological know-how, of its financial position, its dominant position on a market where the actors are few, its strategic character, you can estimate that this action is at a very reasonable price around 55 €.
You then pass on a purchase order within this meaning, and you wait patiently for the action to reach this threshold. With fluctuations in the market, you have all the chances that the target price is "touched" multiple times. Which gives you many windows of the investment, at different periods of time, which you can open or not depending on the cash you have. Thus, between 12 march and 2 June, on 56 trading days, the title will pass to 34 times below 55 €, giving you 34 opportunities to invest in the shares of Airbus. June 3, 2020, the title was 68,41 €, an increase of 24.4% compared to your purchase threshold.
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If you have neither the time nor the desire to select companies, to follow a course stock and for examining their economic and financial results, you always have the choice to invest in equity funds. You can then focus of the fund's "value" which are based on values which the price is considered reasonable compared to the potential growth of the company. It will be necessary to accept the settlement of the manager, transaction fees, and management, and sometimes even performance fees... which will have an impact on the performance of your investments. The price to pay to avoid spending too much time in front of his screen to observe the evolution of the Stock price.