Few tips on how to buy stocks during the stock market crash

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With many investors panic selling their stocks, other investors are buying cheaper shares aggressively. This article will outline few tips on how to buy stocks during the stock market crash.

The key idea to note is that as a wise investor, don’t just buy stocks because they are cheap. Remember on every financial  crisis, many companies will file for bankruptcy. You do not want to find yourself holding thousands of junk and worthless shares.

It is better to do nothing than either buying things that you do not need or things that will ruin your peace of mind.

Moreover, if you are to buy shares make sure you are targeting stocks that are undervalued and those that are likely to recover fast from a crisis. Since the future of the financial markets is still uncertain due to Coronavirus pandemic, don’t use all your money to buy shares at once. There is a higher chance that the stock prices will further drop. It may be wiser to buy proportionally as the price drops down.

As long as the Coronavirus pandemic is still not yet over, losses will keep happening and you need to work on your emotions. It is going to be a bumpy ride, therefore you need to work on your nerves.

Guidelines that can help you to buy the right stocks

1. Do you understand how the company you are investing in operates?
   • It is very important to invest in the companies that you know very well. This will help you in understanding how the company has been impacted by the Coronavirus pandemic.
   • You need to understand the supply chain of the company you are investing in as well as the demand of the product the company is producing.
   • Suppose you want to invest in Anglo-American Platinum, understand how they are being affected by the pandemic. Ask yourself if the company will still be able to produce enough platinum or palladium. Palladium is used by car manufacturers, so understand if its demand is also affected.
2. Get to know the debt position of the company you are investing in.
   • Is the company heavily geared (more debt in relation to equity)?
   • Are they able to meet their debt obligations if production is affected and also if demand is low?
3. How profitable is the company you are buying shares from?
   • How big are the Earnings per Share?
   • Are the shares undervalued? How small is the Price Earnings ratio?
4. How big is the company you are investing in?
   • Can the company afford the salary bill during the crisis?
   • Is it possible for its employees to work from home?
5. What is the long term strategy of the company?
   • Understand if the company has long term plans that are realistic and achievable. Remember that as a value investor, you invest in the future profits of the company and not necessarily on what is happening today.
6. What are the strategies the company is using to cab this crisis?
   • Is the company well prepared for this Coronavirus pandemic?
   • What are they doing to keep their client base?
   • How are they protecting their employees?
   • What is their plan for the post Coronavirus era?
7. How did the company performed in the past crises?
   • It may be important to understand the history of the company you are investing in. That is, you need to know how they managed to survive previous crises. You also need to know if they were bailed out by the government or not.

Summary

In conclusion, buying during a crisis is harder than what most people think. If you are really not sure of what you are doing, it is better to seek professional advise or rather invest in unit trusts through an investment manager. Most unit trusts are fully optimized to minimize risk and they have a higher chance of doing well. This is the most challenging time to invest for the first time without the help of a professional expert. The main problem with buying at this time is that you will be excessively exposing yourself to risk – you may not like this as a new investor. This sums up our few tips on how to buy stocks during the stock market crash.

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• The aftermath of the Coronavirus pandemic – what to expect
• The investor’s dilemma during the Coronavirus pandemic – Explaining the Average Down Strategy
• Investing lessons learnt during Coronavirus outbreak