Crises are chances to earn profits - June 20, 2020

Crises are chances to earn profits

COVID-19 is not the first crisis we’ve seen in our lives and probably not the last. Just to mention a few: the dot-com bubble of 2000 and the financial crisis of 2008. Both were serious falls that hit several stocks but brought great opportunities to earn money.

The coronavirus epidemic took everybody by surprise. Most of the world was locked and shut down, leading to a serious economic slowdown which became apparent in the stock prices as well.

Far from being the first crisis

However, it’s far from being the first economic crisis of the world. Just in this millennia, meaning only the last 20 years, we’ve seen at least two global crises. The first of them was the dot-com bubble at the beginning of the 2000s. Prior to this crisis, Nasdaq rose to historical heights, just to lose 78% of its value in less than two years. During the buildup to the burst, there were companies that gained more than 2000% in value, just to be wiped out in a short period. Some of them however remained on the market and recovered their strength, including the following companies:

  • Amazon
  • Cisco
  • eBay
  • Qualcomm

Cisco and Qualcomm were hit especially hard, but they recovered in time.

The financial crisis of 2008 sent an even wider shockwave through the global economy. Although it started in the US with subprime mortgages, it shook whole countries that needed to turn to the International Monetary Fund for help. No wonder it’s considered the most serious financial crisis since the Great Depression of the 1930s. Before this crisis, Dow Jones Industrial Average peaked at 14,000 points, which soon fell to a low of 6,600. That means more than half of its value was lost.

Every crisis is a chance

“Never let a good crisis go to waste”, said Winston Churchill, and although it may sound counterintuitive at first, the saying is true for market corrections as well. The reason is simple: during these slowdowns, many instruments can be purchased at significant discounts. When the markets recover (more on that in the next paragraph), great profits can be achieved. Of course, this needs long-term thinking, but that should be a given in every investment.

About the recovery of the markets: so far, every crisis has ended, and markets went higher than ever before. After the financial crisis of 2008, markets broke every record again and again. That being said, COVID-19 may be different from the problems we faced before, and changes may come. Some market participants may vanish forever (as it happened before), but others may grow even faster. It’s enough to think about some tech companies that seem to be the undisputed winners of this correction.

The devil is in the detail

Then again, the devil is in the detail, or more precisely, in the exact investment portfolio one has. Betting on one stock (or other instrument) is never a good idea. Even the biggest companies can default, just think about Lehman Brothers in 2008. This is why betting on the success of just one company or industry is not the greatest idea. (It can lead to profits, but it’s more like gambling than investment.)

What we advice is to have a tailored investment portfolio to your needs and risk tolerance. This way you may achieve great profit on the long term, even in uncertain situations like this. What’s more, this can be a great entry point to the market precisely because of the low prices we see now. Of course, every investment has some risk, but having professional help and diversified portfolio can help managing it.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.