Crisis stock investing is investing in cyclic giant stocks, ideal for Buy Low Sell High investing strategy. Usually crisis may happen at business (Level 1, company losing money), sector (Level 2, bearish sector), country (Level 3, recession) or global (Level 4, financial crisis), creating different degrees of fear in the stock market, resulting in fall of share prices. Subsequently, when the market fear turns into greed, these crisis stocks may become uptrend momentum stocks, ideal for selling high.
There are 4 different qualities of crisis stocks with long term low optimism. An investor has to carefully identify the nature of crisis stock investing, understanding how the falling in share prices are induced.
1) Low Quality Low Optimism (L1 Crisis Stock Investing)
Long term optimism of stock is low, driven by decline in L1 business but L2-L4 are fine. Noble Group could be an example. Without consideration of sustainable business, pure strategy of Buy Low may result in Get Lower in share prices, which is a common pitfall for Technical Analysis. Both Fundamental Analysis (FA) and Technical Analysis (TA) should be integrated with Optimism Strategies with consideration of Personal Analysis (PA)
2) Average Quality Low Optimism (L2 Crisis Stock Investing)
Long term optimism of stock is low, driven by decline in L1 business & L2 (sector), while L3-L4 are fine. Examples include oil & gas crisis stocks in the last 1 year, casino crisis stocks 2 years ago, etc. It happens during the sector rotation which the sector market cycle may not align with the country/global economy cycle. If the sector is not a sunset industry, usually it would recover again as there is unique demand vs supply within each sector for investment.
3) High Quality Low Optimism (L3/L4 Crisis Stock Investing)
Long term optimism of stock is low, driven by decline in L1-L4 (business/sector/country/global financial crisis). More than 50% global cyclic giant stocks during global financial crisis would be affected in both business (drop in earning or even losing money) and share prices (L1-L4 from individual stock to global stock indices). Since the market fear at L3/L4 may not last long (global political leaders would take actions by then to save the whole world), the downside of global stock market is limited but an investor needs to have sufficient holding power through the cold winter time of global financial crisis. For example, many cyclic giant bank stocks may behave this way.
4) Excellent Quality Low Optimism (L4 Crisis Stock Investing with strong L1 Business)
Long term optimism of stock is low, driven by decline in L2-L4 (sector/country/global financial crisis) but L1 business is fine. Less than 10% global growth giant stocks during global financial crisis could still be profitable or even growing in business while the share prices falling relatively less (defensive in nature) than the average in global stock market. In fact, defensive growth giant stocks are suitable for Buy Low & Hold for long term investing, sell is an optional strategy.
The safest time to buy a giant stock is when everyone is afraid the sky will fall down while the business is still operating normally with consistent performance. This could be a rare opportunity to buy during a crisis but many people are too normal, do not know how to take this advantage to truly buy low sell high.
A smart investor may not need to consider only crisis stock investing. There are other strategies such as growth stocks, dividend stocks, undervalue stocks and momentum stocks, etc, may be integrated to form a balance stock investment portfolio.
Learn from Dr Tee through high-quality free stock investment courses.
