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Dear Mr. Coronavirus: Thank You For The Lemons. We're Making Lemonade.
Chaos and panic are everywhere. The stock market is down big! 401k and IRA balances are down the toilet. Everyone is losing money. Investors are scrambling to find winning investing strategies to stop the money hemorrhage. Everyone is busy blaming the coronavirus pandemic for the current stock market headwinds. But they fail to see the plethora of early Christmas presents that is right in front of their eyes. As the saying goes, "When life gives you lemons, make lemonade." And lemonade you should be making right now because the coronavirus has dropped lemons everywhere!
Coronavirus: the impact on capital gains and dividends
The coronavirus has utterly destroyed capital gains. Large-cap, mid-cap, small-cap stocks investors are getting hardly any returns from capital gains. Many investors have gone on massive sell-offs sprees to stop the bleeding. Some who have sold off may experience what we call "mutual fund separation anxiety disorder" when the market starts showing signs of a rebound. They will be left wondering whether or not they had made the right call. With capital gains missing in action, others have turned to dividend-paying equities.
Dividends are a portion of earnings or profits that a company pays to shareholders of a stock, index fund or mutual fund. Investing in dividend-paying equities during the slump is a great way to re-align portfolios and generate income. Instead of focusing too much on the bygone capital gains and dividends, we think investors would be wise to take a great look at the current marketplace where lemons abound. By lemons, we mean stocks--stocks that are deeply discounted. Investors need not be fearful to grab those lemons and make lemonade.
Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.Warren Buffet, Legendary investor
Where are the lemons?
There are great stock deals from virtually every market sector. The real estate sector has been hammered pretty hard. This has created very attractive real estate investment trusts (REITs) stocks deals. Maybe you you've always liked large technology stocks. If that's the case, Amazon, Google, Apple, Microsoft, Adobe, etc., may now be great lemons to squeeze into your portfolio. How about the airline industry? This sector has been destroyed by the coronavirus as well! Delta Airlines, American Airlines and other airlines stocks picked up altitude on 03/24/2020, as Congress is currently considering throwing them a life line.
The financial sector is also a pretty attractive place to look for lemons. For example, Bank of America, JP Morgan Chase, Goldman Sachs, Wells Fargo, Citigroup, Inc stocks have become very affordable.
The bottom line
The coronavirus pandemic has created very lucrative stock market opportunities. Stocks have never been so cheap. We've picked up a few lemons ourselves, including SEDG, INTC, ABBV and a few REIT stocks. The lemonade you make right now may not smell like fresh-cut lemons, but it will be once the coronavirus pandemic dust settles.
Remember whatever you do, don't chase yields. Depressed stock prices have inflated yields. Focus on the entire fundamentals and balance sheet; once a company starts going under, the dividend is the first to get cut. For example, both Boeing and Ford Motor Company have recently suspended their dividend program.
What great lemons are you considering squeezing during this slump? Please share with us below in the comment section. Don't forget to subscribe.
Disclosure: We are holder of SEDG, ABBV and INTC. We wrote this article ourselves. It expresses our opinions. We do not receive compensation from the companies highlighted, nor do we have any business relationships with those companies. This should not be construed as investing advice. This article contains an affiliate link to an investment product. We may receive a commission through this link when you join the partner. Our full disclaimer.
At this point this is a nonevent for me financially. I’m set whatever happens to the market and I’m fully invested and will stay that way, except for several years worth of expenses in a cash bucket. But 1987, 2000 and 2008 were in my accumulation phase and while they were painful at the time I was all stock and never sold a share. That’s why I don’t have to care now if I lose a little ($500K as of today) because that’s not money I need. Plus most likely that will come back in time.
Very great input there. But $500K loss? ouch...Like you said, it will come back in time. The market is saturated with deeply discounted stocks and what a great time to buy! As always, thank you for your input.