Editor’s note: This article was first published in November 2011, as a market review from 14 November 2011. All quarterly returns and the Inditex share price of €65.47 refer to that date; Inditex later split its shares 5-for-1 (2014). Facebook was not yet listed, and its comments about a debut are speculation from then.
When bad news threatens the markets, in a global economy practically all shares and indices tend to fall. Even that old and true saying, “when the stock market goes up, gold goes down, and when the stock market goes down, the price of gold goes up”, no longer holds, at least judging by what we’ve seen throughout this crisis.
Nor can we let ourselves be swayed simply because a share is cheap. The truth is that on the Spanish continuous market there are shares trading at €0.30 that, right now, wouldn’t earn us anything because the companies behind them hardly do any business.
We also know that, whatever some people say, an ideal time to get into the stock market is when markets fall. When the whole index drops we’ll find excellent opportunities to make money on the stock market, though not with every stock, because share prices go down in the lift (quickly), while on the way up some shares take the stairs, others take the lift and others get distracted and end up in the basement.
That’s why we need to learn to tell apart shares that aren’t directly affected by the crisis or the economic situation. A good option, then, is non-cyclical consumer stocks. These are, let’s say, the things people buy no matter what, because they’re considered essentials and aren’t usually passing fads. Among the most profitable non-cyclical consumer stocks on the IBEX we could find Inditex and Ebro, since both have risen more than 15% in the last quarter. Although they have dipped at times like every other stock, they recovered faster. Of course, if you invest in Inditex today (€65.47), expecting it to rise above €70 would be expecting too much, especially with all the analysts saying the stock is already too expensive.
Other shares that aren’t directly affected by the crisis are tech stocks. A technology company could go public at the very moment Europe is collapsing and it shouldn’t be affected. Quite the opposite: it would be the ideal refuge for those looking for a quick capital gain. However, if we mix Warren Buffett’s advice with mine, a tech stock is great for making some quick money but not for holding in your portfolio, although Google, for example, would be a very profitable company because of how diversified its business is. One of the most profitable tech stocks this quarter has been Nokia, with a 35% return, even though Nokia has lost value over the last 12 months.
I’m sure Facebook would gain value quickly once it lists on the stock market, although who’s to say Facebook isn’t a passing fad that will be overtaken by another company in 5 years, or that in 10 years people simply won’t be tired of using it? It isn’t likely, but it’s a possibility, just as it’s possible that the big social network could face multi-million fines for various reasons, such as breaching its users’ privacy or storing data improperly.
Oil stocks aren’t directly affected by the economic crisis either, although they are affected by crises and conflicts in certain countries. As we’ve seen, Repsol has been the biggest riser on the whole IBEX over the last quarter.
Investing in banks and insurers in these uncertain times is very risky. Even so, Mapfre has grown in this last quarter and some experts predict it may keep climbing thanks to its expansion in South America. As for bank stocks, they’ve been among the hardest hit by the markets and there’s still uncertainty because of the economy. Even so, some bank stocks are so cheap that it’s hard not to consider investing in one of them. Of course, with the doubts about the future of the euro and the possibility of bailouts within the eurozone, they aren’t the most recommended, and that’s precisely why they could be the most profitable in the long term. Contradictory, isn’t it?
See also: Saving money alone won’t make you financially successful
Other shares that have had an excellent quarter are Ferrovial, Acciona, Abertis and OHL.
In short: when markets fall, an ideal moment to invest appears, as long as you choose, following the advice of the great masters of investing, a company with potential that is going through a temporary rough patch because of the general situation, a company that isn’t directly tied to whatever is causing the market to fall, a company that was there, is there and will be there no matter what. If, on top of that, you buy the company’s shares because they’re very cheap, so much the better, but be careful not to get carried away by a bargain (sometimes cheap turns out to be expensive). And don’t forget dividends: when we plan to hold shares for the long term and they aren’t cheap, the dividend really does matter.
Featured image: Malopez 21, CC BY-SA 4.0, via Wikimedia Commons.
