You may have heard a lot of people saying that you should invest when the market is down, and sell when the market is up. Or you may have heard the saying “be greedy when others are fearful, be fearful when others are greedy.”
Even when copying people in eToro (where you just essentially automatically copy what stocks the person is buying or selling), the same principle applies. You just need to copy when the person you are copying has a negative performance for the month. However not all people have the courage to actually copy more when the stock market is down. Here are some of the reasons we found out from copy traders:
1. They feel that the market will go down further
Most people are afraid that if they copy now, the market will go down further. For example, the person you are copying has a negative 5% month to date return today there is indeed a chance that return can go further to negative 10%, however this is also a chance that it will go up again and become positive. Unless you are very certain that the stocks will continue to decline then not investing/copying yet is a good decision. However, if you are not 100% sure that it will decline further in the coming days, it is good to buy some stocks while it is still negative because maybe tomorrow you can’t buy them at a negative again.
Regardless of the type of news out there, mature investors know that when investing in the stock market, bad news is good news. As long as the stocks that you are investing in are continually selling the products they are selling (or at least not significantly declining in sales) and the company is not going into too much debt (that it will cause the company to be bankrupt in the future) then buying more stocks during negative times is the best decision to make.
The mjtfernandez copy trading fund is designed to withstand negative returns because the fund invests only in dividend paying stocks. This means that the stocks invested in give regularly cash payouts to investors usually every quarter as share of net income. Usually when the market declines or the economy is doing bad, these companies can still survive the economic downturns by stopping dividend payouts to increase cash balance of the company. This is not the case however if the company you are investing is not paying dividends.
Further, companies that are dividend paying are the companies that are favorites of investors when the market is going down because these companies continue to make money for the investor through cash dividends even if the price of stocks is going down. Thus, these companies do not go down significantly during negative periods.
Add to that, the mjtfernandez fund regularly monitors the company it is investing in for possibility of bankruptcy. We do that in two ways, by monitoring the current assets vs current liabilities and monitoring the debt versus equity. This insures that the company will not be bankrupt in the near future. Which means that in the meantime while you are waiting for the stock to recover, you can just sit back and receive your dividends and if the company is continually selling its products, the stock price will eventually go up again when others are no longer fearful.
2. Second reason why people do not invest in stocks is because they think the companies invested will go bankrupt as the price continues to go down.
It can be a fear for investors that if they invest more and when the stocks are continually going down, there is a chance that the company will go bankrupt. However, declining stock prices does not mean that the company is selling less of its products and reverse is also true. Increasing stock price does not mean the company is selling more of its products.
Bankruptcy occurs when there are more debts than assets of the company. This means that the company is now unable to pay its liabilities with the available assets it has.
However bankruptcy does not occur in an instant. There are signs when a company is going bankrupt. These signs are being picked up by the investment team of the mjtfernandez fund such as short term assets are lesser than near term liabilities. Or when the total debt is about to reach 200% versus equity/net worth of the company.
Aside from this you can tell that a company is going bankrupt if the net income is continuously declining. Which means that the company is not selling as much products as it should be selling than last year. Or if the expenses of running the business grows faster than the growth of the revenue, the net income will continually go down and can cause future losses. Again, these are being monitored by the mjtfernandez fund investment team. Further, a regular fund management report is being given by the mjtfernandez fund so that the investors are regularly kept up to date. Also a regular Q&A session is done by the fund manager so that investors can ask questions regarding the companies invested in by mjtfernandez fund.
Always remember, declining stock price does not mean lesser people are buying their products, so it is possible to buy those stocks at a low price even when the products are selling like pancakes to their clients.
3. Lastly, they feel that the market will no longer go up again.
I remember last March 2020 (COVID full blown) when everyone was panicking and thinking that it is the end of the world, the stock markets were plunging. That was the best time to actually select stocks that are still selling more of their products. Just make sure that they are not prone to bankruptcy.
If you have done this in March 2020, you can have easily doubled or tripled your money after. This underscores a fact that people are very fearful. Most amateur investors make decisions based on fear. They sell stocks thinking that it will never go up again. That is why many people lose money when investing in the stock market because they are fearful or lack patience.
Always remember, WHEN INVESTING IN THE STOCK MARKET, BAD NEWS IS GOOD NEWS FOR INVESTORS. If you can spot those periods when the market is down and find stocks that continue to sell more of their products with debt levels that are not so high, you can be assured that these companies will eventually go up. Add to the fact that the mjtfernandez fund invests in dividend stocks, the companies will continue to pay dividends to their investors while waiting for the stock market to go up.
Now as to when the stock market will go up is always a matter of sentiment. But as to whether the company is selling more of their products or reducing their debt, that is not a matter of sentiment. These can be verified by checking the company financial statements to see if the company is continually generating income despite the downturn in the stock market. An analysis can also be done to project the possible demand of the products. Will the products continually be of use to the people in the future or not?
If you invest properly during market declines by investing in companies that continually sell more of their products, have low debt and have regularly dividend payouts despite their declining stock price, you can be assured that BAD NEWS IS ALWAYS GOOD NEWS AT LEAST FOR INVESTORS LIKE YOU.