Pre-Growth Investing – Taking Advantage of Downturns

Pre-Growth Investing – Taking Advantage of Downturns

by David Redmond on 12 Feb, 2012

If you’re lucky enough to have money to invest during a downturn, you could be in line for some excellent returns further down the track. Although most people are counting the pennies when the markets go down, the savvy (and certainly not risk-averse) investor is presented with an excellent opportunity.

After all, the golden rule of successful investing is ‘buy low and sell high’. If you can pick a winner while everyone’s down, you will be sticking to this rule better than anyone.

The first trick is having the money when no one else does. The second trick is in picking the winner. Doing so during a downturn can be notoriously difficult, it’s relatively easy to spot a winner on the way up, but when everyone’s on the mat, they can all look suspiciously similar. When even top investment banks like Lehman Brothers are collapsing, how do you know who’s going do come out on top?

There is no sure fire way. The best advice is to keep a watchful eye on both the financial markets and the daily news to keep up with what’s going on and see who’s likely to benefit, as well as the possible need to get out of a company or sector.

If you paid enough attention during the Wall Street crisis of 2008, you might well have picked Goldman Sachs as the winner and could be reaping the rewards now. Of course, you could have picked wrong, but that’s the risk investors always run. Companies and sectors receiving state help have obviously been deemed ‘too big to fail’ meaning that even if their recovery isn’t stratospheric at least your investment is protected.

Investing during a market downturn is certainly a risky business, probably more so than at any other time. However, not only does it help the economy to recover (investors are hard to find during recessions, but they’re sorely needed to restart growth) but it could present a golden opportunity. You’re never more likely to find shares to buy low that you can later sell high than you are during a downturn.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.