Bear Market: Buying Opportunity?

It’s easy for stock market investors to be discouraged these days, with the market taking such a hit in the wake of the COVID-19 virus. But I’ve been told that a profitable stock market strategy is to buy low, sell high, and by that logic, today’s prices offer a much better deal to investors than stock prices a month ago.

I don’t pretend to be able to foresee short-term moves in stock prices, so I don’t know whether the market will fall further, and if so, how much further. But I’m more confident in predicting that over the long run, stock prices will rise, as they have done for centuries.

I recall the dive in stock prices as a result of the 2008 recession leaving stock investors discouraged, but in hindsight that was a buying opportunity and the market has roared back . . . until the past few weeks.

Has the stock market overreacted to COVID-19, or will the effects of the spreading virus really hurt the economy that much? My inclination is to think that the market has overreacted, although I’m no expert in communicable diseases, and even the experts are uncertain about the future spread of the virus. And even if the market has overreacted, it could still overreact more and fall further before rebounding.

John Templeton, friend of the Independent Institute and one of the twentieth century’s most successful investors, said, “Invest at the time of maximum pessimism.” That might be now.

I claim no ability to be able to time the market, which may still fall more. But I am confident that stock prices will be higher in five years than they are now.

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
Beacon Posts by Randall G. Holcombe | Full Biography and Publications
  • Catalyst
  • Beyond Homeless