It has been a tough time for investors.  Stock prices hit highs in early February, but since then, prices have fallen … painfully, if you own those stocks.  That list of painful stocks includes many prominent, actively-traded stocks.  So even if you own shares in mutual funds that include stocks, your portfolio’s value has probably declined.  

In a reversal of norms, mutual funds that focus in bonds are doing somewhat better – for the moment.  But bonds preserve value in a downturn; they are not the moneymakers that stocks – the right stocks – can be.

When buying stocks, understanding the fundamentals is the most important consideration.  “Fundamentals” are a company’s business model, the quality of its executive team, its product quality, its degree of product innovation, how it compares against its competitors, the loyalty of its customers, and the impact on its business of national and international political and legal issues.  Issues like the COVID epidemic and even the weather are also factors which should not be ignored.

It is not always easy to be aware of all those factors.  Sometimes an investor must also infer what is impacting a stock by looking at its recent history (but remember:  statistics are never proof).  Comparing a stock’s price over the recent past can serve as an indicator worth understanding.  

That comparison can include the percentage change in a stock’s price:

* for the past month (30 days);

* for the past 3 months (90 days);

* for the past year (365 days);

* sometimes, even for the past week (7 days);

* for the current month;

* for the current year.

Changes over a given period of time should be “typical” – i.e., the percentage change for the past year should be greater than that for the past 3 months, which should be greater than that for the past week.

If the trend is not typical, then what is the cause?  Is the trend for all stocks?  Is it for a given category of stocks?  Or is the non-typical trend for only one stock?

Finally, knowing how a stock is doing for the current calendar year and even for the current calendar month is worth knowing.  There are always year-end and month-end factors affecting the economy generally.  Other factors can have a major impact as well, such as the departure of a CEO, fire or flood in a plant, etc.  

The market experienced an all-time high in early February.  President Trump’s actions since his inauguration on January 20th, good or bad, are having a big impact as well.  The market tends to react negatively to changes that affect the economy.

The S&P 500, the best measure of market trends overall, hit a high in mid-February (6147.43).  Since then – only a month and a half later, it has dropped almost ten percent (to 5580.94). That is a serious downturn, by any standard.

Individual stocks have experienced similar changes.

Tech stocks:  Apple, Accenture, Adobe, AMD, Applied Materials, and Nvidia – usually the favored darlings of investors – are all down 10 to 15 percent.  Microsoft, however, is only(!) down 8 percent.

Retail Sales stocks:  Walmart is down over 17 percent, but Costco, Macy’s, Home Depot, and Lowes are only down 11 to 13 percent.  Coca-Cola is actually up nine percent.

Entertainment stocks have been hit by this downturn.  Amazon is down over 17, and Disney is down over 10 percent.

Financial stocks like MasterCard, Visa, and JP Morgan are doing somewhat better:  down only about 5 to 6 percent.  

Medical stocks are often “contrary” stocks, attracting investors when the favorites are declining.  Johnson & Johnson is up over 6 percent.  McKesson is up almost 11 percent.

Oil stocks Exxon and Chevron, usually boring also-rans (but with good dividend rates), are actually up over 6 percent.

With so many stock prices dropping so far, investors tend to be attracted to higher-dividend stocks.  AT&T, one of the best dividend stocks, is up over 13 percent.

A downturn like this one is a difficult time for investors.  The value of your portfolio is your score card.  Losing ten percent of your portfolio’s value is painful.  Upturns make it easy to be complacent about the make-up of your portfolio, but downturns punish complacency.  

Make a downturn a wake-up call.  It is hard to figure out which stocks have turned into losers, and which are just in a minimal, temporary decline.  If in doubt, sell some of a stock; if you own, say, 500 shares, sell 100; then a week later sell another hundred, if you decide you should.

If you think virtually all stocks are in decline, leave the money from those sales in cash.  You will never be able to precisely determine when the market has reached the bottom of a downturn, but when you think the market is about to recover, begin buying again.  Buy a fraction of what you could buy:  if you are thinking of buying 500 shares, buy 100, then wait.  Buy more later.

The economy changes over time.  It is dynamic; it is never stagnant.  Barring government interference (which is harmful), the economy grows.  It is normal human behavior to make life better.  That translates as a composite sum into economic growth (barring government interference).

The object is not to return to the exact portfolio of stocks you had before the downturn; the object is to build an even better portfolio – i.e., one better suited to profit from the “new” economy of the impending upturn.

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