Many people are wondering how to invest their money during this 2022 market crash. There are many different ways to invest your hard-earned money. I’ve outlined my thoughts on what you should do now.
I believe that the best way to invest during a crash is to focus on companies that will be less impacted by the downturn. Historically, companies in the healthcare, food, and technology industries tend to recover faster.
During the COVID-19 crash in 2020, I was extremely afraid of executing a position when the market crashed. As a new investor, I made my fair share of investing mistakes. I bought into fundamentally weak companies, I was FOMO, and did not do my own due diligence.
Now, I am ready!
Today I will be outlining how I will invest my first US$10,000 if I have not started investing.
Why should you invest in a market crash?
There are many reasons why an investor might choose to buy during this market crash. For one, crashes don’t last forever and eventually the market will rebound. By buying during the crash, you can get some great deals on stocks and other investments that will be worth more once the market starts to recover.
Additionally, if you have a long-term investment strategy, buying during a market crash can help you average out your overall returns. And finally, if you have cash available and are comfortable with taking on more risk, investing during a market crash can help you generate higher returns than if you had invested before or after the crash.
Of course, investing during a market crash comes with its own risks. The biggest risk is that the market may not rebound as quickly as you expect or that it could take longer for your investments to start generating positive returns. Moreover, if the market crashes hard (similar to 2001), it could take years for it to fully recover. Hence, before investing during a market crash, make sure you understand the risks involved.
1. Focus on quality growth stocks
I believe that the best way to invest during this crash is to focus on quality growth stocks. By quality growth stocks, I mean companies that have a history of strong financial performance and have a bright future ahead of them. These are the types of companies that will be able to weather the storm and come out stronger on the other side.
There are a few things to look for when considering a quality growth stock.
First, you want to look at the company’s financial history.
- Is the company consistently profitable?
- Does the company have a strong balance sheet?
- Does the company have a strong economic moat?
- Does the company have a long growth runway?
These are important indicators of a company’s ability to weather tough times.
Next, you want to look at the company’s growth prospects.
- Is the company in a growing industry?
- Does it have new products or services that are poised for success?
Companies with strong growth prospects are more likely to be able to continue growing even during tough economic times.
Finally, you want to consider the company’s valuation. Quality growth stocks tend to trade at premium valuations, but this is justified by their strong fundamentals and bright future prospects. Even if a quality growth stock is slightly overvalued, it is still a better investment than most other options during a market crash.
If you focus on investing in quality growth stocks, you will be well-positioned for success even during this difficult period.
How I would invest US$10,000
Assuming you have $10,000 to invest, here are my 5 personal picks:
Invest in Market Crash Stock #1. Alibaba
Alibaba (HKG: 9988) is famously known for its e-commerce platform. While on a deeper look, they are a conglomerate with various businesses encompassing what we know as Alibaba today. They are #1 cloud provider (Alibaba Cloud) in China, #4 cloud providers in the world behind the big 3 (AWS, Azure and Google Cloud). Ant Financial is the second largest financial services group behind Visa via Alibaba’s fintech arm, Ant Group. Alibaba has market dominance in B2B (Alibaba.com), C2C (Taobao), and B2C (Tmall) marketplaces in the world. It is also expanding its Digital Media and Entertainment Arm (Youku, UC Browser, Tmall TV, Alibaba Music etc) and Logistics Arm (CaiNiao) into the beast they are today. There are several risks to consider, such as regulatory risk and forex exchange risk being the largest. We are still fairly confident of the opportunity which Alibaba entails. You can check out our Alibaba analysis here.
Invest in Market Crash Stock #2. Alphabet
Alphabet (NASDAQ: GOOGL) or Google as we know it is the world’s largest online advertising platform. The company generated US$257.64 billion in revenue in 2021, mostly from advertisements from online properties like Google Search and YouTube. The road ahead is long and well-paved as the number of Internet users today is 5.07 billion. The total number of internet users around the world grew by 171 million in the past 12 months – that’s an average of almost half a million users every day. The digital advertising industry is also expected to grow to US$517.5 billion by 2023. Amid such favorable conditions, Alphabet’s recent earnings were not up to analyst’s expectations as they normally tend to blow them away. This could be due to the rising interest rate environment where companies are trying to cut back on expenses. Thus, it impacted Alphabet’s revenue due to some advertisers pulling back on their ad spending. Companies that slowed ad spending included those in financial services such as insurance, mortgages and cryptocurrencies. You can check out our Alphabet analysis here.
Invest in Market Crash Stock #3. Tencent
Tencent (HKG: 0700) is one of the highest grossing multimedia companies in the world based on the revenue. It is also the largest company in the video game industry in the world based on its investments with Tencent Games being the subdivision of Tencent Interactive Entertainment Group (IEG) focused on publishing of games. WeChat is the #4 favorite social media platforms from internet users aged 16 to 64. Furthermore, Tencent’s venture capital arm has many top brands you and I may know. They are the likes of League of Legend, Shopee, FarFetch, Call of Duty, Clash of Clans, Gojek, Zoom etc. Tencent has its own cloud computing business as well being the #2 service providers by revenue. They are #1 by subscriptions in Long-Form Video (Tencent Video), #1 news services by MAU in News (QQ.com), #1 music services provider in Music (Tencent Music Entertainment) and #1 Online Content Library and Publisher in Literature (China Literature). SImilar to Alibaba, Tencent is facing regulatory risks and forex exchange risks. While Tencent could be a slightly safer bet compared to Alibaba, we think that both companies will yield us great returns in the coming years. You can check out our Tencent analysis here.
Invest in Market Crash Stock #4. Meta
Meta (NASDAQ: META) business model is like Alphabet’s except that they sell advertisements through their social media platforms such as Facebook.com and Instagram. Since Q3 2008, Facebook’s number of monthly active users grew from 100 million users to 2.96 billion users in Q3 2022. This creates a network effect for them, making Facebook’s platform sticky as it’s very difficult for users to ditch their friends and family on the platform. Likewise, Facebook’s revenue has grown from US$272 million in 2008 to US$117.9 billion in 2021.
Invest in Market Crash Stock #5. Amazon
Amazon (NASDAQ: AMZN) is the market leader in e-commerce and cloud computing. Through the years they have gained loyalty from customers from their sole obsession of making them happy — delivering high quality products at everyday low prices. Amazon passes down cost savings to its customers by spreading fixed costs over a larger number of goods sold. We must not forget that although Amazon is already huge with US$469.82 billion earned in revenue in 2021, they have more room to grow with a foot in multiple industries. The global e-commerce and cloud service market alone is expected to grow to US$8.15 trillion and US$533 billion respectively by 2026.
After conducting my research, I intend to allocate a fifth of my capital to each stock. While $10,000 is a good starting point, it is not a large sum, and I prefer not to over-diversify my holdings because this incurs excessive brokerage fees. I’ve also significantly reduced my risk of permanent capital loss by investing in great businesses with a margin of safety. If I want, I can gradually increase my portfolio to ten stocks by investing in a new one every time I have another US$2,500 to spare.
Why should you not be afraid?
There are a lot of reasons to be afraid during an economic downturn or crash, but there are also a lot of reasons not to be. Here’s why you shouldn’t be afraid:
- Economic downturns and crashes are usually temporary. They may last for a few months or even a few years, but eventually the economy always recovers.
- Even during a downturn, there are still opportunities to make money. For example, you can buy stocks at bargain prices and then sell them later when the market recovers.
- You can also use a downturn to your advantage by saving money on things like travel, entertainment, and luxury goods.
- Finally, remember that even though an economic crash may be scary, it’s not the end of the world. There have been many crashes throughout history, and the world has always bounced back.
Finally, I want to emphasize that this is NOT a recommendation for you to buy or sell any stocks. I’ve laid these out to give you ideas on how to build your portfolio. You should never substitute other people’s opinions for your own due diligence when it comes to stocks. When you know what you’re doing, you won’t panic if the stock market goes against you. There is no better time than a market downturn to invest in your future.
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This article is inspired by Fifth Person.
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