Stock Market Crash Coming: 2 Stock Investing Strategies

We believe the stock market has recovered too fast and that stock market crash 2.0 is coming.

COVID-19 is undoubtedly the biggest drag on the global economy. The pandemic has pushed up unemployment rates and pulled down GDP, as it swept through and destroyed multiple industries (think tourism, hospitality, brick-and-mortar retailers, retail real estate).

Some are optimistic about the situation, thinking that vaccines can save the day. Unfortunately, even when effective vaccines become available, it’s going to take quarters, if not years, for the economy to recover.

Additionally, COVID-19 isn’t the only thing that’s weighing on the global economy. Let’s not forget about trade wars, anti-racism protests, low energy prices, high debt levels, and the upcoming U.S. presidential election. They all add pressure and or uncertainty to the economy.

With the above backdrop in mind, here are two stock investing strategies you can consider. 

Stock investing long term

It’s best to have a long-term investment horizon to allow your investment theses to play out. In this highly uncertain market, I prefer to hold dividend stocks. Dividends allow shareholders to generate periodic returns without having to sell shares. 

During the recent market crash, we bought shares of value stocks like STORE Capital (NYSE:STOR), General Dynamics (NYSE:GD), and Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) that pay nice dividends.

We’re highly confident in the safety of GD and BIP’s dividends and hopeful about STOR’s. 

STOR is a triple-net lease REIT whereby 99% of its tenants pay all the property expenses, including real estate taxes, building insurance, and maintenance.

Source: Q1 2020 Investor Presentation (pdf), Slide 40 – STOR’s dividend growth from 2015-2019

Its Q1 results were fine with its adjusted funds from operations (FFO) per share rising 2% year over year and a payout ratio of 71%. However, STOR will get a big hit in Q2 due to mandated closures in April and May. 

The reopening of businesses has occurred this month, which we hope will lead to a continued recovery. We’re keeping our fingers crossed that progressive reopening won’t trigger huge spikes in COVID-19 cases. 

Management’s conservatism in running the business allowed the REIT to maintain its quarterly dividend of $0.35 per share that’s payable on July 15. Currently, STOR yields 5.7%.

GD is a safe haven from this pandemic. COVID-19 should have little impact on GD’s bottom line. Its payout ratio of 39% is also very conservative. So, its 2.8% yield is safe. That said, I’d encourage interested investors to aim for a yield of at least 3.2%.

BIP’s diversified infrastructure portfolio is largely resilient to the pandemic. The virus primarily impacts BIP’s port and toll road businesses, which make up about 18% of the portfolio. The quality utility yields about 4.6%. 

Making short-term trades

Despite my affinity towards a long-term investing strategy, sometimes we get “accidental” gifts from the market such that we can book nice gains opportunistically. 

With this strategy, we aim to buy value stocks and book quick gains. Be mindful that this strategy is much riskier than the long-term investing strategy. 

Accordingly, we only make small bets with these trades. We would also be alright holding the stocks as a longer-term investment if they don’t play out in the short term. 

As examples, we booked quick gains in Teck Resources (TSX:TECK.B)(NYSE:TECK) and Alaris Royalty (TSX:AD). Specifically, we booked a 34% gain in Teck in two months and a 12% gain in Alaris in a week. 

Other than reading stock charts technically, it’s needless to say that luck was on our side. 

Investor takeaway

The stock market can crash again this year or next year. There’s just too much uncertainty.

It’s safer to invest with an investment horizon of at least three to five years in quality businesses. Investors can also use a small portion of their portfolio for short-term trading, but this is much riskier than investing for the long haul.

Generally, we prefer to invest in dividend stocks such that we can get periodic returns from dividends while holding the stocks.

What’s your investing strategy? Do you prefer long-term or short-term investing?

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Disclosure: As of writing, we own shares of STOR, GD, and TSX:BIP.UN/BIPC.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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