During a recession, investors must look for opportunities to revisit their capital allocation and try to rebalance as required to align their portfolios with their long-term goals and risk tolerance. The silver lining of investing during a recession is that they do not last forever. Kavan Choksi mentions that this would be the ideal time to invest in value stocks of renowned companies at a relatively low price and subsequently sell them off at high profits when the situation relatively normalizes.
Kavan Choksi marks the beneficial aspects of value investing
Value investing capitalizes on the fact that there are opportunities for profits in buying low priced shares of a company that is strong but temporarily unpopular companies. In many cases, investors panic and sell off the shares of prominent companies during a recession, thereby bringing down their share prices. But this does not mean essentially that the company becomes weaker. In fact, its prices my rapidly climb up as the economy stabilizes, allowing value investors to enjoy a good deal of profits.
Regardless of the income or experience of an investor, they can easily engage in value investing. This investing approach is more about time and patience, rather than the amount of wealth an investor has. In fact, patience is likely to be the most important factor in determining how successful a person shall be as a value investor. After all, this strategy is all about waiting out short-term market fluctuations for the purpose of benefitting from long-term returns.
As per Kavan Choksi, strategic value investing provides one of the best routes to profiting from the stock market. By selecting stocks that are trading for lower than their intrinsic value, due to economic turbulence or something else, one can effectively take advantage of the opportunity and earn high returns over the long-term. As value investing is largely based on selecting solid stocks that are temporarily selling “at a discount”, this investment strategy provides investors with the chance to own relatively inexpensive shares of proven businesses that have high odds of bouncing back and outperforming the market over time.
One of the prime inherent advantages of value investing is that it is subject to much less volatility and risk than most short-term investment strategies. As the investor is not just buying stocks today and selling them off tomorrow, they shall not have to get caught up in the everyday whirlwind of market price fluctuations. They also do not have to spend each day monitoring the performance of the various stock holdings, as that performance would revolve around a long-range strategy. A recession period may last for just a couple of months or even beyond. Investors need to be patient during that time, and not worry about the stocks. Their goal must be to wait and see how the share prices go up as the recession ends. Long term investing is useful in reducing risk in the investment portfolio as attempting to time the profitable purchase and sale of stocks over the short-term is one of the biggest contributors to investor loss.