If a rising tide lifts all boats then it would also makes sense that an ebbing tide will lower all boats too. If that is the case then this may be an opportunity to buy some undervalued securities at a low price. That must have been the premise of one of my college students who posed a question to me recently.
There is a publicly traded company of local interest whose decrease in share price was all over the local news. My student asked if she should consider purchasing that company's stock now. I think she was looking for a simple yes or no response, but I would have been remiss if I did not use the question as an educational opportunity.
I prefaced my response by telling her that I am a financial planner, and not a stock picker. I look at the big investment picture in terms of risk profile, asset allocation, and overall strategy. I do not make individual stock selections for my clients and rely on investment managers for that expertise. But I also added that my real answer to her question depended on exactly which question she wanted answered.
If she was asking "Is this a good time to buy this particular company?" then I would point out to her that the price is certainly depressed. I do not know if it will go lower, but I doubt the company's shares will remain depressed forever so this would be a better time to buy than waiting for the stock to recover.
If she was asking "Should I buy this particular company or would there be a better opportunity elsewhere?" then my answer would be I do not know. To answer that would require a complex and detailed analysis of every company. Despite the importance of this company locally, I would be surprised if there was not a better opportunity someplace else.
I think the question she should be asking is "Should I be buying a stock in a single company?" and the answer to that question is most likely not. Building a diversified investment portfolio from individual securities is a daunting task which requires both enough money to buy many different issues as well as the expertise to understand the relationship and impact of each security on the overall portfolio. Frankly, most investors do not have that expertise. That is why most investors properly rely on mutual funds and other managed investment programs for that expertise.
In this type of environment, there are very few questions which can be answered with a simple yes or no.
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