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The US and many other countries are now in an economic crisis. However, with all that was going on I don’t believe anyone has the right to say they did not see this coming. There are many results from the crash of 2020 that I did not expect. But then again I do not believe even the economic experts could have predicted all of this would happen. In this post I will establish the most important lesson I have learned from the crash of 2020.
A Bad Business Is A Bad Business
The most important lesson I have learned from this crash is that a bad business is a bad business. Sure that may sound obvious but if that is true why do people invest in companies that are at the very least questionable? I am not talking about giving a CEO millions to start up their business or becoming a partner in a business, but even as little as purchasing a single stock in a questionable business. In a previous post, I have written about how stocks are partial ownerships to a business. Then why do we treat stocks like pieces of paper? I’m not just talking to you, but myself.
Looking For Sales
When the stock market is going very well (which surprisingly was the case a few months ago) few stocks seemed preferable. In fact there were only two particular stocks on sale that I was thinking of investing in. I will not mention which ones they are, but both of them were very large companies. They were not doing too well because they were facing problems with certain products and/or lawsuits. However these companies were very large and had multiple products in their portfolio. I did not imagine their issues would be too large to inhibit growth. I thought their issues would pass. But if someone were to ask me if I would like to be the controlling owner of the company, I would say no.
Sales Are Not Always Good Deals
I was blinded by the fact that I could not find other stocks that appeared to be on sale that I convinced myself that these companies would be good buys despite their…flaws. So I thought the flawed companies could turn around. Even if a crash happens I thought they would not loose a lot of money because they were already on sale.
I was dumb! Luckily I did not invest in either of those two companies. One of these companies lost about 50% of their stock value in the recent crash of 2020. The other one, a whooping 66%. These were not sales. Are they now? The one that lost 50%, maybe, but it is still questionable. The one that lost 66% is still facing problems. I would classify this stock as a falling knife.
Only Buy Good Companies
These companies were questionable before the crash and they are even more questionable after the crash. I was having thoughts about whether I would like to buy these stocks before, but almost all of them are gone now.
I should not have seen these assets as merely stocks with a price and possibly dividend. I should have seen these as potential proofs of ownership. Maybe I was seeking potential profits from these companies, but not ownership. If you do not want to own the company it is likely you believe the company is not profitable. At least not now.
As Warren Buffett said: “it’s far better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price.” I need to remind myself about this rule because it seems to be the most universal rule when it comes to investing.
New Sales Will Come Up And Unprofitable Companies Will Become Profitable
In case you have not been paying attention to the stock market recently, practically every company is on sale now. Wonderful companies will have lower prices in the future and that will not be a reflection of their quality. I have previously established how stock prices do not always reflect the quality of the company. When the price does match the quality that means you need to jump on or off quickly depending on the situation. If you see a wonderful company on sale AND you have money you are comfortable investing with, now is the time.
One company I was thinking of investing in before the previous two I mentioned is now at a very low price. Unfortunately, when I was thinking of investing in it the price rose later that week. I lost that opportunity. Now it’s at an all-time low and as far as I am concerned, not at its own fault. When I have money I am comfortable investing in it, I will take that opportunity. If the economy recovers before I invest, well I missed my opportunity.
Maybe a new opportunity will pop up or maybe even the other two companies will become profitable. I need to embrace the mindset that I need to chose a stock based off the company itself and not the price. If I do not like the price then I should not simply find a better priced substitute, but from a company of quality. A very simple concept yet it took the crash of 2020 for me to learn that. Well I never said I knew everything about finance. In fact, I made Forge Your Wealth to not only teach other personal finance, but to teach myself in the process.
2020 is here. War tensions have risen, a new pandemic is upon us, a petroleum price war is going on, and the economic crash of 2020 is here. Not a bad start to a decade. I’m not joking that much. If you are reading this post it’s not the end of the world. We can and will recover from this. I am still calm with everything going on and have learned a valuable lesson from these seemingly disasters. So keep in mind that not only could the crash of 2020 be a good financial opportunity, but a great opportunity to learn how to forge your wealth.