Author: therawinformant

There is a very real possibility of a second stock market crash in 2020. Risks such as the upcoming US election, Brexit and, of course, coronavirus could cause investor sentiment to weaken.

However, a decline in stock prices could present buying opportunities. Through buying high-quality stocks when they trade at discounted prices, it is possible for long-term investors to generate high returns as the economic outlook improves over the coming years.

High-quality stocks

A second stock market crash is likely to be caused by uncertainties surrounding the economy’s future prospects. This could mean that the operating conditions for many businesses come under pressure.

Therefore, it could be logical for investors to purchase companies with strong balance sheets and access to sufficient liquidity to survive a period of weak sales. They may be better placed to not only still be in existence in a few years’ time, but could also benefit from the demise of their weaker sector peers through increasing their market share.

Identifying the strongest businesses in a sector is subjective. However, measures such as debt levels, the amount of cash a company has on its balance sheet and its ability to access multiple forms of capital should it be required may help you to unearth the best stocks to buy should there be a further market crash.

Undervalued stocks in a market crash

A market crash can provide an opportunity to buy shares when they trade at low prices. However, this does not mean that investors should simply buy the cheapest shares they can find. Many stocks could be cheap because they face difficult outlooks, and they may fail to ultimately recover from their low price levels.

As such, it may be prudent to instead focus your capital on those shares that trade at a discount to their intrinsic value. This could mean that they are not among the cheapest shares around, but that they offer the best value for money based on their quality. It may be more profitable to buy more expensive companies with better prospects, than cheap stocks with difficult outlooks.

A long-term strategy

It is difficult to ascertain when a market crash will end and give way to a sustained bull market. Therefore, while it can offer buying opportunities, there is a chance of paper losses being sustained in the short run while a stock market fall is taking place.

This means that investors should adopt a long-term strategy when buying shares in a downturn. History shows that the stock market has always bounced back to post higher highs after even its most severe declines. The same outcome is very likely after this year’s challenges, which could make it a good time to start building a diverse portfolio of undervalued, high-quality businesses.

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Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post If a second stock market crash arrives in 2020, I’d follow this plan to capitalise on it appeared first on Motley Fool Australia.

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The past success of investors such as Warren Buffett means that they can offer worthwhile views on where to invest today in what is an increasingly uncertain stock market.

While risks are high, and there is an ongoing potential for a market crash, Buffett’s long-term approach to investing could lead to high returns.

Similarly, his focus on investing in industries he understands could be worth mirroring within your own portfolio.

Warren Buffett’s holding period

While many investors may be trying to work out whether a second market crash will occur, or if there will be a market rally, Warren Buffett has always adopted a long-term view when it comes to investing. This means that the short-term performance of an investment portfolio is unlikely to be of great significance – as long as it offers high total returns in the long run.

The past performance of the stock market suggests that this strategy could be sound. After all, the best buying opportunities are often found when investors feel that the risks facing the world economy and the stock market are at their highest level. In such a scenario, the stock market may have already priced in those risks, which can lead to wide margins of safety being on offer for high-quality stocks.

Investing in what you know

It’s easy for any investor to buy a wide range of stocks in multiple industries to try and diversify. However, this may mean that you do not have a sufficiently large understanding of those industries to identify the best companies at the most attractive prices.

Therefore, following Warren Buffett in terms of investing in sectors that you understand could be a good idea. He has focused his capital on a relatively small number of industries, and has been able to identify the most attractive companies within them.

This point may be especially relevant at the present time. Many sectors are undergoing periods of rapid change that could provide opportunities for disruptive business models, as well as difficult futures for existing companies. Through learning about the intricacies of a specific industry, you may stand a better chance of investing in those businesses with long-term growth potential.

Focusing on equities

Warren Buffett has invested the vast majority of his wealth in equities. Although the recent market crash may make other assets such as gold and Bitcoin more attractive in the eyes of some investors, the track record of the stock market suggests that it offers the most attractive risk/reward ratio of mainstream assets.

With stock prices being exceptionally low in some industries right now, there may be opportunities to obtain market-beating returns in the coming years. Investing now could improve your financial prospects, and allow you to enjoy greater financial freedom in the long run.

More reading

• Western Areas share price drops 5% following quarterly report
• How to take advantage of the surging gold price
• These BNPL shares have blown up since their IPOs
• ASX 200 drops more than 1%, IAG falls 7.5%
• Escalating US-China tensions are sending these ASX stocks jumping higher today

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Money to invest? I’d follow Warren Buffett to get rich appeared first on Motley Fool Australia.

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On Friday, the Western Areas Ltd (ASX: WSA) share price fell 5.2% to $2.53 following the release of its quarterly activities report.

What was in the announcement?

The company announced that it had total nickel production of 23,391 tonnes for the 2020  financial year. Costs for the 2020 financial year were $3.13 per pound, this was at the mid point of cost guidance. The average nickel price for the financial year was $8.50 per pound.

Western Areas had operating cash flow of $22.9 million in the final quarter of the 2020 financial year. It had cash at bank of $144.8 million and no debt at 30 June. Cash plus receivables and liquid assets were $190.6 million.

The company spent $33.2 million on mine development during the 2020 financial year which was below guidance. It spent $15.6 million on exploration which was at the lower end of guidance.

Western Areas announced that its Forrestania and Cosmos operations were materially unaffected by the coronavirus pandemic. The company also announced that the development of its Oddysseus mine had entered its final stage of underground rehabilitation for the project.

Western Areas Managing Director, Dan Lougher, commented on the results stating;

“It has been a busy quarter at Western Areas across many fronts, including exploration, project development and operations, while also advancing and building long term strategic optionality into the company via an investment in Panoramic Resources. Pleasingly, our assets continued to operate reliably and consistently, enabling the company to materially deliver into all FY20 guidance metrics, acknowledging a slight shortfall in nickel concentrate production, achieving 99.7% of guided production range. Most encouragingly during the quarter, our systemic and sustained exploration effort at the West Gawler Project in South Australia has started to show its potential as a new base metal region, with the first diamond drill hole at the Sahara target area intersecting a significant interval of mineralisation.”

About the Western Areas share price

Western Areas is a nickel producer and explorer with assets in Australia. It currently has two assets in production which, according to the company, are among the lowest cost, highest grade nickel assets in Australia.

In June, Western Areas announced that it had early success with two drill holes at Sahara, within the Western Gawler project in South Australia. The company discovered 104.42 metres at .21% nickel and .12% copper including 33.97 metres at .29% nickel and .17% copper. 

Also in June, Western Areas bought a 19.9% stake in Panoramic Resources for $28.6 million.

The Western Areas share price is up 56.17% from its 52 week low of $1.62, however, it has fallen 16.5% since the beginning of the year. 

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Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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