Well, its official, we’re technically in a recession for the first time in almost three decades.

Well, almost official. A recession is officially defined as two or more consecutive quarters of negative economic growth. We’ve only had one so far – the quarter ending 31 March. But since it’s almost a certainty that the quarter ending 30 June will reveal a massive economic slowdown, we can pretty much say today that Australia is in a generational first of a recession.

But what does a recession really mean for S&P/ASX 200 Index (ASX: XJO) shares? And how can we survive one with our wealth intact? To this end, here are three tips:

1) Remember cash is king in a recession

The first thing you should think about as we enter this recession is the regal supremacy of cash. Not as an investment mind you – cash is still lousy at growing your wealth. But it’s more important than ever to secure your cash and cash flow. Recessions are tragically a time when many Australians will be out of work. So I think it’s imperative that we all ready our personal finances for a potential shock. All jobs are safe until they’re not, and now is the time to hope for the best, but prepare for the worst.

So before you even think about investing during a recession, make sure you have a couple of months of living expenses saved up for that rainy day. Hopefully, the skies will stay clear for us all, but you will still want to have a raincoat in case it clouds over.

2) Don’t let ASX 200 volatility get the better of you

Recessions and ASX bear markets can be a great time to invest in shares at cheap prices for the long-term. But many investors don’t get to enjoy these opportunities because they do silly things with their investments amid the volatility that recessions can bring. Selling your shares at a loss, for example, is usually not a good idea in the midst of widespread market panic.

I personally have a rule of never selling in a bear market unless absolutely necessary – and I’m usually a net buyer of shares. This means that even if I had to sell off some shares in order to buy others, I would always try to avoid doing this in a bear market. So have a mental battle plan at the ready for what you might do with your shares in a recession-induced bear market. This will hopefully save you from making emotional decisions that cost you down the road.

3) Always remember there’s light at the end of the tunnel

Although not recently, Australia and the wider global economy have gone through many recessions before. And you know what these recessions all had in common? They all eventually ran their course and were replaced by good times once again. Yes, this recession is different – we haven’t had to deal with a pandemic like this for a hundred years. But all other recessions were ‘different’ too, and we eventually saw them off. I have full confidence that this time will, in fact, be no different.

More reading

• Why Alumina and Stockland share prices could outperform in coming weeks
• 2 ASX REITs to buy with $1,000 today
• We’re in recession. What does that mean for investors?
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• 3 of the best ASX 200 tech shares for your watchlist

Motley Fool contributor Sebastian Bowen 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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The CSL Limited (ASX: CSL) share price is having another off day on Friday despite the release of a potentially positive announcement.

In afternoon trade the biotherapeutics company’s shares are down 3% to $285.04. This means the CSL share price is now down 17% from its 52-week high.

What did CSL announce?

This morning CSL revealed that it has entered into a new, significant partnering agreement to accelerate the development, manufacture, and distribution of a COVID-19 vaccine candidate.

The agreement has been made with the Coalition for Epidemic Preparedness Innovations (CEPI) and the University of Queensland. It formalises the support provided by the company to the two parties since the onset of the pandemic earlier this year.

CEPI and CSL will fund the development and manufacture of the University of Queensland’s “molecular clamp” enabled vaccine. This is a transformative technology patented by the university’s technology transfer company.  It enables rapid vaccine design and production against outbreak viral pathogens.

According to the release, the university is aiming to take the vaccine candidate into a phase 1 clinical trial in July. Should its clinical trials be successful, a vaccine could be available for distribution in 2021.

While acknowledging that there is still a lot of work to be done, CSL believes its production technology can be scaled to produce up to one hundred million doses towards the end of 2021.

It would also subcontract other global manufacturers. This would increase the number of doses that can be produced and broaden the geographical distribution of vaccine production.

That is of course if other companies such as Moderna don’t get there first with the vaccines they have in clinical trials at present.

A “promising vaccine.”

Professor Andrew Cuthbertson, CSL’s Chief Scientific Officer, commented: “We are very pleased to be able to provide our scientific expertise and platform technologies to make a strong contribution to this critical joint effort with CEPI, the University of Queensland and others.”

“CSL will contribute to UQ’s promising vaccine with our proprietary adjuvant, MF59, made by Seqirus, along with expertise in process science and scale-up from our Australian facilities, managing advanced clinical trials and the large-scale manufacture of the recombinant vaccine,” he added.

The Chief Scientific Officer concluded: “Should trials be successful, this vaccine holds the potential to provide protection against this urgent public health emergency for Australians and those around the world vulnerable to this devastating virus.”

More reading

• Brokers name 3 ASX shares to buy today
• 2 ASX growth shares I’d buy before Afterpay shares
• Why Appen, CSL, Openpay, & Zip Co shares are tumbling lower
• The 10 shares that significantly move the ASX 200 index
• 3 top ETFs you can easily diversify your portfolio with immediately

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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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The Aumake International Ltd (ASX: AU8) share price is zooming higher today after the company announced it now offers leading Chinese-owned buy now, pay later (BNPL) services via its in-store and online channels.

AuMake is a specialist retailer that caters for Asian tourists and daigou personal shoppers in Australia and New Zealand. The company has a multichannel distribution network, selling Australian and New Zealand products online via owned and third-party channels, and through brick and mortar stores.

The company operates 15 stores under the AuMake and Broadway brands, located along the east coast of Australia and in New Zealand. These stores primarily cater to organised tour groups. The types of products on offer include skincare, health supplements, wool, honey and clothing.

Before we dig into the announcement, it’s important to note that AuMake sits at the very small end of the ASX with a current market capitalisation of around $21 million. At the time of writing, the AuMake share price is sitting 10.34% higher for the day at 6.4 cents after rallying as much as 27.59% in early morning trade.

What did AuMake announce?

This morning, AuMake revealed that it now supports BNPL services for its in-store customers and 40,000-strong online database.

Accordingly, AuMake’s customers will be able to use Alipay’s “Huabei” feature and Tencent’s “Fenfu” feature to make purchases.

Alipay is one of the most popular online payment solutions in China and falls under the umbrella of Chinese multinational giant Alibaba.

Huabei allows purchases made via the Alipay wallet to be paid using credit facilitates, including interest-free or daily incurring interest loans. According to AuMake’s announcement, Huabei has more than 190 million users, with 93% of them being under the age of 35.

Meanwhile, rival conglomerate Tencent is reportedly in the final stages of developing its Fenfu BNPL credit feature. Fenfu will offer similar credit facilities to Huabei that can be used by its 1.1 billion customer base.

Tencent recently made headlines in the ASX BNPL space after news broke that it had acquired a 5% stake in market darling Afterpay Ltd (ASX: APT).

AuMake believes the adoption of these BNPL payment methods will assist the company to penetrate a younger Asian customer demographic. The retailer concluded today’s announcement by stating it will continue to assess initiatives that provide a contemporary shopping experience for its customers.

According to Market Index, the 4-week average turnover of AuMake shares currently sits at only $26,821. So if you’d rather invest in larger and more liquid companies, the top ASX shares in the free report below might be more up your alley.

More reading

• Here’s why CBA shares are a good buy today
• 3 more founder-led ASX 200 shares to buy today
• 3 tips for surviving an ASX recession
• CSL share price lower despite COVID-19 vaccine news
• Why Alumina and Stockland share prices could outperform in coming weeks

Motley Fool contributor Cathryn Goh 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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The Alumina Limited (ASX: AWC) share price and Stockland Corporation Ltd (ASX: SGP) share price are likely to outperform even as doubts emerge on the short-term direction for the S&P/ASX 200 Index (Index:^AXJO).

The bullish take on both stocks come from Morgan Stanley, which is predicting that their share prices will rise in absolute terms over the next 60 days.

If the broker’s prediction is right, it would be a welcomed relief for shareholders as the aluminium producer and property group have underperformed since the COVID-19 outbreak.

The disruption to the global economy has weighed on the price of alumina, while pressure on residential and retail properties have put real estate stocks in the sin bin.

But this may be about to change.

Set for a rebound

“The alumina price is bouncing off support levels, with AWC offering a clean exposure (CY20e 5% aluminium revenue exposure),” said the broker.

“We expect unprofitable alumina producers to exit the market, given the ease of shutting and restarting refineries.

“We think 2020 will provide the low-point for alumina input costs, and cost inflation could help to buoy prices.”

Dividend looks safe

While no one believes the price of the commodity is set to surge, Morgan Stanley believes it will hover somewhere below the marginal cost of production of Chinese smelters, which is estimated at around US$285 a tonne.

At that price, Alumina is well placed to generate a decent dividend for investors at around 4.5% in calendar 2020 and 3.4% the following year.

It’s not a big dividend but it’s enough to compensate investors to hang on to the stock in anticipation of the alumina price recovery.

Morgan Stanley estimates there is a 70% to 80% chance that the Alumina share price will rise in the next two months. The broker’s recommendation on the stock is “overweight” (or “buy”) with a $2.05 a share price target.

HomeBuilder stimulates Stockland

Meanwhile, Morgan Stanley is tipping a 60% to 70% chance that the Stockland share price will trend in the same direction over a similar period.

This is thanks to the recently announced $688 million HomeBuilder grant from the federal government.

The grant gives eligible new home buyers a $25,000 handout for properties that are worth under $750,000.

Well placed to benefit

“This is in SGP’s sweet-spot,given 70-80% of its products are sold to owner-occupiers/First Home Buyers,and its properties are at the affordable end (eg Sydney house & land entry price c.A$720k),” said Morgan Stanley.

“This will be a material positive for SGP’s FY21 outlook as we transition out of COVID-19.”

The broker recently upgraded Stockland to “overweight” with a price target of $4.30 a share.

More reading

• 2 ASX REITs to buy with $1,000 today
• We’re in recession. What does that mean for investors?
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• 3 of the best ASX 200 tech shares for your watchlist
• The Kogan share price is surging higher following another positive business update

Motley Fool contributor Brendon Lau 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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Will the Qantas Airways Ltd (ASX: QAN) share price and other ASX travel shares crash back to Earth?

Forgive the terrible pun, but I think it’s a question well worth asking today.

The Qantas share price has been on an absolute tear in recent weeks. Just today, the Aussie airliner’s shares are up 3.9% to $4.66, at the time of writing. This follows a ~7% gain yesterday. Since 19 March, the Qantas share price has risen nearly 130% from its low of $2.03.

Other ASX travel shares have made similar movements in recent weeks. Webjet Limited (ASX: WEB) shares are up nearly 100% since late-April. And Corporate Travel Management Ltd (ASX: CTD) shares are up more than 180% since their 19 March closing price.

So what do these extraordinary moves tell us?

Well, at their lows, I think it’s safe to say these companies were being priced for bankruptcy or something close to it which would have involved massive shareholder dilution. The market has rapidly moved away from these assumptions, particularly with the easing of coronavirus-related restrictions. Along with this, the conceptual floating of a return to travel explains the massive share price increases we have seen in recent weeks.

Even just yesterday, Qantas announced it would be increasing the availability of domestic flights over this month and next. According to the release, the new services will see Qantas’ domestic capacity increase from 5% of pre-pandemic levels to 15% by the end of this month and even possibly up to 40% by the end of July, depending on state-level restrictions.

Is it too late to buy back into Qantas and other ASX travel shares?

On one level, I think the time for making massive gains in ASX travel shares is over. Opportunistic investors who bought in near the lows we saw in March and April would be sitting on handsome profits right now. But remember, these were high-stakes gambles, in my view. We are fortunate that coronavirus has not taken hold in Australia to the same extent as other countries around the world however the situation could have easily gone the other way.

Unfortunately, I don’t see too much further upside for the ASX travel sector from here on in. Yes, domestic travel looks to be on the right track for recovery. But I believe international travel will still be off the cards for at least another year, if not longer. And that’s where Webjet, Corporate Travel and, to a lesser extent, Qantas used to derive the lion’s share of their business.

Foolish takeaway

The future is still highly uncertain for these companies in my view, so I won’t be investing in them myself – especially at current prices. Warren Buffett’s first rule of investing is ‘don’t lose money’ and I don’t think ASX travel shares can live up to this rule for investors today.

More reading

• We’re in recession. What does that mean for investors?
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• Why Kogan, NAB, Qantas, & Sydney Airport shares are racing higher
• Qantas share price soars on plans to increase domestic flights
• ASX 200 rises 0.8%, travel shares fly higher

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. 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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Australia’s top brokers have been busy adjusting their estimates and recommendations again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

CSL Limited (ASX: CSL)

According to a note out of Citi, its analysts have retained their buy rating and $334.00 price target on this biotherapeutics company’s shares. The broker has concerns over lower plasma collections because of the pandemic. However, it appears optimistic that this could be partly offset by increasing demand for flu vaccines during the next northern hemisphere flu season. I agree with Citi on CSL and think its recent share price weakness is a buying opportunity.

Westpac Banking Corp (ASX: WBC)

A note out of UBS reveals that its analysts have upgraded this banking giant’s shares to a buy rating with a $20.50 price target. Although it acknowledges that trading conditions remain tough, the broker believes Westpac’s outlook isn’t as bleak as it looked just a few weeks ago. In addition to this, it believes a further deterioration in asset quality has reduced materially. I agree with UBS on Westpac and believe it and the rest of the big four are good options for investors right now.

Zip Co Ltd (ASX: Z1P)

Analysts at Morgans have retained their add rating and lifted the price target on this payments company’s shares to $7.00. According to the note, the broker is pleased with its decision to acquire New York-based QuadPay. It sees it as a lower risk way to enter the lucrative U.S. retail market. And while it expects the U.S. business to be loss-making over the short term, it appears to believe it is worth overlooking this to focus on its significant long term potential in the key market. While it is a high risk option due to its lofty valuation, due to its recent pullback from its high, I think it could be worth a small investment with a long term view.

More reading

• 2 ASX growth shares I’d buy before Afterpay shares
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• Why Appen, CSL, Openpay, & Zip Co shares are tumbling lower
• Is the Westpac share price too high?
• Why today might be a good day to buy NAB and Westpac shares

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and ZIPCOLTD FPO. 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 Brokers name 3 ASX shares to buy today appeared first on Motley Fool Australia.

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So you’re ready to invest your first $2,000 in ASX shares. Above all else, congratulations! In my opinion, far fewer Australians invest than they should. And in this low interest rate world we all live in, I think it’s more important than ever to do so.

But investing isn’t easy – it can even be likened to walking through a minefield. There are tricks and traps everywhere. That’s why most successful investors today got to where they are by learning how to avoid these mines. And perhaps by getting blown up once or twice along the way!

So with that sobering thought in mind, here are 3 things I think all investors should do before investing their first $2,000 into ASX shares.

1) Find a broker

Before you buy ASX shares, you’ll need a broker. In the past, brokers used to be someone you would call up and pay a commission to for buying shares on your behalf. Today, most brokers are more akin to the ‘eBay’ of stocks. That is, they represent an online marketplace where you can buy and sell shares.

Of course, they all still charge for the privilege, so finding one that suits your needs is important. The brokerages offered by the Big Four banks are always a good place to start. This includes something like Commonwealth Bank of Australia’s (ASX: CBA) CommSec or National Australia Bank Ltd.’s (ASX: NAB) nabtrade.

2) Work out a strategy

Investing can be a tight line to walk. You need to find enough money to invest without worrying about whether or not you’ll unexpectedly need the money within at least the next 5 years. It’s pretty awful if you’re forced to sell your shares in the middle of a market crash because your income changes or you prang your car.

So, before you start investing your first $2,000, you’ll need to work out how much you can afford to invest. This includes making sure you still have enough cash around to meet any future needs – whether they be expected or unexpected.

3) Find the right ASX shares to invest in

Many first-time investors start off by trying their hand at highly speculative shares. These might include biotech companies or small-cap miners. Not only will these investments probably not turn out well for a beginner, but they may also result in the unfortunate side-effect of putting a new investor off shares altogether. That’s why I think most new investors should start simply with something like a market-tracking index fund or a managed trust.

The Vanguard Australian Shares Index ETF (ASX: VAS) is always a solid choice. Or you could go for more internationally-focused funds like the iShares Global 100 ETF (ASX: IOO) or Magellan Global Trust (ASX: MGG).

These kinds of investments won’t make you rich overnight – but then again, most solid investments don’t aim to.

More reading

• 2 ASX growth shares I’d buy before Afterpay shares
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• Why Kogan, NAB, Qantas, & Sydney Airport shares are racing higher
• Is today’s BHP, NAB or Afterpay share price a good investment?
• Why today might be a good day to buy NAB and Westpac shares

The post Ready to invest your first $2,000 in ASX shares? Do these 3 things first appeared first on Motley Fool Australia.

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It’s been an up and down year so far for the ASX real estate investment trusts (REITs) in 2020.

While the S&P/ASX 200 Index (ASX: XJO) is down 11.05% this year, many Aussie real estate shares have struggled.

Despite the volatility, I think there are still some good buying opportunities at current prices. Here are a couple of my favourites to check out today.

2 ASX REITs to buy with $1,000 today

I think it’s hard to ignore National Storage REIT (ASX: NSR) right now. 

National Storage specialises in self-storage units and business could be set to boom. Shares in the ASX REIT are trading at $1.84 per share – exactly where they started the year.

That’s despite a failed $1.9 billion takeover bid by a couple of private equity groups earlier this year. 

However, the current economic environment could be good for National Storage. People may be looking to downsize and lower their rental or mortgage payments as COVID-19 continues to hit the economy hard.

There could also be more relocations, as people adjust to a new remote working setup. That’s good news for self-storage facilities, as it could likely result in people looking to store some of their belongings for the time being.

Another ASX REIT that could be worth watching is Mirvac Group (ASX: MGR).

Mirvac is a diversified property developer with interests in residential, commercial and industrial real estate.

Many people have been expecting a large property crash in 2020. However, interest rates are at record lows and many Aussies are still desperate to buy.

Add in the re-opening of Aussie retail stores and offices around the country and in my opinion this ASX REIT may outperform in 2020.

Of course, nothing is certain right now. The Mirvac share price has fallen 23.52%, year to date, so investors don’t look to be convinced that earnings will be strong in August.

Foolish takeaway

These are just a couple of the ASX REITs I’ve got my eye on in 2020. REITs can provide consistent portfolio income and could be a good income option for long-term buyers.

More reading

• We’re in recession. What does that mean for investors?
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• 3 of the best ASX 200 tech shares for your watchlist
• The Kogan share price is surging higher following another positive business update
• Is the Westpac share price too high?

Motley Fool contributor Ken Hall 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 2 ASX REITs to buy with $1,000 today appeared first on Motley Fool Australia.

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Treasurer Josh Frydenberg admitted the inevitable, on Wednesday.

Australia is in a recession.

Under the accepted definition of a ‘technical recession’, Australia would need two quarters of GDP contraction in a row.

(Don’t get me started on arbitrary labels. That’s a rant for another day.)

And Wednesday’s GDP numbers for January to March showed a decline of 0.3%.

In ordinary times, that’s the first shoe to drop, and we’d all wait to see what the April – June quarter brings, hoping madly to avoid having to use ‘the R word’.

But these aren’t ordinary times.

Everyone accepts that coronavirus restrictions will bite — hard — making the current quarter an absolute lock for economic contraction.

So sure are we all that even the most optimistic, clinging-to-the-faintest-hope politician needs to admit that we’re in recession.

It’s a foregone conclusion.

So the market crashed on the news, right?

Not so fast, Olly.

The ASX 200 was up 1.8% on Wednesday, the very day the news was announced.

Huh?

Not only that, but we’ve gained around 20% since the mid-March lows.

The economic news keeps getting worse. The ASX keeps getting better.

So much for the doom-and-gloomers, thus far at least.

Buy why? How?

Before we get to that, Flight Centre Travel Group Ltd (ASX: FLT) and Corporate Travel Management Ltd (ASX: CTD) (I own shares in the latter) were up 8% yesterday on nothing more than an announcement that Qantas was tripling its number of daily flights: from ‘bugger all’ to ‘not quite bugger all’.

No actual extra flights, yet. No extra bookings, yet. Just an announcement, of an intention, by one airline, while the other domestic airline remains mired in administration.

Huh?

Has the market lost its marbles, or is there some sanity prevailing here?

I think it’s the former. Here’s why:

I want to present you with a simplified version of the sort of algebra that wonky analysts do to value companies.

In the full, complicated (but really useful) version, they forecast growth, and allow for an expected return. They also recognise that if $1 in 5 years time is worth less than $1 today (because, why wait for the same return if you don’t have to?). That’s the ‘time value of money’.

So the summary below is woefully simplified for the purpose of valuing a company, but is useful to illustrate a point.

Let’s say you have $100, and I offer you 10% a year for 5 years.

Assuming I’m as good as my word, in 2025 you’ll have $150 (your $100 back, plus $10 per year).

Now, let’s say I came to you and said ‘Look, there’s this coronavirus thing. I can’t pay you this year. But it’ll be over soon enough. I’m pretty sure I can pay you next year, and we’re both convinced I’ll definitely be able to pay you in 2022’.

Your investment won’t deliver $150 any more.

The $10 payment in 2020 is gone. And 2021 is uncertain. Maybe a 50% chance.

Your $150 is reduced by $10 for 2020, and we’ll lop $5 off our expected 2021 payment.

Instead of getting $150, you reckon $135 is more likely.

Your money is now worth 10% less than it otherwise would have been worth ($135 divided by $150).

Apply that to the sharemarket (with the caveats I outlined above), and shares should fall by 10%. And maybe 15% once you factor in all of that ‘time value of money’ stuff.

So how much did the market fall between mid-February and mid-March? About 38%, give or take.

Seems kinda overdone in hindsight, doesn’t it?

And, given that, the rally over the past 6 – 8 weeks seems rather logical, rather than blind optimism.

And even more so, given the regular stimulus announcements made during that time, adding more cushioning for a struggling economy.

The ‘don’t panic’ message is one I’ve tried to hammer home in this space ever since the beginning of the pandemic. So far, it’s been the right approach.

I’m not a ‘victory lap’ kinda guy. And even if I was, it’s patently obvious the race isn’t over.

There are a multitude of things that could go wrong, for the economy and for markets, over the coming months. Frankly, the most likely cause of a market fall is probably investor sentiment, I reckon. Investors and traders run in packs.

Right now, they’re all believing in each others’ confidence. If that starts to wane, the pack can reverse course quickly. That’s how we ended up with the stock market’s pandemic overreaction (not to the health crisis, but to the economic impacts) in the first place!

About now, you might be thinking “Yeah, but the economy!”

It’s true, the economy is suffering right now. But ‘the economy’ isn’t really a thing, other than a conglomeration of the people that make up business owners, employees, parents, kids, retirees and everyone else. 

So it’s important to remember that it’s not the economy that suffers, but people.

And, as WSJ columnist Jason Zweig tweeted yesterday:

“It is deeply uncomfortable to watch Wall Street party while Main Street emerges from lockdown into tear gas, but the market isn’t taking a moral position.”

It is uncomfortable.

But don’t let that blind you, as an investor, to the way you need to think about markets.

Share prices are, at their core, ‘the sum total of all future cash flows, discounted for the ‘time value’ of when that cash is received’.

And, as with my super-simplified example above, even a dead stop in profits for one year doesn’t impact the underlying value of a company as much as you might think (or as much as the market assumed, in March).

Remember, too, that while shares are up 20% over a couple of months, they’re still around 17% down from the late February high point.

Context is a funny thing. “How on earth are shares up 20%?” and “Shares are down almost 20%” are both correct — but the starting points (and dates) are different.

I understand the feeling of not wanting to invest until ‘the coast is clear’.

But it’s important to remember that by that time, prices will likely be much higher.

The stock market is absolutely connected to the economy, but the timeframes are hugely different.

Wednesday’s GDP was a snapshot of a recent — yet past — three month period.

Share prices are an estimate of all — future — cashflows, from here to eternity.

It requires a very particular effort to partition those things, and treat them separately.

Many can’t. That’ll probably cost them a fortune.

We confuse those two things at our peril.

And I think you and I should keep investing, with our eyes not on yesterday or today, but on the long-term horizon.

Fool on!

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• 3 of the best ASX 200 tech shares for your watchlist
• The Kogan share price is surging higher following another positive business update
• Is the Westpac share price too high?
• Is today’s BHP, NAB or Afterpay share price a good investment?

Motley Fool contributor Scott Phillips owns shares of Corporate Travel Management Limited. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. 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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