Selling to buy back after a crash is risky
Q: I’m considering selling my stocks and keeping the cash in case the market crashes so I can grab some bargains. Is that a good idea? — S.W., Jeannette, Pennsylvania
A: If you sell your stocks, and the market does crash, you will have acted brilliantly. But what if the market keeps rising for a good while longer? You’ll miss out on a lot of gains. No one knows what the market will do in the short term. In the long run, it tends to go up.
That said, keep any money you’ll need in the next five (or even 10) years out of stocks because a crash can happen at any time. But otherwise, it’s often best to remain fully or mostly fully invested, and to try to add to your holdings when the market sinks. If you’re not comfortable in stocks, though, sell some or all of them. and strong profit margins. Steadily increasing revenue and earnings is a sign of good management. Compare gross, operating and net profit margins with those of competitors to see who has kept the most from each dollar of sales. Look for upward trends, too.
■ Meaningful products or services. Favor companies selling things people really need or want. People won’t easily give up their prescription drugs or electricity, for example. Companies such as Netflix and Apple offer items that consumers crave. Also appealing are items that people buy repeatedly, such as gas, shampoo, sandwiches, socks and books, instead of items bought only sporadically, such as cars, ovens and pianos.
■ Powerful brands. Widely known and respected brands can permit a company to charge higher prices and more easily introduce other products and services. Some great brands are Coca-Cola, Disney, Amazon, Visa, Starbucks, GE, McDonald’s and Google (Alphabet).
■ Sustainable competitive advantages over peers. These can include dominant brands, economies of scale and bargaining power. WalMart, for example, is so big that it can make demands of suppliers, and it can prosper despite low profit margins because of high volume.
■ Growth potential. A promising future is critical. Is the company expanding abroad? Is it launching products or services that consumers are embracing? Is it spending significantly on research and development?
Finally, consider how well you know the company and industry and how much you’d enjoy keeping up with its developments. Once you find companies in which to invest, be sure to do so only when they’re attractively priced.
Name that company
I trace my roots 1923, when my founder agreed to produce a series of short films. He later produced “Steamboat Willie,” “Silly Symphonies” and 1937’s “Snow White and the Seven Dwarfs,” my first feature-length animated film. I debuted a whole new land in 1955 and had a famous club on TV. Today, I’m one of the world’s largest entertainment companies, owning businesses such as media networks, parks and resorts, studio entertainment, interactive media and consumer products. My businesses include ABC, ESPN, Pixar, Lucasfilm and Marvel Studios, among others. I rake in more than $50 billion annually. Who am I?
Last week’s answer
I trace my roots to the 1920 creation of a single classroom magazine. Today, I’m the world’s largest publisher and distributor of children’s books and a leading global provider of educational programs in print and electronic form. Who am I? (Answer: Scholastic)