Crisis Investing 101: Buy During Panics

There’s an old investment adage to buy when things look dour. While that sounds great in theory, human psychology makes it difficult. Even thinking about investing in a stock that’s been declining—or has been making news headlines for a defective product—tends to put our caveman brain into flight mode and avoid it all together.

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  • But a pause to think more rationally is where the opportunity arises to beat the market. Recognizing that a company is out of favor for short-term reasons, we can then look a bit further down the line. If that company can solve the problem before it goes bankrupt, then it may be a good investment.

    One company that has been getting hit with bad news day after day is Boeing (BA). The airline manufacturer’s woes regarding its 737 Max plane are well known. Shares are up over the past year thanks to the strong stock market rally, but a cloud is hanging over the company in the short-run.

    That will prove short-lived. The company’s diverse line of planes shows that the 737 Max is just a small part of the company’s overall operations. And the software issue will be fixed in time—and likely at a far lower cost than a physical manufacturing defect would be as well!

    Thanks to the selloff, shares of the company are trading around 16 times forward earnings, a nice discount to the overall market. When we consider that Boeing operates as part of a global oligopoly, with no domestic competitors, we can see how potentially attractive shares really are right now, in spite of the dire news headlines.

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  • It’s not an extreme crisis, but for a solid blue-chip company, it’s enough of a crisis to create a value in this otherwise extremely bullish market.