Investing is enough of a quandary for many of us in normal times. But September represents month No. 7 of the pandemic’s global impact. That seems like a quandary on steroids.
Zachary Riley, CFA, CPA, with Foundation Resource Management of Little Rock, took pity and sat down with Arkansas Money & Politics to answer a few questions about investing during a global crisis. Riley shares his thoughts on value stocks, government stimulus, the impact of the election and more.
AMP: What questions should investors be asking right now?
Riley: We believe investors should ask a consistent set of questions in all investing climates. That set of questions should always start with: What are my goals for these investments, and what is my time frame? A longer time horizon is usually better in investing in the stock market, and patience is a well-rewarded virtue.
AMP: Months into the pandemic, has the long-range outlook changed?
Riley: There are many things that have changed. Businesses are adjusting their supply chains, and the government is providing an enormous amount of stimulus. Both could bring inflation, which the market does not currently expect. Time will tell if businesses and consumers go back to some of their previous routines. For example, travel and live entertainment for consumers and businesses have been tremendously affected, and the long-term outlook is hazy. Consumers have redirected spending in those areas and dollars from government support toward savings, housing and home improvements. We do not know what happens once the massive government support runs out. Some of the money flowing into savings has ended up in the stock market chasing expensive growth stocks. We continue to think the long-term outlook for expensive investments is risky, however, we believe the long-term outlook for value stocks is bright.
AMP: And how might the election impact that outlook?
Riley: The election may have some impact on the long-term outlook for the stock market, particularly, if capital gains taxes are raised to much higher levels. However, the stock market has historically rewarded those with a patient long-term outlook who consider the price they pay for investments. We do not think an election changes that long-term optimistic fact, as long as the political economy continues to value property rights and contract law, and investors can reliably understand the investing environment.
AMP: Is the economy in an early-stage recovery phase?
Riley: The economy and consumer spending (67 percent of the U.S. economy) do appear to be in a recovery phase. I mentioned the government support for the economy earlier, that has helped consumer expenditures. Additionally, we are seeing forbearance of rent and lease payments for residential and commercial properties. We are keeping a close eye there; the payments will be due at some point, and what happens then?
AMP: What are some good near-term opportunities?
Riley: We again want to focus investors on the longer-term picture. When investing, those who are most patient give themselves the best probability of success. We do not know which investments will perform best over the next 12 months. We don’t think you should invest in the stock market unless you have at least a five-year time horizon.
We believe investors have a unique opportunity in the current environment. Value stocks have rarely been as attractively priced relative to growth stocks. The last time this type of valuation disparity existed was in the late ’90s/early 2000s, and investors were well-rewarded for ignoring the growth stock “sirens” and investing in value stocks.