In This Turbulent Market, Top Investors Share 3 Tips For Buying Stocks

Due to recent market volatility, investors are unsure of which market segment to take refuge in.

‍

All of the main Wall Street indexes have fallen back in February despite a strong start to the year, and they are on track to have their second negative month in three.

‍

Speculators are concerned that the U.S. With a fresh focus on hotter-than-expected inflation, the Federal Reserve may decide to keep rates higher for longer. Markets had risen earlier on expectations that the Fed would hold off on raising interest rates.

‍

For growth stocks like technology, which fell last year as the period of zero interest rates ended, higher rates for a longer period of time are predicted to be bad news.

‍

So how should one invest in such uncertain times?

‍

Be discerning

According to Mark Hawtin, investment director at Zurich-based GAM Investments, the secret is to "really look deeply" at companies and the "most exciting" subjects, such cybersecurity and cloud development.

‍

He continued, "I believe it's crucial to distinguish between what are the truly disruptive growth enterprises and which are not.

‍

According to Hawtin, some Big Tech stocks are already "very mature," citing Google. Both Twitter and Facebook rely heavily on advertising.

‍

"With digital advertising making up between 50% and 60% of all advertising worldwide. It is far more vulnerable to economic fluctuations, so if there is a decline in the economy or in advertising, it must have an effect on businesses, he said.

‍

The days when investors could profit by merely purchasing technology stocks are long gone, according to Steve Eisman of "The Big Short" fame.

‍

"I'm not advising you to quit purchasing gadgets. While discussing businesses, I believe you need to be careful. They have rapid revenue growth but poor profits," he remarked.

‍

Weighing Profit Versus Growth

Several businesses, particularly in the technology sector, choose a "growth at all costs" strategy in a climate with reduced or zero interest rates.

‍

Hawtin recommended investors to seek for businesses "that offer a decent combination of growth and profitability" instead.

‍

Businesses with faster growth rates, which may make them less profitable or even unprofitable, "tend to decline quite steeply in the early stages of a downturn, a change of attitude, a change in inflation expectations, or a rise in interest rates," he said.

‍

The earnings crisis is "far from finished," according to Mike Wilson, chief U.S. equity strategist at Morgan Stanley, in a note published on February 27.

‍

"Given that we are about to enter the last calendar month of the quarter (March), we think the risk of earnings declining is high, and there is further downside for stocks," he said, emphasizing the pattern that stocks frequently decline in the final month of a quarter as investors discount upcoming results.

‍

In conclusion, Wilson said, "Our recommendation is to take advantage of the fat pitch on earnings to lighten up on the more speculative stocks where earnings can't justify current stock prices and continue holding stocks where either earnings expectations have already been properly cut or discounted by a very attractive price.

‍

Reject The Hype

Hawtin concluded by advising investors to "consider for yourself."

‍

Try to fundamentally think for yourself, he advised, and avoid getting caught away by hoopla or stock price movements.

‍

"Just because the shares have increased 30% in just three days doesn't imply it's a good idea to invest."