If Stocks of 'High-Performing Companies' Get Cheaper, Invest Steadily... 'Crash Market' Beginner Investor Strategy [Practical Finance]

Dividend Stocks Also Relatively Safe
Top Financial and Securities Companies Among Last Year's Dividend Payers

Avoid Directional Investments Like Inverse Funds

Recommend Increasing Cash Ratio During Multiple Adverse Factors
Minimize Losses and Enhance Responsiveness in Case of Further Declines

[Image source=Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Last year, amid the 'Donghak Ant Movement' craze, the KOSPI, which had surpassed the 3,300 mark, has fallen below 2,400. 'If you invest, you can make a profit' and 'You're a fool if you don't invest in stocks'?these slogans encouraged many first-time account openers known as 'Joorini (stock + child)' who are now struggling in the bear market. However, experts emphasize that for stock beginners to make profits in a declining market, long-term investment is the only answer.

Typically, stock beginners tend to buy when the stock index rises and sell when it falls, then exit the market. Experts explain that this approach fails to leverage the advantages individual investors have. Institutions find it difficult to invest long-term because they are evaluated based on performance over specific periods. On the other hand, individuals evaluate their portfolio performance themselves and can consistently invest as much as their income allows. To make profits despite lacking knowledge and information, stock beginners must fully utilize the advantages individual investors possess.

Kim Young-hwan, Head of Domestic Investment Strategy at NH Investment & Securities, said, "Ultimately, the strategy is to keep buying stocks at low prices and sell them later when prices rise." He added, "If a company's earnings remain the same but its stock price has dropped, I recommend buying it." He further noted, "Consistently purchasing quality stocks over the long term is a good investment strategy in a declining market."

Even if one decides to invest long-term, choosing stocks can be challenging for Joorini. In such cases, dividend stocks can be a relatively safe investment option. Since many companies offer interim dividends in June, they can be attractive investments in volatile markets. Moreover, investing in high-dividend stocks combined with solid earnings can yield higher returns. Among companies that paid dividends last year, the financial and securities sectors ranked at the top.

If one lacks the ability or time to select individual stocks, investing in Exchange-Traded Funds (ETFs) or Exchange-Traded Notes (ETNs) is advisable. Park Kwang-nam, Head of Digital Research at Mirae Asset Securities, said, "The most important thing beginner investors should know is to avoid directional investments like inverse ETFs." He added, "Even experts find it difficult to predict market direction, so for stock beginners to engage in such investments is speculation, not investing."

Increasing cash holdings is also a method. Lee Jin-woo, Head of Investment Strategy at Meritz Securities, said, "Currently, multiple adverse factors are intertwined, creating a highly uncertain situation." He explained, "Increasing cash holdings is to minimize losses if the index falls further." He added, "Under normal circumstances, holding 30% of total investment in cash is advisable; when the market is good, 20%; and in a bear market like now, about 40% in cash is necessary to respond effectively."

The current bear market is analyzed to be due to high inflation and recession concerns. However, the high oil prices that fueled inflation could change depending on variables such as oil production increases and the Ukraine war. Therefore, investing only in inflation beneficiaries during the current uptrend may increase risks over time. Kim Ji-san, Head of Research Center at Kiwoom Securities, said, "The stock market is unlikely to perform well until the end of the year amid the inflation phase," but advised, "It would be helpful to view this as an opportunity to buy representative stocks in sectors like secondary batteries with good growth and competitiveness, and semiconductors with attractive prices, at a discount from a long-term perspective."