The Dow Jones Industrial Average (DJI) ended Thursday over 2,352 points down - breaking its record point drop of about 2,013 points just earlier in the week - and closed at 21,200, a level not seen in years. It was a brutal day for not just essentially all stocks of every sector, size, and nation but every asset class imaginable - commodities, corporate bonds, and even government bonds got wiped out. It was truly a "Black Thursday" amid an already brutal week and month for investors of every sort as the 11-year bull market run finally ended.
However for those with still some dry powder cash on the sidelines, I think now is truly the time to begin edging in purposefully, yet still cautiously, in a historic buying opportunity and indeed that was what I was doing amid the financial bloodbath.
(Click on image to enlarge)
Data by YCharts
The DIA ETF Is An Effective Match to the Dow
I think the SPDR® Dow Jones® Industrial Average ETF Trust (DIA) exchange-traded fund offers an excellent way for investors to buy-in to a structurally stable and index-controlled ETF that seems to mimic well the daily ebbs and flows of the DJIA index. It is run by State Street (STT) Global Advisors, has $18.644 billion in assets under management, and a very low gross expense ratio of 0.16%. To my knowledge, it is the only significant ETF that tracks the DJIA index, as compared to say total market or the S&P 500, and that has the structural ETF stability to allow an investor to focus on the underlying index/assets instead of worrying about the ETF's build.
(Click on image to enlarge)
Data by YCharts
(Figure: As shown above, DIA matches the DJIA index almost perfectly)
Everyone Wants Stocks To Be Cheap But Are Scared When They Are
The fundamentals of our economy are still on a positive path, even amid the coronavirus and oil shocks. Projections are rightly downgraded for the moment due to current guidance from shop closures, etc., and uncertainty over the extent of coronavirus’ and the oil war’s future. Unless one believes that the world economy will be paralyzed for years to come - a grossly unfathomable scenario - the aforementioned are just temporary, moderate downgrades to the market as a whole. That temporary nature of the course correction combined with current valuation levels it’s just too good of a deal right now to not begin moving in.
The market indexes are dropping in part because the liquidity, credit worthiness, and earnings of individual companies are uncertain and face new risks that had not been previously priced in. However the market as a whole, as represented by an index ETF like DIA, is strong and diversified with a black swan event happening to one company not being as disruptive to the index in its entirety. Furthermore the companies in DJIA / DIA are "blue-chip," meaning they are the standouts of America’s already-top companies. These are the companies least likely to experience serious collapse or prolonged turmoil.
There's Still A Lot Of Uncertainty Out There
It is very possible the market still may drop a few points or more and particularly if coronavirus causes widespread dramatic lockdowns and mass quarantines in the larger economies. As Goldman Sachs' top U.S. equity strategist David Kostin said on Wednesday, before Thursday's ~10% DJIA drop, they believe stops may drop another 15% before beginning a new bull market sometime in the next year.
Stocks as a whole, in part due to the largely indiscriminate declines, now are well-priced or even cheap. For those with an investing horizon more than a few months, the dry powder to spare, and the nerve to weather perhaps even more turbulence and decline for the near future this is a truly unique opportunity to buy-in to some companies, sectors, funds, and the market as a whole at great averaging levels.
Buy low, hold tight, and sell high because it may well be a roller coaster from still here on out.
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