How to Bargain Hunt During Market Downturns

My wife and I love shopping for kitchen gadgets.

You would most likely find us hanging around the bargain counter of the kitchen department in each mall we visit. Often times, we are selective on buying and that’s because we don’t have a large kitchen to store all the gadgets.

It occurred to me that shopping for the right stocks during times of duress might be similar.

As the market tumbles

The stock market might look a little like a bargain counter right now. Despite the rebound in the index yesterday, the Straits Times Index (SGX: ^STI) still sits at around 17% below its 52-week peak set in April.

But before we dive into the bargain counter for stocks, we may want to consider a few things to guide our decisions.

Fitting bargains into your portfolio

Before you buy a gadget (stock), consider the space that you have in your kitchen counter (stock portfolio). Does the stock that you are considering fit into your investment needs and goals? This consideration is especially important when the bargain counter (stock market) is offering a lot of cheap gadgets (cheap stocks) that you may or may not need.

Often times, there is the temptation is to just grab whatever looks cheap for the sake of it. Unfortunately, that might end up doing more harm than good over the long term.

For instance, force-fitting a cheap but volatile growth company for a person who is more comfortable with steady dividends may end up hurting the person’s returns over time. In this case, a good growth idea may turn into a bad fit as the nervous investor is not able to have the conviction to hold on through the volatility which is commonly associated with growth stocks.

A Fool’s take

When bargain-hunting for stocks, consider thinking about whether the company fits into your investment style, your portfolio, and ultimately, your investment needs and goals.

Without doing so, picking up random cheap stocks that come your way may end up cluttering up your portfolio, or worse – causing you to fail to meet your own financial needs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.