Thoughts on Stocks During Recessions and Crises

I'm not a finance major, but when I think about the recent major stock market declines, whether due to, or exacerbated by, the recent COVID-19 pandemic, here's what I've pondered as a possibility.

Throughout history, stocks have gone up and down in price, with a general upward trend. Even after severe downturns, the markets have bounced back. Sometimes it has taken months. Sometimes years. But they have always bounced back.

I assume that when you buy a share of a given company, that company is receiving (at least a good portion of) the money you've invested, and they can then put that money into any potential area of the business.

What if, when a given company's stock price is high, a company doesn't really need all that much extra capital for their currently planned roadmap endeavors?

Prices of such a company's stock may continue to rise and fall slightly over time, depending on the company's sales performance and the market in general, but generally speaking, no big drops or increases, assuming no hiccups are encountered. Since the price has probably been steadily climbing many years, investors are probably still buying shares, but not in droves.

Now, what about a company's stock price during a crisis?

Companies depend on sales to pay for everything from the leases at the physical locations in which they operate, and employee salaries, and a company's sales may drop drastically during a crisis.

During such a crisis, a company may need to cut costs in many areas to keep crucial business operations running as smoothly as possible, without bleeding money from their reserves.

Some of those cost cutting measures may involve layoffs... But when people are laid off, they have less money to spend, and since one person's spending is another person's income, the problem could fall into a downward spiral.

I believe a company's sales performance should in theory be relatively linked to it's stock price.

But what if stock prices go down for other reasons?

Similar to how shoppers flock to stores when items go on sale, intelligent investors may opt to increase their shareholdings when prices drop.

Where investors may be buying shares at regular intervals while stock prices are high and climbing, a large "crash" of 10% or 20% or more may cause many investors to double down on holdings, giving a company a sudden surge in income.

This income surge could help the company through the hard times, by keeping the lights on, and keeping people employed.

And if the company does make it through the hard times, as an investor, you will be rewarded for the capital aid you provided during the hard times, via eventual rebounded stock price highs, and/or increased regular dividend payments.

Just one finance noob's perspective. 😏

Wishing everyone the best of health. 🙏

Photo by Jamie Street on Unsplash