I’ve received a number of emails and texts from friends, readers, and clients asking about the recent downturn and how to react.

Logically, just about everybody should be cheering this on. How so? Well, let’s break the investing public down into different categories:

You have 15+ years until retirement – Great news! You can invest at lower prices and lock in higher long-term gains. Plus, there’s never been a 15 year period where the stock market has been down (adjusted for inflation), so your existing investments should fully recover by the time you need them.

You had proper asset allocation – Great news! If you were intelligent with your asset allocation then you should have your money spread out across stocks, bonds, cash, real estate, and other investments. Your non-stock investments are probably doing fine, and you can sell some of them to purchase stocks at the new, lower prices.

You invest for income (dividends, interest on bonds, real estate, etc.) – Great news! Your income will continue to flow regardless of the current valuations of the stock market. You can use your investment income to buy more stocks (and thus more future income) at a discount!

You are a high income earner and/or high saver – Great news! You can now invest your savings to buy stocks at a discount and get higher future returns.

You have less than 15 years until retirement, and/or you are entirely invested in stocks, and/or you invest only for capital gains and/or you don’t save or earn much money – Great news! You’ve just learned a number of valuable lessons about proper asset allocation and setting proper investment goals! Although you’re probably going to get crushed by this downturn, you’ll hopefully change your investing and savings habits so that it doesn’t happen again.

I think that most readers of my blog fall into at least one of the first 4 categories. If so – congrats! This market downturn is going to help you make money!

And if you fall into the last category – well, you’re kind of screwed. The only thing you can do is to make better decisions starting now, and that means you should NOT panic. It’s too late to sell your stocks or to pursue proper asset allocation. Save as much as you can, buy high-quality stocks when they are on sale, and use this time to determine your risk tolerance and proper asset allocation.

Sectors that look interesting

So, what am I looking at right now?

In general, I like to look for stocks that are in one of these categories:

  1. Very high quality blue-chip stocks that have been taken down with the rest of the market – this would include stocks on the Dividend Champions list (companies that have raised their dividends for at least 25 straight years) or companies with consistently high earnings growth. These companies usually trade at a premium to the rest of the market.
  2. Quality stocks in sectors that have been hit much harder than the overall market – the key here is that we aren’t looking at crappy companies with low quality (or no) earnings. We are looking at solid, profitable companies

Examples of stocks in the first list would be Visa, Johnson and Johnson, Microsoft, Coke, etc.

Stocks in the second list would include banks and anything in the oil sector.

Looking at today’s carnage I see that Bank of America, Wells Fargo, Chevron, Exxon, and BP are all down anywhere from 10% to 20% today.

Of course, that doesn’t mean they are necessarily a good buy at today’s prices, but those are all quality, blue-chip stocks that are suddenly much cheaper than they’ve been in a while. Do your own research and tell me what you think.

Any suggestions on other sectors or stocks that I should take a look at?