Corrections aren’t fun. Obviously, nobody likes watching their portfolio’s value decline. But handling market corrections and crashes wisely can make a big difference in the long run. In this Fool Live video clip, recorded on Jan. 24, Fool.com contributors Matt Frankel and Jon Quast have a brief strategy session about how they’re investing in the downturn.
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Jon Quast: I mean, this is an event that I have a plan for in my personal investing portfolio strategy. Because I believe that these events occur every couple of years, and so I’ve been personally waiting for it — not waiting for it exclusively going 100% cash. I know that Marc [Rapport, Fool contributor] is the special situation, so that’s not my portfolio strategy: Go 100% cash, wait for the crash. But being deliberate in my speed of deploying capital, knowing that I’m going to get opportunities at some point. The point is basically coming up now.
Matt Frankel: There are a lot of stocks. Let me just give you one example today. I know both of you have probably heard me talk about Lemonade (NYSE: LMND) before, the insurance company. Lemonade has — it’s buying Metromile (NASDAQ: MILE), a company called Metromile. Between the two, they have a market cap of $1.8 billion today. They have $1.5 billion of cash sitting on their balance sheet. If you buy the stock today, you’re essentially getting the business for like $300 million. Almost 80% of their market cap is just cash right now. A lot of recent SPAC IPOs are trading for very close to their net cash value at this moment. It’s really an interesting time and some crazy opportunities out there.
Jon Quast: Yes, Matt, I’m glad that you brought that up. I’m not sure who says this in the Motley Fool universe, but I know that somebody talks about how when stocks are at high valuations, that’s actually an asset for the company because they can raise capital at such a cheap price, and you saw this happen throughout 2020 and 2021. The valuations went through the roof, but many of these companies wound up just loading their balance sheets up. Now, they’re coming down, and they have so much cash at the ready. Some of them are cash-flow positive on top. These are actually really good opportunities.
Matt Frankel: Yeah, Lemonade’s one of them that raised a lot of cash during the good times. A lot of people were saying how overvalued the market was in 2021 and how irrational it was. “How could you pay $180 a share for Lemonade?” This, that, and the other. The irrationality works both ways. I feel like it’s swung to the downside lately.