In the first quarter of 2020, when the coronavirus reached our shores, it caused a dramatic crash. Markets lost 38% of their value in three weeks. The Federal Reserve moved to backstop every possible asset class with $120 billion of cash infusions every single month to bolster our economy as it entered a total shutdown. This money pumping has continued nonstop for 21 months, inflating the prices of stocks, houses, autos, lumber, toys, furniture, and just about everything you want to buy. Yes, there are other factors involved like President Trump’s $2 billion bailout bill. That just added more excess money into the system.

Couple all that excess money with the embrace of TINA (There Is No Alternative) to owning stocks when bond portfolios yield nothing. Stock prices were pushed to insane levels of valuations that make no sense. That is what we are correcting now. Markets are also fearful because all that money pumping will reduce to zero by April.

The stock market became amazing entertainment for many locked inside. Initially people bought companies like Zoom (589 now 198), ROKU (491 now 228), Amazon (3,773 now 3,341), and Peloton (171 now 38) that were going to benefit from keeping you busy and working at home before vaccinations were available and it was safe to go out. Now many of them are crashing to earth. What you pay for a stock really matters especially if you want to buy cheap and sell dear.

There are long established rules of investing that really work to make money. Don’t be a momentum investor, chasing the spot on the tail of the Dalmatian in front of you. That was what the Reddit/Robinhood crowd was doing. Don’t pay 100 x losses for anything, ever. Select stocks that are out of favor and unloved at value prices. You will do better being ahead of and not behind the crowd. Then be patient.

Advanced Micro Devices was just such a stock at 11 over four years ago. The company had teetered on the edge of bankruptcy before Lisa Su arrived as the new CEO to try to fix the mess. What was especially delicious was that nobody believed she could. AMD traded up and down between 10-15 for months until she began to earn respect. When revenues and earnings became reality, the multiple that people would pay for those earnings surged, too. That made it a “double whammy” stock combining earnings growth with P/E multiple expansion.

Now consider Ford (which we own). Ford was the only U.S. auto company to not accept a bailout to avoid bankruptcy during the Great Recession as GM and Chrysler did. Even so, it got no respect in 2020 and traded in single digits. Today Ford is a company rapidly transitioning to be an electric vehicle player that actually knows how to make cars and trucks. In volume. It is marketing a new electric delivery van, its Ford 150 Lightening truck and the Mustang Mach E, all developed over several years but announced this year. Suddenly, with a new PR-savvy CEO, everybody loves Ford. Earnings estimates are rising and the P/E is expanding. Another double whammy stock. Here is the real shocker: Ford is up 120% this year vs. a 28% gain for Tesla.

Never forget, when markets get tough, investors want earnings. They want balance sheets. They love dividends. Vaporware can only take you so far. Be wary of companies with no earnings for years to come. They may never come. Stocks never levitate forever. When the downturn comes, as it always does, just like Icarus when he flew to close to the sun, you, too, will crash to earth.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email her at JLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear at heraldtribune.com/business/columns.

This article originally appeared on Sarasota Herald-Tribune: JOAN LAPPIN: When markets get tough, investors want earnings