A great deal of the volatility and price actions we have witnessed throughout last year and then again with the resurgence of COVID in the form of its Delta and Omicron variants was quite likely led by fear and not calculated trading.
Difficult environments are precisely where the best investment opportunities can be found. Current and new variants mean that there will be ample opportunities to pick up some incredibly high-quality assets at discounted prices.
In fact, it was the investors who started dumping their travel and leisure stocks out of their portfolio created some great buying opportunities for those who had the chance to take them off their hands.
So, which rules should we go by when investing during a pandemic?
1. Do not panic under any circumstance
Knee-jerk reactions hurt and they hurt a lot. Investors selling when the markets seem to be falling and later getting left behind is a tale as old as time.
You will need to know how to ride out the choppiness in the market. As such, understand that volatility has been greatly amplified by Covid-19 and focus on longer-term goals.
2. Start diversifying and spreading your risk
Diversification is quintessential for pretty much any investment strategy.
Accordingly, holding cash, fixed interest and shares is the way to go if you don’t want to get caught overexposed.
3. DCA
By drip-feeding your money into investments, you will be ensuring a great deal of benefits. We’ve went over this here.
Dollar Cost Averaging is a great strategy for the less risk tolerant crowd. In fact, it seems that more and more retail investors are opting to take the DCA route, meaning that they will slowly buy all the way down.
4. Know how to choose your investments
Understanding the business model of a company and knowing their balance sheet are two of the necessary steps to ensure a sound investment.
Added to that, it is very important that you find a company for which the demand for its product or service remains relatively insensitive to the economic cycle.
You will want to look for companies which aren’t highly leveraged and which their business model isn’t overly reliant on how the economy is doing.
5. Look for asymmetric upside potential
Regardless of what you’re planning to buy you should always do your research as the financial health and the outlook of some companies will greatly vary even if operating in the same sector.
Undervalued companies are aplenty in the market. Knowing which will prosper in the future is the hardest part of it. As a rule of thumb look for quality companies operating in sectors which have been hit by lockdown policies but were able to weather the storm and aren’t greatly leveraged.
6. Have a safety net
When trying to avoid volatility in the stock market, investors tend to consider holding more of their money in corporate bonds, commodities such as gold or copper, or even crypto.
During periods in which investors expect choppiness, when monitoring markets, one needs to be simultaneously cautious and alert.
Wrapping up
Even if we are currently living in crazy, unpredictable times, in what concerns one’s investment portfolio, to overcome a pandemic one shouldn’t dismiss history lessons.
We know that many see it wise to draw Sun Tzu and the Art of War, others will read up on stoicism but as we all know when it comes to investing, it’s a jungle out there and when it comes to survivability, Charles Darwin figured it out a long time ago: it won’t come down to one’s strength or intelligence, rather one’s adaptability.
The one’s who bail now risk getting left behind and adapting one’s strategy to ever growing fears which some investors might have due to a possible new coronavirus strain is, in and of itself, a perfectly valid way to profit in the face of uncertainty.
A great deal of the volatility and price actions we have witnessed throughout last year and then again with the resurgence of COVID in the form of its Delta and Omicron variants was quite likely led by fear and not calculated trading.
Difficult environments are precisely where the best investment opportunities can be found. Current and new variants mean that there will be ample opportunities to pick up some incredibly high-quality assets at discounted prices.
In fact, it was the investors who started dumping their travel and leisure stocks out of their portfolio created some great buying opportunities for those who had the chance to take them off their hands.
So, which rules should we go by when investing during a pandemic?
1. Do not panic under any circumstance
Knee-jerk reactions hurt and they hurt a lot. Investors selling when the markets seem to be falling and later getting left behind is a tale as old as time.
You will need to know how to ride out the choppiness in the market. As such, understand that volatility has been greatly amplified by Covid-19 and focus on longer-term goals.
2. Start diversifying and spreading your risk
Diversification is quintessential for pretty much any investment strategy.
Accordingly, holding cash, fixed interest and shares is the way to go if you don’t want to get caught overexposed.
3. DCA
By drip-feeding your money into investments, you will be ensuring a great deal of benefits. We’ve went over this here.
Dollar Cost Averaging is a great strategy for the less risk tolerant crowd. In fact, it seems that more and more retail investors are opting to take the DCA route, meaning that they will slowly buy all the way down.
4. Know how to choose your investments
Understanding the business model of a company and knowing their balance sheet are two of the necessary steps to ensure a sound investment.
Added to that, it is very important that you find a company for which the demand for its product or service remains relatively insensitive to the economic cycle.
You will want to look for companies which aren’t highly leveraged and which their business model isn’t overly reliant on how the economy is doing.
5. Look for asymmetric upside potential
Regardless of what you’re planning to buy you should always do your research as the financial health and the outlook of some companies will greatly vary even if operating in the same sector.
Undervalued companies are aplenty in the market. Knowing which will prosper in the future is the hardest part of it. As a rule of thumb look for quality companies operating in sectors which have been hit by lockdown policies but were able to weather the storm and aren’t greatly leveraged.
6. Have a safety net
When trying to avoid volatility in the stock market, investors tend to consider holding more of their money in corporate bonds, commodities such as gold or copper, or even crypto.
During periods in which investors expect choppiness, when monitoring markets, one needs to be simultaneously cautious and alert.
Wrapping up
Even if we are currently living in crazy, unpredictable times, in what concerns one’s investment portfolio, to overcome a pandemic one shouldn’t dismiss history lessons.
We know that many see it wise to draw Sun Tzu and the Art of War, others will read up on stoicism but as we all know when it comes to investing, it’s a jungle out there and when it comes to survivability, Charles Darwin figured it out a long time ago: it won’t come down to one’s strength or intelligence, rather one’s adaptability.
The one’s who bail now risk getting left behind and adapting one’s strategy to ever growing fears which some investors might have due to a possible new coronavirus strain is, in and of itself, a perfectly valid way to profit in the face of uncertainty.
Source: https://www.financemagnates.com/thought-leadership/6-rules-for-investing-during-the-pandemic/