Investing in the COVID-19 scenario has been a game of constant re-investing, which continues to demand high vigilance from investors. The stock market crash of March 2020 saw indices plummeting to all-time lows, with all expectations going for a toss due to high volatility in the market. In a way, the black swan event like COVID-19 has not only been the root cause of great market upheaval but has also left behind some solid lessons that investors can take swear by for the coming years.
Given the volatile nature of the markets, it can be said that an investor is never fully prepared to combat upcoming risks. However, with a proper action plan, investors can cope with the potential impacts that unprecedented events carry with them.
While the past year has seen some new investing trends taking shape in the financial markets, it has also served as a great reference point for future market crashes that may stem from possible catastrophic events.
Having said that, acknowledging the occurrence of a pandemic-like scenario is the first step in gearing up for turbulence in the financial markets. Meanwhile, investors can take cues from investment lessons learned from the COVID-induced market crash to not repeat the same mistakes.
In this backdrop, let us discuss few ways through which investors can improve their investing game in the coronavirus era:
Ponder on buy and hold strategy
Popularised by one of the most influential investors - Warren Buffett, buy and hold is an evergreen strategy that involves keeping promising stocks in the portfolio for the long haul. Moreover, the strategy requires conscious decision making on the part of investors, where they must put their time and effort into finding high-quality stocks that can deliver promising results.
Investors embracing buy and hold strategy can ignore temporary dip in share prices while focusing on the long-term returns. In other words, it is imperative for investors to not give into market trends and sometimes do nothing. More precisely, maintaining faith in one’s portfolio forms the core of this strategy.
Hold sizeable cash reserves
Even when an investor’s portfolio starts to bring him losses from all directions, the amount of cash reserves could retain most of its value. Though inflation plays a significant role in deteriorating the value of money, the short-term impact on the value of fiat currency is minimal.
Individuals generally consider their savings accounts as the last straw to turn to when all the other investments fail to bring them luck. The past year has been a perfect example of the same, when all markets failed together, with many investors falling into a pool of losses.
Beat all odds with digitisation
Had it not been the modern age of mobile phones, social media and lightning-fast internet, most business activities would have shut down forever. The last year underlined the importance of staying connected, even when physical restrictions did not allow the same. Many local and small businesses have had to develop online means of reaching out to customers so that they can continue to stay in business.
In this process, these vendors and businesses have become equipped with the latest forms of technology, which can deliver substantial benefits over the long run. Even as the digital era battles concerns around consumer privacy, it is safe to say that digitisation is the magic wand that can facilitate business even in the most precarious of situations. Having said that, investors can take exposure to companies embracing digitisation to stay ahead of the curve and tap long term opportunities.
Remember, quick drops might be investor-friendly
When a market crashes, many of the equity market participants suffer massive losses in a broader market sell-off. However, investors can manage to seek their way out even when stock markets across the globe experience a total shutdown.
In a way, some quick drops in the equity market, like the 2020 market crash, can be investor-friendly. As seen during the last year, the equity market decline amid pandemic concerns was quick and short-lived, which sparked a huge sell-off frenzy. However, as investors realised that the market had reached its bottom, the overall position of the market started to improve. Thus, short market dips can be a lucrative opportunity for investors to reap the rewards of potential gains.
During times of massive dips, investors can ponder on adding high-quality bargain stocks in their portfolio, which could turn into multi-baggers over the long run.
Do not panic
Call it a post-pandemic investment tip or a lesson to carry for a lifetime, panicking at the sight of an unusual turn of events has never been of much help. Especially, investors carrying a herd mentality catch onto the looming fears prevalent in the market.
Investors should understand that the market may not always correctly indicate the seriousness of an event. For instance, the first few months of the pandemic gave a more pessimistic view than what was developed eventually. Due to this excessively pessimistic stance, the future recovery in the stock market was faster than expected, surprising market participants.
In a nutshell, even though the pandemic has greatly changed the investment game forever, it has left investors with a range of knowledgeable lessons. Most importantly, it has been the first time that a Black Swan event has been captured on such a large scale in a highly digitised environment. These factors have enabled investors to learn from prior mistakes even during the period of high volatility and uncertainty.