COVID-19 Financial Calamity or Bright Opportunity
How are you responding to the downturn in the financial markets since it ‘contracted’ COVID-19? Like Dane, your equity and bond portion of your portfolio may have lost tremendous value, since COVID-19 ‘infected’ the local and international financial markets. However, he is excited at the potential to grow his portfolio by leaps and bounds, through the opportunities created by COVID-19. He is looking to invest in ‘value stocks’ – i.e. companies that have been tried and proven, with a long-term timeframe, thereby buying these stocks at a lower price than their true value, which is in keeping with his long-term financial objectives. Here is advice that you too can consider applying:
1. “The stock market is a device for transferring money from the impatient to the patient.” (Warren Buffett - Chairman and CEO of Berkshire Hathaway.) Dane did a FREE Goal Planning Session years ago, in which he determined that his financial goal is a down payment on an investment property. With JMMB’s expert guidance he was able to determine how much he needed to invest monthly in order to accomplish this goal by 2023. This knowledge empowered him to remain focused on his goal. While others are impatient, he can afford to be patient and purchase assets at ‘panic sell prices’ while riding out the dip in the value of his assets. Are you a patient or an impatient investor?
2. “Traders focus almost entirely on where to enter a trade. In reality, the entry size is often more important than the entry price.” (Jack D. Schwager - American Trader and author.) All of Dane’s ‘eggs were not in one basket’, he had bought stocks, bonds and unit trusts each month, at varying prices and his portfolio was well diversified, with no more than 10% of his portfolio being apportioned to any one stock. The significant decline in his equities and bond portfolio was therefore tempered by other assets, which did not fall as severely. Additionally, since he had purchased the assets gradually and at differing prices, the average price of his assets were less than the highest price he paid. The result was, when the prices fell, his average price was less than the previous price immediately before the Coronavirus ‘infected’ the markets, making his losses less severe. Is your portfolio well diversified?
3. “I’ve found that when the market’s going down and you buy funds wisely, at some point in the future you will be happy. “You won’t get there reading. Now is the time to buy.’” (Peter Lynch – Former Manager of the Magellan Fund at Fidelity Investments). Dane was thankful he had followed this advice in 2008 when the prices of all asset classes, including: stocks, bonds, and unit trusts tanked! Like many, he read several financial analyses. However, unlike many, when he saw the words “now is the time to buy”, he took action and purchased from many investors who were ‘panic selling’ at low prices. When the COVID -19 threat subsides, and Dane is better able to assess the health of the assets, he will again take action and buy. Are you positioning yourself to take advantage of the low prices available?
4. “All a company reports and balance sheet can tell you is the past and the present. They cannot tell future.” (Nicolas Darvas - Self-taught investor and author) It is still early days and no expert can predict the markets with 100% confidence. A part of Dane’s strategy is to purchase companies that are undervalued and have been listed on the stock exchange long enough to have weathered previous financial “crises.” What will your investment strategy be?
Will COVID-19 be a great financial opportunity or calamity for you? While it is difficult to predict the full impact that COVID-19 will have on the market, you should remain focused on your financial plan and goals. Therefore, it is important to hold a diversified portfolio, be patient and position yourself for great opportunities; as these are basic principles of sound portfolio management and is crucial in times like these, to get the outcome that you desire.
Written by: Michelle Sinclair-Doyley
Manager, client financial educator, JMMB