The COVID-19 pandemic has undoubtedly affected almost all businesses as well as people’s lives so far this year. Especially companies in leisure, hospitality, and nearly all physical contact disciplines seem to suffer most. Besides, suppliers appear unable to produce goods due to closed factories in China, Europe, or the USA.
As the virus is obliterating the global economy as we know it, investors in stock markets such as FTSE have seen their fund decrease with at least 20 per cent. The decline of the overall market and FTSE index seems to lead us into a bear market.
For investors who are watching the stock markets, surviving the Coronavirus bear market is crucial. Founder of fund management group Liontrust John Husselbee evens said that “there are moments in horror movies when you might not only cover your eyes but also forget it is only a film and you will soon be back in the real world. On occasions, investors can get the same feeling when watching stock markets” (Husselbee, John ‘Liontrust’ 03/2020). In my opinion, this describes the fear many stock investors probably feel since March 2020.
However, is there a way to invest while the Coronavirus pandemic keeps us under lockdown? According to financial and investing company The Motley Fool’s report on bear markets, one can turn the uncertainty of the present-day stock market to their advantage.
Harvey Jones, Motley Fool UK contributor, provides five key steps that investors take into account:
1. Refrain from selling your shares
Seeing a portfolio shifting red is never a pleasant feeling; however, you shouldn’t sell your shares. “You haven’t actually lost anything yet. That will only happen if you lose your head and start panic-selling, which will turn your paper losses into the real thing” (Jones, Harvey, The Bear Market Survival Guide, 08/04/2020). Their first point of advice is not to sell.
They provide the argument that “the golden rule of investing is to ‘buy low and sell high’. If you sell during a correction or a bear market, you may be selling low, and nobody wants to do that” (Jones, Harvey, The Bear Market Survival Guide, 08/04/2020). In the long term, share prices could become more expensive than they are now. Therefore, you might regret selling at this point of economic decline.
2. Keep a pot of cash ready
The Motley Fool’s perspective shares the belief that stocks and shares are the best places for long-term savings. But what is defined as the long-term? They consider two years, not long enough. Planned expenses and significant spending commitments within two years should, according to Harvey Jones, be kept safe and in cash.
3. Shop for bargains
Share discounts have never been higher! As shares are falling, investors panic and stop buying them. “What happens is that fear takes over. Investors are paralysed, and miss their chance” (Jones, Harvey, The Bear Market Survival Guide, 08/04/2020). That fear sounds very recognisable for me; the feeling of an uncertain future is terrifying. However, the ‘Survival Guide’ says that there is a way to limit the danger.
“Instead of putting all your money into the market at once, you could drip-feed it in” (Jones, Harvey, The Bear Market Survival Guide, 08/04/2020). This idea appeals to me. It suggests that every time the index is down, one should slightly upscale investments while almost everyone is selling. In the perfect world, you start investing at the exact bottom of the market so that the value of your shares and assets grows most efficiently. Unfortunately, it is tough to tell when markets will improve. Therefore, scaling up in small bits and buying in discounts can be beneficial.
4. Strike the right balance
According to the Motley Fool report, a bear market offers the chance to sell top performers and buy underperformers. “A bear market could, therefore, be a good time to rebalance your asset allocation, while taking advantage of lower stock prices” (Jones, Harvey, The Bear Market Survival Guide, 08/04/2020).
5. Look to the long term
Bear markets usually don’t last as long as bull markets. Nevertheless, they are still part of the stock market world, and an aspect investor must find a way to deal with.
Harvey Jones puts it nicely, “Volatility is the price you pay for the greater long-term potential of investing real-world business that is subject to the economic cycle”. His claim makes perfect sense to me, market forces like government, international transactions, supply and demand, and expectations are unpredictable, flexible and volatile.
The report advises holding onto already done investments and bargain for potential openings, as opposed to fearing the bear market from a short-term perspective.
What are your thoughts, experiences, and ideas on investing during the Coronavirus pandemic?
- Jones, Harvey | The Bear Market Survival Guide | 08/04/2020 | https://www.fool.co.uk/special-free-report/the-bear-market-survival-guide/?source=uuksppcl10000008
- Husselbee, John | Liontrus | 03/2020) | https://www.liontrust.co.uk/what-we-think/blogs/surviving-the-coronavirus-bear-market-lessons-from-history