Five lessons from investing in a pandemic

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Pre-pandemic, the Jamaican economy was poised to make an extraordinary turnaround with most if not all macro-economic indicators showing signs of improvement since the debt exchange of 2013. Interest rates were low, inflation remained within the targeted four to six per cent band, NIR was increasing, the FX market gained some stability and was no longer moving in one direction, the local stock exchange surged almost 300 per cent in five years and was voted the best in 2018, Debt to gross domestic product (GDP) dipped below 100 per cent and there was more than 16 consecutive quarters of economic expansion. Banks were eager to lend, and companies seemed willing to invest in productive capacity again.

All these factors would leave investors brewing with confidence as the outlook was that the markets were well positioned for periods of strong return. Or so we thought. In less than three months, the global economy took a turn for the worst as markets started to succumb to the ravages of the novel coronavirus pandemic.

Fast forward to 2021, having experienced the ebbs and flows of the investing world during a pandemic, investors learn different investment practices which is the epitome of the saying “Hindsight is 20/20” or in Jamaican parlance, “If me did know”.

Here are some things we learnt from investing in a pandemic.

• In a pandemic, market crises are inevitable and sometimes the best strategy is to do nothing. The COVID-19 crisis affirmed the golden rule about investing: ‘buy and hold’. By averaging down, investors stand to benefit when markets rebound, albeit the timeline being uncertain. If the company is fundamentally sound, then seeing it through rough times in the short term with your eye on the long term may be a good investment play. Also, some portfolios may be too large to liquidate and preserve gains so waiting may be your only option until markets recover. As Warren Buffet echoed, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

• Also, try to remain calm, conduct sound analysis and don’t make decisions while panicking. When it comes to investing during a crisis, sound market analyses could be the telling factor when it comes to gains and losses. The news and other media houses may portray an abstract view on what’s taking place and it is indicative on every investor to conduct or garner as much investment knowledge as possible before making further investment decisions.

• Another important post-pandemic lesson is that it’s never too late to start investing, no matter how small the investment portion. While it is tempting to try to wait for an optimal investment time when the market has steadied and an upward trajectory is on the horizon, investors might miss out on a lot of opportunities that may be profitable.

• The impact of COVID-19 has surprised everyone, and it’s definitely a very challenging time financially. This has highlighted the importance of having an emergency fund or monies saved for a rainy day. Knowing that you have everything covered for a few months can hopefully help ease your mind in a time of distress and uncertainty. Most experts recommend saving enough to cover roughly three to six months of expenses in the event of an unexpected situation like a job loss, reduced working hours, medical emergencies, etc.

• Recovery is imminent. For many countries, the economic impact of the COVID-19 crisis has been steep with some recovering quicker than others, largely due to the development of several vaccines along with social distancing protocols. From an investment standpoint, the bulk of the easy money has already been made, since the equity markets have factored in much of the reopening trade. This means investors should be selective as economies recover and fundamentals catch up with valuations. While it feels like forever and uncertainty lingers, there are signs of a turnaround.

It’s hard to overstate how dramatic this market movement was, or how much panic was in the air. A lot was at play as investors scurried about trying to salvage monies lost due to the pandemic. COVID-19 has sparked a rapid development and evolution in just about every aspect of people’s lives across the globe, which has opened new investing opportunities. By paying attention to these investing themes for the post-pandemic world, investors can leverage their recent experience to prepare their portfolios for whatever lies ahead.

Roland Douglas is an experienced Research Analyst with VM Wealth Management Ltd, having several years of industry experience overseeing stock and bond research analysis. He has a proven track record of working with the asset management, investment banking and sales teams to achieve the financial targets.