If you are looking to learn how to invest during a pandemic – or any crisis-like market condition – and thrive, then you are in the right place. We have all seen how the pandemic has impacted the market with no end in sight. The pandemic has presented few opportunities for financial opportunism, however, it is necessary to do whatever it takes to protect our financial future and safeguard our wealth. I want to help you understand what this even means and how to take advantage of it.
In this article, I’ll share some of my best recommendations to minimize risk while investing during the pandemic.
As always, the information presented in this article is for informational purposes only and therefore, should not be misconstrued as financial advice. Take the time to speak to your financial advisor before making any investment decisions. Also, do not invest any sum that you cannot afford to lose. Exercise due diligence (always) and research every investment beforehand.
Go Long On Cash
Consider taking a long position on cash. Having cash on hand help hedge against risk in the securities market and can reduce exposure to market corrections if they occur. In other words, you need to sell before the price falls and have cash ready to get the best price in the future when the market starts to turn around.
Prices do not always stay low forever, so its important to act quickly. There has never been a better time than this to invest in the past 10 years and invest for another 10 years. Take this time to educate yourself about how COVID-19 has impacted on various industries. Some have creased completely and struggling to recover, others are soaring. Most company stock prices have dropped even though it isn’t the company’s fault but rather because fear has gripped the market driving people out.
So don’t miss this great entry for going long on the stock market. Allocate a good portion of your investment portfolio in cash reserves and short-term debt securities such as Treasury bills and bonds. Though this strategy may be too conservative, there are a lot of merits to using this strategy to hedge against risk.
Prepare for Re-entry
Prepare to re-enter the market at the optimal. This doesn’t’ necessarily have to be post-pandemic. It could be now. The right time all depends on your instincts and the performance of the stock you are tracking.
Therefore, consider preparing a watchlist of companies ready. Narrow them down the industries within your circle of competence. Its time to select specific companies within those industries that you want to invest in. While you do this, keep in mind that you are investing for the long-term -10 years or more.
The 4M Investment Analysis
When drafting this list, consider the companies that meet the 4M’s rule of investing during times uncertainity, which are:
- Meaning: Understanding enough in terms of value the business offers, and be confident enough to like for the long haul.
- Moat: You want to select a business that has an impenetrable advantage over its competition to last for the long haul.
- Management: The company is managed by people who invest surplus capital in a way that generates a great return on investment. Therefore, assess management, particularly the CEO as trustworthy, responsible, and driven.
- Margin of Safety: Determine your minimum acceptable rate of return and ensure that the company can meet or exceed this return over the next ten year period.
If a company meets these conditions, then it’s a great business to invest and well worth being in your watchlist.
Strength Indicators
However that’s to the end of it, you’ll need to further assess those companies. Now you’ll also need to consider companies that are most likely to overcome the pandemic. Key indicators for businesses most like to overcome are high demand, price control, tangible necessities and small luxuries.
- High Demand: Consider companies that experience high demand and likely to be positively impacted by the pandemic.
- Price Control: Consider a business with generous market edge and can raise prices with inflation.
- Tangible Necessities: Consider businesses offering things will always be needed and remain valuable such as power, food and more.
- Small Luxuries: Consider a business that offers small luxuries – inexpensive benefits that people indulge in order to maintain a semblance of normalcy during this time of the pandemic.
Learn More: How to Evaluate The Quality of a Stock for Long-Term Value Investing
Alternative Investment Stategies
The world of investing is deep and there are always alternatives to conventional investing strategies. However, it always advisable to invest within the scope of your own competence. Some of the most comment strategies historically and in recent times are as commodities and cryptocurrency.
Add Commodities
Commodities, particularly gold, silver and other precious metals are considered the best safe-havens assets to invest in during times of instability and uncertainty. Why? Because doesn’t produce anything, therefore less risky compare to a blue-chip stock that can fail. Since the beginning of the global outbreak of COVID-19, the price of gold has held its value exceptionally well. In fact, in the last 12 months, the price has risen by 27.83%.
By comparison to the NSE’s 20 Share Index, has gone down by about 35.65% in the last 12 months. Historically, when the stock markets nosedives, the price of gold and silver trends to either stay the same or experience an upward price movement.
Since many of us cannot physically possess or store gold or silver billion, consider investing in the ABSA NewGold EFT that tracks the price of Gold Billion, held in a third party depository in a London Bank.
Consider Cryptocurrency
There is a long-standing debate on whether cryptocurrency and blockchain-based digital assets such as Bitcoin and Ethereum are legitimate hedges against inflation or merely speculative bets. Over the course of the pandemic, cryptocurrency has performed relatively well to many traditional assets even gold. The year to date return on bitcoin is 102.03%. Though bitcoin can be quite volatile, however, it has clearly outperformed the stock market since the outbreak of Covid-19.
Learn More: Things You Need to Know Before Investing in Bitcoin
Bottomline: Invest Wisely
At the end of the day, the aim of any investor is having an optimal portfolio that is somewhat crisis-proof. Keeping in mind that there is no single investment strategy that is risk-free, there are steps you can take to minimize your exposure to systemic, inflation and market risk. So take the time to prepare to buy when the time is right. During this crisis, it is particularly important to focus on this in order to quickly recover afterwards.
Always maintain Rule #1 of Investing – Do not lose money.
Happy Investing!
Image Credits: Top by Olya Kobruseva from Pexels
Disclaimer: This information is provided to you as a resource for informational purposes only.