Coronavirus or COVID-19 has taken the world by storm. In less than three months, this financial tsunami has witnessed dramatic falls in global stock indices.
In nearly a decade, this is the first time that the American stock market is seeing a full bear market.
This downfall can be attributed to a lack of confidence in the future global outlook and a large fall in demand for almost all goods and services.
The travel, hospitality, and tourism industries have been the most affected, due to the lockdowns and travel restrictions being enforced by Governments worldwide.
The same dynamics can apply to a host of other industries like Petroleum, Automotive, and Retail (physical).
At the same time, certain verticals like Cloud Service Providers, Logistics and Supply Chain, eCommerce, Online Entertainment, and Online Learning & collaboration providers see promising opportunities.
Stock traders must not succumb to investment fears or fear of the unknown during these turbulent times.
Some discipline, knowledge, patience, and a sprinkling of luck can help them ride out the Coronavirus wave and come out on top.
Measures That Traders Need To Take
Listed below are some of the measures that traders need to undertake to succeed in the post Coronavirus financial world.
1. Keep A War Chest Ready
Expect to make the most out of this bear market but be prepared for the worst.
Hang on to any excess cash that you have, as no one knows the complete cycle of the pandemic yet.
Be ready for salary cuts or delays in payment, while keeping enough of a cash buffer to tide you through it.
By being prudent with your cash, build a contingency fund to last you for at least six months’ expenses.
2. Reassess Industry-Wise Risk Tolerance
The market is certainly going through a period of flux, and traders need to analyze how the pandemic is affecting various industries.
Traders need to shift their spread between sectors to balance their portfolios.
By rebalancing from overvalued sectors to undervalued ones and from sectors with bleak or negative prospects to those looking positive, traders can expect to smoothen out returns.
As mentioned above, Pharma, eCommerce, and Online Service Providers are some of the sectors seeing positive results.
3. Revisit Your Risk Profile
Don’t be haughty with your risk profile.
Sectors are bound to change dramatically following the pandemic, and traders need to ensure that their risk profile changes accordingly.
It is better to moderate or lower your risk appetite during this time, rather than being uncomfortable later.
4. Use A Commission Free Trading Platform
Since November 2019, a majority of online brokerages are offering a commission-free trading platform.
This is a great incentive for beginner investors, with a limited capital outflow.
These platforms allow you to easily reallocate and rebalance your portfolio, based on daily inputs, without having to pay the commission for each trade, making the cost and effort of diversification cheap and easy.
Keep in mind the difference between being a ‘day trader’ and a ‘pattern day trader’ by following day trading rules.
5. Stick To Businesses With Strong Fundamentals
Analysis has shown that every ebb in the stock market has been best managed by businesses with strong fundamentals.
Even though this crash has not been caused due to economic constraints, it is likely to be similar to earlier downturns.
Weaker businesses are more likely to sink, as compared to strong and steady businesses.
A recent example has been the substantial sale of stake by Warren Buffet in airline stocks, as he realized that the airline business was not viable and did not have the strong fundamentals in a post-corona world.
6. Do Not Wait For The Markets to Recover
The volatility and unpredictability in the stock market caused by the Coronavirus have given rise to various speculations regarding its recovery.
Rather than wait for the market to recover, it makes sense to use available information and rebalance your portfolio in the current scenario.
7. Do Not Try To Catch The Market Bottom
Every trader looks for the ideal scenario of catching the market at the bottom and cashing in.
However, this works best in hindsight! Do not commit your reserves in one shot, to catch the perfect perceived “rock-bottom”.
Taking a staggered approach will help avoid burning your fingers in the market.
There will be plenty of time to do ‘what-if’ analysis later but position yourself even after the market recovers to some extent.
Keep in mind that it is important to stick to your asset allocation and rebalancing of your portfolio, instead of chasing the market bottom.
8. Do Not Review Funds Daily
The vagaries of fund or stock values daily can be quite demoralizing for traders looking for quick gains.
Do not keep a daily track of values, as this is not the time for instant gratification, and grass always will look greener in sectors you have not invested in.
Staring at daily losses could lead to a lack of confidence in your investment strategy, forcing you to make irrational financial decisions with a devastating effect.
9. Should You Not Do Anything?
Based on your risk appetite and current financial needs, it may be more prudent to take certain decisions.
For example, if you are a young investor, just letting your portfolio hang in there, might be the best option.
However, if you are nearing retirement or have some financial commitments coming up in the near horizon, you should make an informed decision to realign your portfolio, rather than to do nothing at all.
In summary, keeping an optimistic attitude towards the market, despite the uncertainties of the Coronavirus pandemic helps.
Stock markets have always overcome difficult challenges in the past, and there is no reason for it not to do so again.
Everyone is bound to make mistakes, but accepting them and factoring them in further decisions is especially important.
Try to build your portfolio for the long term.
As it is well known, tough times don’t last, but tough people do.