Barely one quarter of the year has passed, and we all have been thrust into uncharted waters. The global economy was already slowing down in the year 2019. But things got a bit rough as we are approaching what could be the toughest challenge of our lives as investors.
People in the Asian region have experienced the fear and effect of COVID-19 in late January, before the Lunar New Year. But it is spreading, impacting Europe and the United States of America. Not to also mention the out of the blue oil price war Saudi Arabia is waging with Russia. The near term looks bleak, with plenty of downsides.
This is not the first time we all experience pandemics and oil price crashes. Both black swans happen to strike us around the same time, hence increasing the magnitude of fear. Nevertheless, the current bear market is a great learning opportunity for us. This is what I learned.
1. Hindsight is always 20/20
“I should have sold my shares before the crash!” Well, that is easier said than done. We can never predict the future, I have accepted that I will never be able to consistently buy at the lowest and sell at the highest.
But I am aware of my stock analysing abilities and investing principles. I know the differences between expensive and cheap, and the business model of a company. And I also know that price sell downs are temporary, but great businesses still operate day in day out. So, it makes pretty darn common sense to buy fantastic businesses at fantastic prices!
What about those companies that I am holding with some losses? Well if nothing wrong happens to the company, the current sell down is an opportunity to buy more!
Once everything returns to normal, as it has always before, the share price will recover. So rather being nervous from the market crash, think about how great it would be during the recovery.
2. Greed and Fear will always create market volatility
In the past, some investors argued that the market was more volatile. This is because the markets went down faster as there were fewer buyers holding the line. Well, that is just not true. With the ease of trading now with the internet, we still see the market over-reacting, more than ever.
Greed and fear in the market is what made Warren Buffett to be the world’s best investor. Emotions can get the better of us. Most investors would feel the urge to time the market. Evolution has taught us to flee at the sight of danger. But when everyone flees at the same time, what we get is the current market crash.
3. Principles and advice are free, but conviction is hard
Do a Google search on “Warren Buffett investment quotes”, you’ll get hundreds of them. We can probably recite some of them. Yet, practising them might be harder than they seem.
One of Buffett’s most famous quotes is “It’s far better to buy a wonderful company at a fair price, than a fair company at a great price.”. It’s about buying great companies with long runways. Companies that are able to grow, but that requires time.
Investing for the long run is not everyone’s cup of tea. Value investors are having their tenacity tested in this current bear market.
Value investing is not about having a spotless portfolio and never losing money. It’s a state of mind that guides you through tough periods like this. Your portfolio a few years down the road, will be the end product of holding true to the tenets of value investing.
4. Staying Rooted to Previous Historical Lows Could Be Erroneous
There are some individuals who have been waiting and timing for a market crash.
But with no accurate method to analyse and valuing a company,
They tend to wait for conditions to match the previous historical lows
The price of a company is the “result” of the company’s earning capability and growth potentials. There are companies who have grown so much for the past few years. If you have invested in such companies 5 years ago, the current crash would have made only a small dent.
Should you have bought Facebook Inc. (NASDAQ: FB) 7 years ago, it would still have given you a 100%+ gain.
The same goes for Alphabet Inc. (NASDAQ: GOOG), where you are also sitting on a 100+% gain.
So, does it make sense to wait for Facebook Inc. and Alphabet Inc. to go back down to the price of USD$ 50 per share and USD$ 500 per share? Both companies have grown so much for the past few years. Any price anchor bias might make you lose out on this opportunity.
5. Health Is Wealth
There is always a risk of us contracting COVID-19. Health is the utmost important aspect during this pandemic.
It is important to wash our hands and not touch our face. A good night’s sleep is important too for us to be in our best shape. With a sound and clear mind, we will then be able to make smart decisions to capitalize on the current bear market.
You might consider to readjust your portfolio and priorities. Or increase your savings amount should the current market is making you sleepless.
Tough times don’t last but tough people do. It’s good to have the right approach to curate a portfolio that has high future prospects. Investing in companies with good economic moats also makes your portfolio resilient in the very long run.
But it all will mean nothing should we are not in the best of shape 10 years from now.
So, stay safe, and invest safely. May our health and investments prevail!