Fight the fear and learn the winning investment strategies for the coronavirus crash.
Are you feeling the pinch of the Corona Crisis?
We are. It all happened so suddenly — first the Coronavirus unsettled the markets then the Saudis and the Russians decided to have an oil price war and send the markets into freefall.
Now all the uncertainty around the Coronavirus — how bad is it? How long will it last? What happens next? It seems the market’s not getting up before the count of ten.
That means nervous times for us investors. However, if you have a well thought out strategy, you can’t start to work through towards a positive response and start building towards a bright day in the future.
So what can you do?
Investment Strategies for the Coronavirus Crash
- Hold on to what’s good
- Play the swinging market
- Buy low and play long
- Learn what to do to do even better next time
What’s happening in the market now
Marketwatch.com points out, the road ahead is looking a bit shaky.
In the near term, we expect that coronavirus will cause higher stock price volatility and worsened stock market performance for the first half of the year. As economic growth slows, corporate earnings forecasts will likely be revised downward and equity performance could be muted or negative. Marketwatch.com
Basically, what they’re saying is that the market right now is unstable. We are still not sure how things are going to go, so market prices are going to fluctuate a bit in the short term. And we can already see that happening — the Dow Jones and other indicators are swinging wildly up and down. The latest swing is up with anticipations of stimulus spending by the Government.
However, Marketwatch also warns, and I believe prudently, that given the global slowdown in business, it will be some time before the market rebounds in any permanent manner.
All this, should mean a continuation of the downward pressure.
So what can we do?
Some investment strategies for the Coronavirus crash
1. First of the investment strategies is hold — lock the gates and wait it out
The first investment strategy for the coronavirus crash is to consider holding on. Many people would have felt the pinch of fear and run for the hills. However, this is the wrong maneuver. If you have good stocks, then the first strategy would have been to sell when they were high — but now that the bottom has fallen out, the best bet is to hold on. If you sell now, you accept the loss.
Of course, there are other opinions here, and we look at one in the next step, but very basically, the first strategy is keep playing.
As Marketwatch points out:
It’s important to put this in context: while market declines are unpleasant, they’re also common. On average, the stock market endures a decline of at least 10% about once a year. Historically, these losses are recovered more often than not, and the overall trajectory of the markets, like the overall trajectory of the economy that the market reflects, is toward growth. Focusing on longer term goals rather than day-to-day fluctuations isn’t easy, but it has consistently proven successful. A knee-jerk reaction from heightened emotions can derail your entire investment strategy, especially when retirement is on the horizon. MArketwatch.com
So, if you have good investments and you can hold on to them. The first strategy I would consider is hold and wait.
We are playing this game now. We should have sold before the fall. We even said, it was time to start collecting cash. But we didn’t. And we resisted selling on the way down, always thinking, ‘it’s not that bad, it’ll turn’. Well it didn’t turn, so now it’s time to hold and wait for the value to return.
Of course this works if you have good stocks and you can wait — if not, well maybe you can risk a more dangerous game.
2. The second of our investment strategies is play the swinging market
So, the market fell — you didn’t sell, or maybe you did and you now have very little to play with.
So what can you do to make it back?
Day trade — basically gamble your way up.
By day trading, I mean being very active in the market — as in all day, everyday, watching and trading.
As we have a very volatile situation at the moment — with stocks going up and down wildly, there are oportunities to make some profits.
If one was able, and ready to take the risk, then one could buy stocks when they appear to hit bottom. As they rebound, sell them and make a profit. If you can time these swings and be ready to do the trades, it is possible to make some quick profits from the volatility of the market.
We are currently contemplating this strategy. We are considering using a small percentage of our capital. And with the stocks we’ve been watching, we see how they crash down, then bounce back, before they get sold off again.
We are thinking, we buy a small amount when they drop and then when they bounce we sell, therefore making a profit.
With some recent swings of 5% or more, you could make some quick returns. However, as always, you need to factor in trading and tax costs. And know that it is impossible to time the market. Who knows when they will drop, when they hit bottom, when they will bounce. You need to watch all day long and be ready to make a move.
But this is the time to try. Even if we miss time it, we’re still buying at a low price. If the price drops, we can just hold out for future increases when the economy finds its feet again. (We’re obviously anticipating the future being much brighter — you have to decide if you agree or not.)
This brings us to the next investment strategy during Corona.
3. Buy low and long and play for the future
So, if the day-trader option is a bit too risky, the other obvious strategy is buy low, hold, sell high. Now that everything is through the floor, virtually whatever you buy will be cheap. You just need to buy smart, and when the craziness is all over the prices should go back up, you make a great profit.
There’s only one catch — when do you know when to buy?
What if we buy now and it goes down even further? Won’t we lose more?
And effectively, yes, if you buy now and the price goes down, you will be left holding less value. Though right now, things are pretty cheap, so in the long run prices should go higher than their current level.
Timing the market
However, yes, you could try to time the market. Hold your cash and wait for the perfect moment. Though historically, the market is impossible to time. If you miss the wrong day, you miss out on a potential fortune.
And so, another great investment strategy for the Corona crash is the strategy of dollar cost averaging:
Dollar Cost Averaging
Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. Dollar-cost averaging is also known as the constant dollar plan. Investopedia.
So, instead of trying to time the market, you decide to share out your investment over time. In this way, if I buy some today and then the price goes down, well then I can buy more at a lower price tomorrow. As the long-term price is likely to be higher than both purchase levels, I will get the advantage of buying very low, moderately low and average prices. The average will mean I get the benefit of buying low and selling high. It also means I avoid the risk of trying to time the market and missing a potential jump in share price.
3. The final investment strategy for today
Study what is happening right now and know what to do next time.
We know, now, when we start to see the signs. We have actually played the game and experienced the movements of the market. And we have learnt some valuable lessons.
- We know that the market grows from undervalued, to valued, to overvalued. When it gets to way overvalued it crashes.
- We now know what that feels like. We experienced the end of the long period of awesome growth, followed by a slow down, into an awkward period of volatility, then a cash.
- We saw that it was time to start holding money, as everything was overvalued, then a hint of a bad catalyst out of nowhere took it down.
- So next time we can be prepared to take more advantage of these times.
Investing can be a risky and fearful game.
However, it really is the only ticket to financial freedom. So, while we definitely made some mistakes, we’ve also got a whole lot of valuable experience, we learned some lessons and we’ve now studied the main investment strategies we’re looking to employ to continue playing the game and striving for financial freedom.
While I call it a game, you should be very careful and know the risks. If you are not prepared for the risk, then don’t get started. And if you need, seek professional advice.
This Blog is created and provided for informational and entertainment purposes only. Under no circumstances does the information presented on this Blog represent a buy, sell or hold recommendation on any security. The information in this Blog constitutes the Author’s own opinions and experiences. It can not be considered expert advice. None of the information on this Blog is intended to provide any tax, legal, investment or trading advice. Nothing provided through this Blog constitutes a solicitation of the purchase or sale of securities or futures. In reading this site, you understand that the Author is not advising you personally concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.
If you enjoyed this, please read:
Or more at SUCCESS24x7.