COVID-19 Driven Market Crash: Should You Buy or Sell Now?

  • Mar 23, 2020 AEDT
  • Team Kalkine
COVID-19 Driven Market Crash: Should You Buy or Sell Now?

The legendary investor, Mr Shelby M.C. Davis, has very well quoted a piece of marvellous investment advice, “Invest for the long haul. Don’t get too greedy and don’t get too scared.”

Don’t you think it goes great in line with the existing scenario of COVID-induced stock market correction?

It’s a known fact that investing in the stock market is one of the best ways to grow wealth over time via gains earned during a bull market. But, does it mean investing in a bear market can land investors in trouble? Certainly, not always!

The record-setting bull run has now become the thing of the past with the emergence of the coronavirus pandemic, which has wiped out billion dollars’ worth of investors wealth across the globe in the last few weeks. Almost all the major stock indices marked entry into the bear market territory following the official declaration of COVID-19 as a pandemic by the World Health Organization (WHO).

Moreover, Saudi Arabia’s oil price war with Russia at the time of coronavirus outbreak has been adding to investors’ woes.

Over the last one month, the Australian benchmark index S&P/ASX 200 has nosedived by more than 30 per cent (up till 20th March 2020), driven by heavy selling pressure amidst the coronavirus pandemic and the oil price slump. Incontestably, the pandemic is piling up pressure on financial markets across the globe.

While, the S&P/ASX 200 demonstrated signs of revival on 17th March 2020 edging up 6 per cent higher, the journey still is sinusoidal with the index dropping further 9 per cent over the next three days.

Nevertheless, don’t wring your hands in panic and worry, one may check for technical and fundamentals to grab the opportunity to buy high grade stocks at discounted prices!

Investors must not lose hope as the stock market seems to be offering some opportunities amidst the ongoing market turbulence, especially in the healthcare space boosted by virus cure/prevention race, retail sector owing to panic buying in supermarkets, growth-driven tech stocks, real estate and utility stocks with decent dividend stories, banking stocks offering value and hard-hit travel sector strengthening measures to combat virus impact.

Supermarket players such as Metcash Limited (ASX:MTS), Coles Group Limited (ASX:COL) and Woolworths Group Limited (ASX:WOW) delivered decent returns of ~33 per cent, ~5 per cent and ~3 per cent respectively over the last five trading days (up till 20th March 2020), in comparison to the S&P/ASX 200 which fell by ~4 per cent.

Moreover, investors may want to look at bright future of healthcare players like Zoono Group Limited (ASX:ZNO) for its , Eagle Health Holdings Limited (ASX:EAG) and MedAdvisor Limited (ASX:MDR) tapping growth opportunities amidst Covid outbreak.

Amidst fear of losing your money in a market downturn, investors usually tend to miss out on opportunities that would have generated significant long-term returns. But that’s not weird! Human nature is not designed to embrace losses; hence, they try to flee and safeguard their remaining wealth in a bear market. However, this aversion results in investors making impulsive decisions regarding their finances or wealth.

Instead of missing the boat, investors can still search for value stocks, trading at a deep discount to intrinsic value, to beef up their portfolio at the time of market turbulence. They can get hold of their favourite businesses at this juncture, especially companies benefiting from "stronger secular tailwinds”.

It is imperative to understand that periodic sharp declines in stock markets are not new, rather normal and healthy, and the markets have eventually revived robustly over the long-term from a downturn.

Nonetheless, the crucial factor is how to time things out – One needs to be quite watchful in such a case.

The S&P/ASX 200 index is a classic example that recovered vigorously after the Global Financial Crisis of 2007-09, delivering a considerable return of over 125 per cent between Feb 2009 and Feb 2020.

Undoubtedly, the past performance of the market does not guarantee a similar trend in the future, but it underlines the historic strength of shares over the long run.

Let’s now look at the other side of the story!

The world’s renowned investor, Mr Warren Buffett once said, “The stock market is designed to transfer money from the active to the patient.”

If your existing stock portfolio was built considering the worst-possible scenario, the smartest thing you can possibly do in a market slump is “Do nothing”. Leaving your high-grade investments in a phase of poor performing market can still help you reap potential benefits over the longer timeframe. If your financial plans have remained intact over the last one month, one week, etc., it might seem irrational to modify your investment strategy during market volatility.

However, it must not be forgotten that we survive in an uncharted territory and the downside risks to capital still prevail amidst difficulty in projecting the end of the coronavirus pandemic.

Instead of freaking out and freezing into inaction, rational investors can stay in the game, both psychologically and financially, with the intelligence that such panic situations need to be well understood and be taken with a handful of salt (if not a pinch) in the short-to-medium term.

Something to Ponder on - Your appetite for risk and long-term goals can chart-out the way forward for decent equity-driven returns in the next two to three years from now while COVID becomes an Event of the Past!

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