Time to Sanitize and Build Immunity for your Equity Portfolio

  • Apr 06, 2020 AEST
  • Team Kalkine
Time to Sanitize and Build Immunity for your Equity Portfolio

Markets around the globe have been highly responsive to the developments/challenges w.r.t COVID-19 pandemic. The unparallel acceleration in the spread of the disease across borders has created an unwanted and worrisome economic and financial crisis. Investors’ sentiments have shrunk, and the market players arehighly sceptical due to the prevailing situation.

 

We are witnessing events of the selloff in the equity markets with reported economic challenges, while some gains are seen when fiscal relief, monetary initiatives, or virus cure sheds some ray of hope.

 

For instance, markets plunged as an effect ofthe recent message by the US President, Donald Trump, acknowledging the intensifying impact of the coronavirus in the near-term.

 

Let us understand this with the help of the performance of S&P/ASX 200 from 28 March till 03 April 2020.

 

Source: ASX

Source: ASX

 

The S&P/ASX 200 reached 5181.380 points on 30 March 2020 only to fallup to 5076.827 points on 31 March 2020. Not falling further, the benchmark index again climbed to 5258.636on 1 April 2020. Further on 02 April 2020, the index reduced to 5154.302 and finally fell further to 5067.483 on the last trading of the current week.

This high volatility recorded in a week reflects the instability guiding the investors psychology.

It is clearly visible that the current volatility in the financial markets is taking acharge over investor sentiments, and investors are looking for a way to better manage their equity portfolios.

Sanitizers and strong immunity stand as the foremost instruction for the people to tackle coronavirus at the individual level. Given this backdrop, it looks like that it is time for the investors to sanitize as well asbuild immunity for their equity portfolio.

Here, we shall explore a few points that are likely to safeguard/build the investment portfolio of the market participants.

Rethink Your Investments

As we are already one week past the fourth month of the year 2020, we have had enough time toassess various investment options. Some investors have learnt from loses and others from bad experiences. Now that self-experiences, as well as wisdom from expertsare there, investors might want to rethink/redesign their investment options.

Recent experiences have brought several businesses in limelight that have shown strong and relatively stable performance in terms of operations amid the current pandemic situation. Health care stocks have beenstrong performers due to strong demand for their products amidst these uncertain times driven by the coronavirus, along with some racing towards virus cure. Other than this, the performance of some of the information technology/telecom companies as well as fintech players has been relatively less volatile during coronavirus disruptions.

An investor not learning from the current experiences and rethinking his investment options can be termed as willful ignorance.

As we move ahead, the COVID-19 is likely to fade awaywith passing time and markets are likely to gain momentum. Moreover, assessment in current volatile timesis highly likely to assist the investors in long-term investment planning.

Cost Reassessment

Often investors complain about incurring more costs and less income from their stock investments. This can be due to several reasons, one of them being the advisors charging high fees for investment-related services. The fees charged by the advisors is one of the factors that highly moderates the costs associated with the investment.

Other than this, investors also complain about the low-income yield from their investments, while investors may have much higher income from asimilar investment. This may depend on the amount invested as well as the duration of the investment.

Now that markets are seeking for a powerful reboot, investors have the time to analyse the financial impact on their earnings. A comparative view of various costs shall help to minimise the overall cost and ultimately boost the earnings of the investors.

Risk Diversification

The highly governing factor for the investors in current uncertain times is the risk associated with the investment assets. Diversification of investment is said to be a good option for investors to mitigate risk and better manage the earning streams.

An investor can invest in an asset with high risk and can simultaneously make aninvestment inlow-risk assets to mitigate the impact on the portfolio from high-risk assets.

Moreover, the existing investment plans can be assessed for their ability to tolerate the risk.Investors across the globe have lost trillions of dollars of money amidst the uncertainty due to the pandemic and have a fair idea about the varied risks associated with their investment portfolioand can reassess theirrisk-bearing ability.

A Little More Patience

Theinvestors are becoming increasinglyemotional,with high anxiety in the environment surrounds them. This is seen on both sides of the story asinvestors become greedy in times of market touching skies and panic when the market is crashing. Emotion-driven decisionslargely result in less lucrative and bad decisions that cost heavily to the investors.

As recently prominent, markets are struggling to keep investors in confidence to invest further, and vast sell off had been witnessed as an effect of rapid decision making that lacked insightful thoughts.

Clarity on individual goals, its alignment with investment objectives, maintaining discipline in implementing strategy, and others investment mantras fail if an investor loses control of his emotions.

Panic and greed are amongst the most prominent emotions that lead to emotional decision making.

Having a Cash reserve

Cash on hand is the most liquid asset that can be readily accepted for exchange and transactions.

With several stocks hitting record low levels recently, investors have an opportunity to invest in businesses at low prices, with strong fundamentals and high potential to provide lucrative returns in future. Having cash on hand could suffice for this need easily taking advantage of the lower average cost of acquiring a particular stock.

However, investors are required to opt for businesses with strong fundamentals, decent record of delivering returns, maintaining sound capital allocation and having a management team, that would strive to build decent returns for an investor.


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