Investing lessons learnt during Coronavirus outbreak

What I noticed as an investor is that investing is affected by almost everything that affects people. The prices of investment products are greatly affected by people’s emotions (more specifically fear) and what they perceive about the future. On this post, we will discuss investing lessons learnt during Coronavirus outbreak.

Regardless of the fact that Coronavirus has no direct link to share prices or commodity prices, its deadly nature ensures that economic targets are heavily affected. Due to the fear of contacting the disease, people stopped going to work and factories were closed. This heavily affected the production of goods and services.

The most shocking fact is that even in continents like Africa where there were few cases of the Coronavirus, the effect of the virus on the financial markets was heavily felt. Investors sold their positions in search of what was perceived to be more secure investments.

Investing lessons learnt

1. The world is more interconnected than what I thought. When you are making investment decisions, you do not need to focus only on your country but on the whole world.
2. Understand your reason for investing. Is it for long term value or for short term gains? For someone looking to benefit from long term growth, a temporary crisis does not have to make you panic.
3. Adopt a strategy that is well suited to benefit you from the crisis. During Coronavirus outbreak, people are driven by fear, therefore they will panic sell their positions making many risk products more cheaper. This is the time to buy more cheaper investment products – oppose the tide! The Average Down strategy proved to be the best since it will pull down the average cost of your investment.
4. Have back up cash reserves to take advantage of cheaper investments. Without money, it may be difficult to capitalize on cheaper investments especially when you are adopting an Average Down strategy.
5. Patience is one of the greatest asset you need to be a great investor. A patient person is not driven by panic. Patience will also help you to decide if it it a good time to buy or not.

In conclusion, investing in times of a crisis is very challenging. The challenging part is that you do not know the impact the crisis will bring. It is also crucial to analyse if the crisis is only short term or long term in nature. Coronavirus may be short term but its damaging effects to the economy may be felt for a long period of time. This understanding is very important before you consider adopting any investment strategy. This sums up the investing lessons I learnt during Coronavirus outbreak.

The Finance IQ

The author is an Investor  and a Software Engineer who provides consulting services to several Financial Services companies. He has background in Actuarial Science (BSc) and Financial Engineering (BScHons; MSc).

thefinanceiq.com