2020 will go down as one of the weirdest years ever in the stock market.
In late February, the US stock market began to rapidly sell-off due to the coronavirus. On March 23rd, the Dow Jones Industrial lost all of its gains from the Trump election and hit a low of 18,332.74 before slightly recovering and settling just slightly above 18,500.00. The NASDAQ grazed the 6800 levels.
As of August 31, the Dow Jones now sat at 28,430.05. The NASDAQ at an all-time high of 11,775.46.
Through all of the carnage and madness, I was investing every step of the way.
Below are the top 4 things I learned as I invested throughout the pandemic:
1.Capitalize on Opportunities
Every day there were new headlines on the coronavirus; An increase in deaths, new travel bans, and sports stoppages. You couldn’t avoid it.
Every headline also presented new opportunities. The market had violent swings, dropping 1,000 points on a number of days. Below is a chart depicting these drops in late February alone:
While people were panic selling, I was panic buying. For every 500 points, the Dow shed, I was opening or averaging down on new positions. It seemed like stocks couldn’t stop making new one year lows.
In times of duress, humans have a difficult time seeing the road ahead. We tend to focus on what is in front of us. For many, that can be a very painful experience when your portfolio drops 30% in one week. For some, this presents an opportunity to go shopping when stocks are on sale.
2. Maintain a Cash Position
Cash is king. This is not a revolutionary concept. Your purchasing power directly correlates to the cash in your pocket.
As stock prices continued to fall in March, it was paramount to have enough cash to Dollar Cost Average (DCA). Just as no one can predict market tops, no one knew where the bottom was either. Mcdonald’s stock seemed like a steal at $170 until it hit $137 on March 23rd.
The key was to remain disciplined and keep cash aside to slowly fund positions as prices dropped.
3. Build a Bulletproof Portfolio
As the mass exodus in stocks occurred in March, I found it key to identify damaged stocks and not companies that would be adversely impacted by the coronavirus. This meant buying consumer staples, tech, industrials and solid companies with strong balance sheets that would survive [Hint: Be on the lookout for a future article with my portfolio holdings ;)]
I reflected on the crisis of 2008 and selected companies that made it out alive. I looked around my house and identified the products and companies that manufactured them that I knew I could not live without. It was a matter of building a portfolio that let me sleep easy at night.
4. Humanity Wins
It is said the darkest hour of the night comes just before the dawn — Thomas Fuller
Although the pandemic is not over by any means, we have come a long way from the lows of a few months ago. Some will say March was a once in lifetime buying opportunity while others will argue that we only hit the tip of the iceberg. Regardless of your thoughts, it is hard to bet against humanity and the desire for progress.
Stimulus checks, reduction in case counts, and vaccine progress. Nowadays the positive headlines far outnumber the negative. This is a stark contrast to five months ago. These positive catalysts serve to remind us that the wheels of progress continue to churn forward.
No one knows when the next crisis will hit. What is known is that when it does, one must maintain a steadfast ability to drown out the noise and focus on the opportunities at hand.
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You should not treat any opinion expressed on this website as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the author considers reliable, but does not warrant its completeness or accuracy, and it should not be relied upon as such.