Coronavirus Serves as a Positive Test for Investors

Legendary investor Warren Buffet once said that the major reason for his success is ‘being greedy when others are fearful and being fearful when others are greedy.’ It is safe to say that we are in fearful times. COVID-19, the disease caused by the coronavirus, has hit the US hard, and it threatens to stretch the country’s healthcare systems to the maximum. The health ramifications cannot be overstated, while the economic effects have started to hit hard. Both the Dow and S&P 500 printed 10% losses on the 12th of March 2020, the worst plunge in over three decades. The losses have been followed by wild swings, but overall, stock trading platforms are showing an overall loss of over 20% since the temporary highs of February 2020. 

The Impact of the Pandemic

Everything is pointing to further losses in the equities market. From the start, the US leadership downplayed the real danger coronavirus poses to the nation. After initially dismissing the potential impact and overestimating the capability of the US healthcare system to deal with a dangerous and highly infectious disease, there was a complete turnaround with President Trump’s sentiments as he declared the disease a national pandemic. The disease is spreading fast across the country, with millions of citizens already implementing self-quarantine measures and social distancing guidelines. There has been a complete shutdown in industries, such as entertainment, travel and sports. Even the most optimistic predictions suggest that COVID-19 cases can only escalate, and sadly, the death toll as well. Businesses will most certainly suffer during these times. Equities can only drift lower as investor fear continues to grip the markets. 

Time to Trade Stocks?

Great opportunities have always presented themselves during tough times; whether it is war, oil shortages or recessions, successful traders know that there is never a better time to pick up value stocks such as now. 

It takes investors who have mastered trading psychology to aggressively take advantage of lucrative opportunities in times of distress. For starters, the market tumble has been inspired by fear and uncertainty arising from the possible threat of the coronavirus. The typical reaction for investors, in this case, has been to reduce exposure to risky assets, such as stocks. The fear is not entirely unfounded, but during tough times, it is important to have insight on how markets have performed during such crises. It is difficult to predict how far the impact of the disease will reach as well as when to get in and out of the market. But the sure thing is that such crises have affected the markets, but markets have always posted impressive recoveries. 

To put this in context, the S&P 500 has returned over 1600% from 1990 to 2019. During that period, there have been three recessions, three wars, the 9/11 attack, a global financial crisis and a rating downgrade of US treasuries, among other crises. Granted, coronavirus is a fast-spreading pandemic, but its fatality rates pale in comparison to other previous epidemics, such as SARS, Ebola, MERS and Swine Flu. The impact of these pandemics on equities was not as profound as the case now, which may suggest an overreaction by investors. Still, the S&P 500 has always rebounded by an average of 10% within a year when crises have pressured stocks lower. 

But Which Stocks Offer the Best Opportunities?

The companies to invest in are the ones that have taken the biggest hits but remain with solid fundamentals to pull remarkable comebacks. As well, companies that are resistant to the pandemic can be solid buys. The first description makes a great case for automobile manufacturers, such as General Motors and Ford. Their sales will certainly stagnate during this time, but the companies have strong balance sheets to weather the storm. Event companies, such as Live Nation, have also taken a big hit as social gatherings are limited as much as possible, but when normalcy returns, the company is set to make great gains. Already, biotech companies are ‘milking’ the current situation to the maximum. Companies such as Moderna and Novavax have seen big gains as their efforts to find a vaccine for the coronavirus have reached advanced stages. Another group of stocks to consider is certainly energy providers, such as Wisconsin Energy Corp and Brookfield Renewable; because whether the COVID-19 spreads or remains contained, electricity and gas will always be consumed by the public. 

We started with Warren Buffet, and it would be fitting to end with him as well. This might be the best time to find immense value in the markets because: ‘Price is what you pay. Value is what you get.’ It is tough times but investing ought not to be tough.

Speak Your Mind