Question: This COVID-19 is truly wreaking havoc around the world. My investments are all in the red. I would like to add more to follow the age-old advice of buying when there is blood in the streets. But I do not know when the right time is to do bottom fishing. Can you give some tips? Asked at “Ask a Friend, Ask Efren” FREE service at www.personalfinance.ph, SMS and FacebookAnswer: Here are a few musically inspired tips for surviving the current investing crisis brought on by COVID-19 :
1. Here, there, everywhere – If you are invested already, take heart in knowing that in cases of systematic risk or risks that affect markets across the board, no investment is immune. Diversification will have minimal positive impact. But it is precisely because of this systematic risk that the fall in the value of your investment portfolio is largely not your fault. It would have been a different situation if the value of your investment portfolio was falling in an environment with no systematic risk to bring markets down.
2. We can work it out – On the flip side, it would be foolish to think that the sky is falling. History has shown that man has survived market crash after market crash, the end result of avarice, like the Tulip Bulb Craze (1630s), South Sea Bubble (1711), Florida Real Estate Craze (1926), Great Depression (1929), Crash of 1987, Asian Financial Crisis (1997), Dotcom Bubble (2000-2002) and Global Financial Crisis (2007-2009). In between, there had also been flash crashes wherein markets or stocks would fall steeply within a few minutes and then rebound quickly.
While it can be argued that the crisis brought on by COVID-19 is different in that the enemy is not the greed from within investors and traders but a nondiscriminating virus from outside, history again shows that man eventually bounces back from major sicknesses like the Plague of Justinian (541-750 AD), Black Plague (1346 to 1350), Fifth Cholera Pandemic (1881-1896), Modern Plague (1894-1903), Sixth Cholera Pandemic (1899-1923), 1918 Flu, Asian Flu (1957-1958) and Hong Kong Flu (1968-1969). In more recent times, data from the International Air Transport Association show that international arrivals quickly rebounded after SARS (severe acute respiratory syndrome) and H1N1.
3. Long and winding road – Buying in a market when prices are dropping is like catching a falling knife, you just don’t do it. You will need to be patient. Jesse Livermore, the world’s greatest trader, suggests that you wait not for the pivotal point but the continuation of the pivotal point that is usually supported by large volumes of trade. Technically, China, where COVID-19 originated, needs to first reboot before the rest of the world does.4. Fool on the hill – Don’t believe in a magical recovery in your portfolio. Buckle down and do your homework. Go back to fundamental analysis to see which industries possess the resilience against the financial onslaught caused by COVID-19 and the companies within such industries that have the potential to bounce back quickly (i.e., have high betas to the broad market index). Many online business news providers carry enough financial information on companies on which you could conduct your analysis. But focus more on forecasts rather than historical data.5. Day tripper – When markets move up, no amount of short-term (day-) trading can outperform them. That is why you need to believe that your rebalanced investment portfolio will be best suited not necessarily to outperform the market but to meet your return objectives as tempered by your risk preference.
6. With a little help from my friends – Why not rely on those who have weathered investing crises before. These are professional fund managers who have all the time in the world to manage billions of assets using their portfolio management skills as honed by their long years of experience. You may want to invest new money with fund management houses like pooled funds and investment management accounts.
Follow the foregoing tips to get a ticket to ride the recovery wave. INQ
Efren Ll. Cruz is a registered financial planner of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines. Be a tools-based YAMAN Coach. Details at www.personalfinance.ph/coach.html. To learn more about personal financial planning, attend the 82nd RFP program this March 2020. To inquire, email info@rfp.ph or text at 0917-9689774.