Asked on 12 Mar 2020
The Dow Jones plunged more than 5.8%, while the S&P 500 fell 4.9% and Nasdaq fell 4.7%. Labelling the COVID-19 outbreak as a pandemic would mean greater uncertainty as it sends jitters to markets and weaken business and investors sentiments. But it could also be an opportunity for those who are interested in buying stocks. How can we take advantage of this opportunity and what do we need to know before making an informed decision instead of a rash one?
1) Keep yourself updated of the trend where coronavirus is heading, as well as the measures taken by govt. around the world and various economic bodies e.g. U.S. Fed, ECB.
2) Buy a portfolio with 10-30 stocks. No more than 5% allocation per stock. It's to ensure your risk exposed to any one stock is minimised.
3) Research into mid-to-large companies with market cap $500 million and above. Put those that pass your criteria of strong fundamentals into the watchlist. If need be, you can use jitta.com to assist in your decision-making, among other things.
4) No one knows when's the bottom, so buy in 3-5 tranches. You can go into the market, but don't go all in at one time.
Example: $5,000 per stock.
If it's 3 tranches, then you can allocate something like this: $1,500 (1st tranche), $1,500 (2nd tranche), $2,000 (3rd tranche). Up to you how you want to allocate.
Just make sure that your cost of buying that stock each time is not more than 1%.
5) Hold onto your job, prepare cash and ride this out.
In Warren Buffet's words: "In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives."
Although he's referring to Tesco's business, I think this fits the current GFC as well.
I just think there will be more bad news surfacing.
So unless there is a solid proof of vaccine news coming out and return of confidence in businesses and consumers, I think the market will drag itself until that happens.
Hi Clara, you are right to say that the current downturn presents an opportunity for investors. Personally, I don't think that the market is gonna turn for the better anytime soon, unless there are signs of confidence returning to the market. Currently, looking at the explosive rise in cases around the world, as well as the lack of significant economic stimulants, investors are choosing to stay off the market for the time being.
What I'm doing now to take advantage of the situation is as follows:
1) Research into companies with strong fundamentals, both locally and in US. This is personal preference, as I'm more keen towards these 2 markets. You can look into other countries as well if you have the interest. By researching, I refer to looking at how their business will be affected by the lockdown and interest rate cuts etc, whether their price now is low compared to their book value, whether they are capable of giving dividends in this tough times, their daily trading volume, and other factors. Put these stocks in your watchlist as you track them daily, and take note of how the stock behaves.
2) Track the US futures during the day, and US dow movements at night when their market opens. This will give a general sense of direction in our market (i.e. US market down, usually our market will go down as well).
3) Keep yourself updated on news and analyst reports and sentiments.
The above are not foolproof method, they won't definitely guarantee you a profit should you decide to invest. But by doing due diligence, you can be more confident of your investments, and for companies with strong fundamentals, historically they have always rebounded very strongly after a bearish market.
Hope this helps!
The information we receive is difficult to use as a market timing signal. There probably are still s...
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