Covid-19 Crisis: Investing Lessons the Pandemic Has Taught Us
It’s been a year and a half since the stock market crashed in response to Covid-19.
In 22 trading days (from February 19 to March 20, 2020), the S&P 500 fell 30%. It is a record drop in the history of stock indices.
It’s challenging to overestimate all the drama of this moment. Panic reigned in the market. March 20 was decisive for the market: on the next trading day, the S&P 500 index reached an intraday low of 2191. A year later, in mid-March 2021, the S&P 500 index was very close to 4000. It is almost 100% growth from the lows of the Covid-19 crisis.
“2020 can be called the year of investment lessons,” says financial planner Desmond Henry of Topeka, Kan. “A whole book could be written about this.”
Here are four investment lessons the pandemic has taught us.
1. Buy and hold effect works
The Covid-19 effect is good evidence of what Henry calls the golden rule of investing, buy and hold. The investor’s goal is to find quality companies and keep their shares for as long as possible.
“If you don’t plan to hold shares for 10 years, don’t even think about buying them for 10 minutes,” legendary investor Warren Buffett once wrote in his letter to Berkshire Hathaway shareholders. Holding a company stock for an extended period provides an opportunity to see the company’s trend in difficult times in the short and long term.
“This scheme would have worked last year,” says Henry.
2. Pessimism and panic are loss-making
When it comes to stock market analysis, it might seem like experts always expect things to be different this time.
“Every four years during the elections, we hear: if this or that candidate does not win, the end of the world will come”… this could be heard in March 2020,” says Henry.
This fear has arisen in the early days of the pandemic, notes Paul Miller, a New York City-based certified public accountant (CPA). “As the result, most investors were paralyzed and got rid of investments, went into cash and remained paralyzed,” he says. All those who did so have got losses and missed the chance to benefit from the almost 100% growth since March last year.
3. Now is the best time to invest
Against the backdrop of market volatility, investors are tempted to wait for a “better” time. You may think it’s better to invest when the market stabilizes and returns to a steady growth trajectory.
“There’s no need to wait,” Henry says. “The best time to start investing is right now.”
A prime example of this is the almost doubled investment growth from March 2020 to March 2021. As Warren Buffett says, getting your money to market is already a big step towards profit.
4. Unexpected, dramatic drop is easier to stomach
“We saw a fairly narrow range, about 60 days, when people went crazy,” says Miller. The first Covid-19 related stock market crash occurred on February 1, 2020. Therefore, the financial pain was sharp but short-term.
That’s what exactly helped prevent overreaction from investors, Henry said. There was little time to disperse the panic.
By the time investors saw their monthly reports for March, the market had already begun to recover.
