The crisis that has engulfed the world is awful, and none of us feel good about it. In such times it is hard to see beyond the bad news. But I think there are three options for investors wondering what to do during this stock market crash.
It is important to remember that stock market crashes create buying opportunities. There are, however, aspects to this crisis that are quite unique. Many companies will go bust. Yes, buying opportunities will be created, but tread with care. Just because a company is cheap, it doesn’t mean it’s a bargain. It may be cheap because it is struggling to survive. I also happen to think that this crisis has a lot longer to go. We are nowhere near the bottom yet.
Here are three things I think that an investor can do during this particular stock market crash.
Acceleration of digital
First, l think the Covid-19 crisis will see an acceleration in the move towards digital. Remote working has increased enormously for obvious reasons. I feel that many companies, when this crisis is finally over, will want to continue encouraging some remote working as much as possible.
That means companies that provide technology that supports remote working will flourish. This trend will be good for cybersecurity companies such as Sophos. And BT Group is becoming a major player in cyber security too.
But be careful as we are already seeing reports of a reaction against some digital services because of concerns regarding inadequate cybersecurity and privacy safeguards.
Asset Diversification
Secondly, remember that some assets can perform quite well in times of uncertainty. Ask yourself what funds do with their cash when they sell equities. They will often buy low-risk or safe-harbour assets such as government bonds or some ultra-safe corporate bonds. As a general rule, such bonds often increase in price when equity prices fall. I am not suggesting put all your money into these assets, but you could think of investing some of it this way.
Patience
Finally, be patient. Remember what Warren Buffett said: “The stock market is a device for transferring money from the impatient to the patient.”
I think that right now, investors are worrying that they might miss out on a market recovery.
History, tells us that markets fall rapidly and recover slowly. Predicting the point when markets have reached bottom is impossible unless you have a time machine!
Assuming you do not have such a device, you can limit your downside risk by drip-feeding your money into stocks. I would say there is some seriously bad news on the global economy to come. Until then, pick your investments with even more care than normal.
And a saying
I will finish today with a saying. The time to buy is when all but the most bullish of investors have become bears. The time to sell is when all but the most bearish of investors have become bulls. For my money, there are far too many bulls around to rush back in indiscriminately. But there are also some solid companies with strong recovery prospects trading at attractive prices.