Big events can be a great source of learning. Like the pandemic, which has drastically changed all our lives over the past year. I think it has lessons for life in general, but I specifically like the investing lessons it has taught me, or at least reiterated ones learned before.
Here are five that I like to bear in mind.
#1. Be prepared for change
Stock markets are constantly in flux. And that always represents an opportunity to investors. Like the stock market crash of March 2020, which provided a unique opportunity to buy stocks at dirt cheap prices. The crash happened for only a limited period of time, but if I had made investments then they would have yielded me some big returns.
#2. Buy on dips, sell on highs
The market crash was actually an example to buy on extreme dips, even if it looked like the world is about to end. Typically, that is not the case.
But perhaps even more importantly, I also like to sell on highs. While it is good to have notional capital gains, there is nothing like realising them.
I typically like to hold stocks for 3–5 years. Had there been stocks in my portfolio I had held for as long as that, it may have been a good idea to sell them. This is because some safe stocks reached all time highs as the pandemic dragged on. It is good to have a share price target in mind to make such sales at highs.
#3. When in doubt, trust the trend
Some companies fell on such hard times last year that their share price trends became indistinguishable from those that had been poor performers for a long time. Aviation companies are one example. In such cases, I looked at their past performance with care because that can give me a good idea of their post-pandemic potential.
#4. Diversify the investment portfolio
To ensure that my portfolio has the potential to grow even during bad times, I like to buy a diversified set of stocks. This includes cyclical stocks that will do well when the economy is growing, like retailers and luxury brands, as well as safe stocks that are better placed during slowdowns like healthcare and precious metal miners.
#5. Look ahead, always
Last, even during the worst of times, some stocks or sectors are always poised for take off. I think it is essential not to allow what has happened to distract us from this fact.
It did not take long after the pandemic for electric vehicle stocks to take off, for instance. More generally, the focus on clean energy has become a far more prominent investing option in the past year. It is still early days for the segment, so I think there is much investing opportunity in it, still. I’ll be considering it for my portfolio in future.