QUIT THE FEAR - GUIDE TO INVESTING IN TIMES OF COVID-19

Photo by Images_of_Money on Foter.com / CC BY

While researching behavioral patterns of local investors in recent times, I stumbled on quite some interesting data that I would like to share.

The chat above depicts data from Google search trends showing search interests of web users for the following topics: “COVID-19”, “PANDEMIC”, “LOCKDOWN”. For everyone who operates a smart phone, it becomes obvious why these trends follow the depicted patterns over the past two months, but what I found more interesting is the data depicted in the next chat.

When I juxtaposed similar search interests as seen in Chart 1 with search interest topics like “SAVINGS”, and “INVESTMENT OPPORTUNITIES”, the contrast was alarming. Data can be interpreted in many logical ways, and rightly so, any reader of this article is at liberty to draw any kind of conclusions from the chats above.

However, looking beyond the numbers, my deductions from this is that there is an underlying distressing existence of a behavioral bias known as loss aversion. Loss aversion occurs when investors place a greater weighting on the concern for losses than the prospects from market gains. Put in simple terms, investors become far more likely to assign a higher priority on avoiding losses than making investment gains.

I acknowledge that we are passing through uncertain times, and one might say that the future holds even more uncertainties which can cause fear and even panic. Panic is a consequence of fear, and fear numbs our abilities to think or make rational and optimal decisions. There is no better time than now to stress the need to fight back against these urges. 

One of the best ways to feel a bit more in control is by saving more. Building up a stash of cash can give us choices when we feel like everything else is falling apart. At the very least, it can help us feel a little less uneasy about one very vital part of our lives.

Allow me to share in summary, four strategies for investment in times of COVID-19.

a) Pay keen attention to your expenses

As places and activities remain locked down, we are presented with a multifaceted opportunity. Less things to do translates to less things to spend your money on, and it’s important to seize this as a rare opportunity to re-think your spending habits and switch your behavior to the more frugal way by putting a check to your pre-pandemic spending habits.

b) Plough back all savings from your reduced spending habits to investments that match your objectives

It doesn't matter how much or how little you have available to invest, what matters is that you are regular at it. Being able to frequently set aside money to invest requires some level of discipline, but it always pays off eventually. However, ensure to match your risk and return objectives with suitable investment choices that you can have a full understanding and control of.

c) Seek / Focus on quality

The real value of your money is worth as much as the value of the assets you purchase with it. High quality investments are consistently profitable, growing, and provide the investor with a great upside potential for wealth creation in the long run. A good example of such would be an investment in fundamentally sound stocks. 

With the scale of the global market sell off we have seen in 2020, now could prove an opportune time to buy quality stocks at current depressed price levels, or to invest in funds with a quality tilt towards stocks that have been dragged down in the panic. Warren Buffett couldn’t put it more aptly when he said, “Be fearful when others are greedy. Be greedy when others are fearful.”

d) Wait it out

Investing, like any other endeavor in life, requires a huge deal of patience. To be a successful investor, you need to invest carefully and sensibly and then have the patience to let your investment grow. Investors with the ‘get rich quick’ mentality are generally not successful. It is pertinent to advise that you keep off investments that offer outrageously unrealistic returns. Frauds are starting to appear, and so will Ponzi schemes. Do not let your investment decisions to be driven by excessive greed.