As coronavirus officially becomes a pandemic, staying calm becomes even more important - March 18, 2020
The world is fighting COVID-19, which officially became a pandemic last week. As more people are forced (and choose) to stay home, economy and production is taking further hits. During a time like this many experts believe that staying calm is more important than ever. It’s also more fruitful.
The global economy continues to suffer under the weight of the coronavirus pandemic. The problem is clear: as people stay home, global production slows down, therefore stock prices are sinking as well. Experts like us, however, don’t think we should bury everything forever.
Goldman says: stay calm
We have already underlined the importance of discipline in situations like this, but we’re far from alone with our cold-headed ideas. Co-head of Goldman Sachs Asset Management told CNN “What we're actually telling clients to do is to stay calm and to stay invested”. Katie Koch’s argument was the following: although a slowdown is possible, the economy moves in cycles so investors shouldn’t panic, as things will probably get back on track with time.
They also understand that “the reflex might be to sell as soon as the market flashes panic” but finding the right time to cash out is rather difficult. This means that it’s hard to predict for how long will the prices drop, and when they will start to go back up exactly. Why is that important? Because bad timing can hurt an investment really badly (see: The price of choosing emotions over discipline).
Corrections bring chances
What’s more, economic situations like this can bring great investment opportunities as well.
Our very own expert said that investors thinking on long-term love to “gather” stocks when prices are so low. Of course, picking the perfect time to enter the market is near impossible, but these repurchases can be spread through time.
The Goldman Sachs leader also underlines that this situation may be a great time to rebalance portfolios and add some cheap stocks with great potential. Furthermore, sectors like health care, biotechnology and even consumer companies can generate great interest.
Luckily, most of the steps above are done by portfolio managers for the everyday investor. What definitely lies on the shoulders of the private investor, though, is to stay calm during this period, even if it’s not easy.
Not a crisis, a slowdown
Calmness in this situation is generally advised. More and more governments are taking steps to slow down the spread of the virus, and one of the most common steps is to create some sort of social distancing between citizens. The final step of this is quarantine, but not all countries find that necessary at the moment.
This also means that this situation now is not an economic crisis we’ve seen before. This was the opinion of a New York Stock Exchange floor broker too, who talked to CNN. He said that 2008 “was clearly a financial crisis, people were not panicked about their health and well-being. That's what you have going on here”.
We’re not saying that the effects of coronavirus aren’t serious, but we believe they aren’t permanent. Goldman Sachs also expects markets to recover, just not immediately. Which also means that long-term planning might be better than acting hastily.
Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.