6 Ways This Crisis Is Changing Investment Strategy By Simon Pearson

By
Simon Pearson
6 Ways This Crisis Is Changing Investment Strategy By Simon Pearson

The COVID-19 pandemic has emerged as a new threat to the world. As it has affected almost every continent of the world, most countries imposed a strict lockdown to protect their citizens to flatten the infection curve. This crisis has created turbulence across the global economy to its core, shutting down paths of activity and crushing stock markets. Due to lack of economic activity in markets that may appear inaccessible right now and there have been declines in productivity and income.

As the world starts to re-open, most economists agree that a V-shaped recovery looks unlikely. There won’t be a return to “normal” for a while. The world economy has come to a halt, companies are still struggling to survive the downturn, leading to unemployment on a scale that has not been seen in decades, revenue losses and financial insecurity, which in turn has its impact on the financial markets and investment portfolios. Still, a business must continue, and investment deals must continue to be made.

Jeremy Cheah, associate professor of cryptofinance and digital investment at Nottingham Business School, says: “With low aggregate demand and both monetary and fiscal policies maxed out, there is very little hope, I’m afraid, for a return in consumer confidence. So, most stocks have been reset to reflect their intrinsic value in the new normal.”

2020 is not going well for investors. What worsens the situation is the uncertainty about how long this pandemic is going to last. In such a condition it is normal for investors to be worried about managing risk and protect their wealth. Investors across the world are concerned about the declining value of their investments. An era of wonderful growth and strength has made it appear easy to make money from the stock market, while an increase in cheap tracker funds and digital investment platforms has opened investing up to a broader audience than ever before.

Funds are usually the best place for investors to get going in the market. They help to expand a portfolio and are cheaper to buy than individual shares. But it is very important to understand what you are buying, study into the fundamental holdings of funds is important at all times, but decisive when markets are unstable. Investors are often told that it’s good to buy on the dips but when the stock market falls, it’s important to accept things can get worse before they get better. Dripping money in slowly may be a better way to play developing value opportunities.

Long-term investors focus to ensure that they take benefit of the significant disruptions arising between shares prices and fair values. Those who have entered the markets at some point in the last 10 years will be sustain their first major crash and the inclination might be to get out now and never go back. But sell-offs are a natural part of market behaviour. Indeed, they can provide huge openings for those with a steady head. Poor investment decisions are likely to be made when investors neglect their process, especially in times of raised market stress. Instead of escaping, history suggests holding your nerve is likely to pay off, and for those who haven’t yet made their first investment now might be a once-in-a-lifetime opportunity to get started.

“Rule one for any investment strategy has always been, and always will be, don’t panic. Investors should plot their course through the market, ensure they are well diversified across asset classes, industries and locations, and maintain a long-term view. COVID-19 does not fundamentally change this,” says Marc Beattie, co-founder and chief operating officer at Arlo Wealth.

The world has changed, leading us to a completely new macro framework and major view changes. Whether you’re an investor, founder or simply someone interested in how investments will play out, here are some of the most important things to keep your eye on.

6 Investment Strategies

1. Increased competition and less cash

Competition increased for all companies alike that one which is in resistant sectors are getting to be more difficult competition for the investor funds available. Several investors are hedging and managing their investments only in few high-potential companies that are restricted, which is acceptable given the current economic climate. There are two options for the investors to start a new business: the first one is that they continue to bootstrap. In this period mostly investors try to survive without getting funds and secondly, is to spruce up a grade level to fight with another startup trying funding now.

2. Shift to necessities

It goes without saying that in times of crisis, people begin to protect their funds, choosing to spend more on essential items like food, clothing and shelter as opposed to luxuries. As a result, some businesses in the food industry have continued to operate and serve customers, although often with significant shifts in their business models, such as moving from sit-in restaurants to delivery-only services.

Naturally, investors are attracted to such resistant sectors and businesses, which explains why although quite a few major investment deals have happened before the outbreak, such as the acquisition of Jimmy John’s Sandwiches by Buffalo Wild Wings owner, Inspire Brands, many others have been made more in recent times as well.

3. Reduced valuations

For startups that choose to search for funding in this period, one critical factor to keep in mind is that estimates are likely to be reduced across the board. Traditionally, valuations have generally been impacted by the economic conditions of the time, and this crisis is likely to have a more significant depressive effect than other downturns.

Ultimately though, valuations happen on a case by case basis, and startups with exceptional models and attractiveness to investors might still be able to negotiate great terms.

4. Social entrepreneurship

Beyond the impact of the crisis on companies as corporate bodies, there has also been a terrible impact on individual employees, with the US reporting the highest unemployment rates since the post-World War II period. Several companies have made donations and taken other steps to cushion the effects of the crisis on their employees and host communities.

Apart from the philanthropic intent, businesses seen as being aware and helpful are getting a reputational boost. For instance, this survey showed that more than half of Americans would buy a local product even if it costs more, to support the economic recovery.  That is likely to affect investment outlooks as well, since investors will be looking to support businesses that solve some societal problem, thus boosting their reputations and also cashing in on the attendant financial returns when things return to normal (or as close to normal as they will).

5. Fintech and e-payments

With social distancing regulations in place across most of the world, the use of cash has become even more terminated. Fintech companies that ease transactions with little or no contact are growing significantly.

Beyond merely being resistant to the economic shocks of the crisis, investors are looking to the Fintech sector as one that might actually grow in the short and long term. After all, they facilitate the kinds of safe, efficient, cashless transactions that are required now and will likely be the leading norm after the crises passes.

6. Invest in Gold

Gold is a safe haven asset and investment in gold can be particularly important during times of systemic risk. Considering raise in global economic uncertainty and low to negative interest rates across the globe, gold as an asset class should continue to do well. Investors can consider buying Dominant Gold Bonds that generate an interest income of 2.5% annually with gold prices linked upside.

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