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5 tips and suggestions to control the crisis and a recession

Heads up before you read these suggestions. These and other posts like them are my own thoughts and ideas. I’m not a broker/dealer, nor am I an investment advisor. I have no access to non-public information about publicly traded companies, and this is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. These are suggestions, guides, not advice.

Until a couple of weeks ago, the markets stayed unphased by the ever-expanding coronacrisis. Forward three weeks and the markets caught a serious fever. You got to wonder: with steep a decline as we saw these past two weeks, is it time to go in a bit more and “buy the dip” during this coronavirus crisis and are we heading for recession version 2020?

Like always in these precarious times, there are two strong reactions among investors like you and me: some can’t wait to buy, others are more than happy to sell while they still have some green. As you could have read, I’m in the first camp. But as the weeks pass by, it’s clear I need to take a step back. I took a deep breath and for now, wait. Using the following 5 tips I try to stay calm and sweat out this coronavirus crisis.

The R-word

coronavirus recession: I'm Inevitable
A this point a coronavirus recession is all but inevitable it seems.

The apathetic reaction of the market was very strange and a bit surprising to say the least. A lot of people first assumed that it was just another flu and that it would blow over; it clearly didn’t.

The markets have cought up in the meantime and went much lower. The word ‘Recession‘ is frequently[1][2] being dropped now and an almost unanimous conclusion is that it is inevitable.

As we saw the last 2 – 3 weeks, it’s likely that we will see a further decline. There are thousands of new cases daily -and hundreds nationally- with no end in sight. Only China -after three months!- started loosening their measures with no new cases reported for the first time since the outbreak.

A stock market recession might already be here: Thousands of people (+700,000 in Belgium) are technically unemployed, small business owner are forced to close for weeks and probably months. This is the definition of declined economic activity. The markets realize this all to well now. It really looks like 2020 will be a lost year.

5 tips to stay on course

While a decline in the market is sensible right now, it’ll reach an overextended phase where most investors will taste despair. Then we will be for sure in a recession. How long it’ll take before we reach the depths of this despair is uncertain.

What is certain, or at least based on past experiences, is that crises, like this coronavirus crisis, were buying opportunities. Without further ado, here are 5 virus-free tips that can help you see the opportunity this bear market provides.

  • The coronavirus might be inevitable but not infinite. It won’t determine news headlines forever. Once the virus dust has settled investors will be confronted with the reality that leaving everything in cash doesn’t give you any real return. In other words, There Is No Alternative aka TINA. Stocks remain a sure fire way t increase your wealth.
  • Find a balance between staying on the sidelines and buying into this decline. you don’t want to be that investor that is upset they missed the chance of a lifetime to get in a bargain prices. At the same time you don’t want to rush in blindly and put all your money in the market while this crisis is far from over. This is doing a bit of market timing, so it’s good to stick to your plan if you don’t have any extra cash to invest (that you can miss for years to come!).
  • Instead, practice dollar (/euro) cost averaging (DCA). Nobody can predict the future -if you do: please PM me- so spread your investments. Again, if this is already your plan, awesome! But if you have extra cash or are new to investing, now is a good time to train your patience and enter the market step by step. Say you have 10K EUR to invest, consider investing per 1K for 10 weeks. You can play with amount and timing: 1K|10 weeks; 2K|5 weeks; 2.5K|4 weeks.

The following two apply for those with more than one world tracker (I hope you don’t have only one stock?!):

  • Spreading is also name of the game for your stocks or trackers. Whether you have two or 10. Don’t invest all your money in one.
  • Don’t focus on the stocks or trackers that dropped the most. There might be other reasons for their strong decline. There are multiple blue chips or quality stocks and trackers that also shared in the blows while their fundamentals remain strong.
Coronavirus tips
Wash your hands and cover your mouth when sneezing using your elbow or a paper throwaway tissue.

5 suggestions

Besides the above tips you might already know, I’d like to give a few ideas or suggestions where you can look if you want to invest in a specific sector tracker or need inspiration for some specific stock.

  • Sustainable growth stocks: these are stocks that were expensive the last couple of years due to relentless market growth. This general sell-off doesn’t necessarily mean they are sold because of bad fundamentals. Especially this time, stocks like LVMH, a producer of luxury good, is vulnerable for crises that affect consumers in the short term. The company had a strong 2019.
  • Small family companies: and illiquid stocks in general can make weird jumps and drops. due to their low liquidity there isn’t much needed to send them lower (or higher). As such, even though some might not be impact or only impected for a short period, they can still sharply decline.
  • Involved parties: These are companies that are directly affected by the coronavirus crisis. Think airliners like AirFrance-KLM or oil tankers like Euronav. Both suffer from low volumes. Low volumes of passengers and reduced oil demand.
  • Technology: The coronavirus is already causing increased gameplay. Game developers will probably see an increase in revenue; think Tencent, Ubisoft, or EA. But not only games can see an increase in usage. As people are forced to work from home they will use more technology to continue working (Microsoft) or spend more time doing online shopping. This is good news for companies such as Alibaba and Amazon.
  • High amounts of cash: Finally, companies that sit on large amounts of cash and experience a crash are usually interesting. Their cash remains the same, it won’t go anywhere. So, the stock price drop doesn’t reflect real worth of the company. Stocks like Apple, Berkshire Hathaway could be worth a look.

Sweat it out

I hope these suggestions cal help you sweat out this coronavirus crisis and a possible recession. Any future prognosis is like reading tea leaves: maybe fun to pass the time but not worth betting your future (cash) on. Stay calm and stick to your plan.

Remember: this too shall pass. It might pass like a kidney stone, but it will pass.

Did you stick to your investment plan in this bear market?

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Mr. FightToFIRE
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