There it is … the long-awaited announcement of a vaccine, which could be available soon. The German company BioNTech and its US-based partner Pfizer announced that their BNT162b2 vaccine would soon be approved. They say that the vaccine is over 90 percent effective. Two doses of vaccine per person are said to be necessary for immunization. The news has caused a run on stocks. In particular, the companies that suffered particularly severely from the lockdown have gained in value. Those developments once again confirmed that stock markets behave like a rollercoaster. We investors can learn a few things.
Stay calm while stock markets behave like a rollercoaster
We see once again that humanity can deal with terrible disasters without everything breaking out in complete chaos. We know that it helps to keep calm and to look at tragedies like the pandemic rationally. We must try to assess unknown situations like a new virus and solve the resulting problems. Mistakes happen, which is always the case with unique and unfamiliar conditions. It is important to keep calm and not to react emotionally.
In the same way, we investors must look at our shares. Our companies are and have been confronted with severe problems. Store closures have caused pain to retail REITs, such as Tanger Factory Outlet Centers or Simon Property Group. They have still not recovered. Carnival Corporation is also in a deplorable situation. After the shares rose 50 percent in one day, the company took the opportunity to issue new shares worth USD 1.5 billion. It will take a while, and it is likely that not all companies will survive this market phase.
To evaluate this situation, however, you must also remain calm. It can be a big mistake to sell the shares now. Panic selling is usually the worst choice. If you are broadly diversified (by this, I mean risk allocation, not asset allocation), you will get through this phase relatively easily. You have a wide range of companies that benefit from different scenarios. Tech stocks that have offered services or products for the home office or DIY stores are currently losing value. But they have performed excellently in the previous months. Now it will probably work the other way around. If you are diversified, you benefit from both trends, which gives you peace and serenity.
So instead of trying to gain control over an uncertain situation by acting overhastily, allow your companies to manage the time to react to the problem. The managers of those companies know the market and the conditions more than you do. Only when you are convinced that your investment thesis no longer exists should you consider selling.
Don’t be too euphoric
The shares are currently rising again. Yeah! But do not be too euphoric. At the beginning of the year, the stock markets had also marked new highs. Over the long-term, stock markets are behaving like a rollercoaster. It goes up now, and it will also go down again. There are enough triggers for such downside scenarios. For example, a new mutation of the coronavirus, as happened in Denmark, may result in the vaccine not being as effective as everyone thinks. Who knows, the stock markets will find some reason to crash once again.
The stocks are running, and we all know that they will fall again but do not try to sell your shares at the peak of the rally. You will probably miss it. Then the shares will continue to rise, and you will look after them. So it can hurt if you try to jump out of the car during a rollercoaster.
Conversely, it is not sensible to try desperately to jump into the rollercoaster at the bottom. You will also miss this point, and so you will stand there and watch the car climb the next peak. Just stay seated, close your eyes, and enjoy the ride.
We should always remind ourselves that we don’t know where the rollercoaster is going, and in most cases, market timing goes wrong. I have predicted the autumn and winter much more cautiously and negatively.
Overall, I wrote three pieces that have dealt in particular with the reasons and possible outcomes of the next stock market crash:
- The Coming Stock Market Crash – Smart Money Is Already Ringing The Death Bell
- The Never Coming Stock Market Crash – Smart Money Is Still Waiting, Here’s What I Do
- Coming Stock Market Crash: Preparing For The Next Black Swan Event
I was wrong (so far). Was that a problem? No, because I followed the steps stated above. I was fully invested during this time and continued to invest every month. I have used the crisis to increase the basis of my humble wealth. Many of the companies I bought in the spring have already paid me a decent dividend. And when it got terrible during the crash, I didn’t look at my depot for two weeks. I closed my eyes and hoped for the best. And now, a few months later, my portfolio has reached new highs. Nice.
Don’t be too greedy
Price increases, such as the current ones, naturally attract investors to the markets again. They smell the fast money and fast wealth. Big money, small money, everyone wants their piece of the pie now. Investors are beginning to get greedy and buy anything that rises. They forget that greed is only a reflection of the fear of missing out.
To avoid greed and fear is another reason why it is essential to remain calm. There is no reason to change your strategy now. Do not rush for the quick gain. Invest in great companies that are profitable and have a future. Invest stubbornly and steadily. Do not let yourself drift or rush. Investing is not a race but wealth management.
Look at all the super-rich people. Do they trade back and forth like crazy? Orient your behavior and investment style to them. Do not fall for any gurus who promise you quick wealth or the really hot deal.
Keep your course, Captain, and everything will be fine.
All the best,
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