- March 19, 2020
So, the year 2020 begins and things are a little strange (Trump is still president, some are still denying climate change, Brexit & Megxit, etc.) but global markets are doing well. Markets are actually doing very well... maybe even a little too well. I mean the growth, at times, unexplainable!
So everyone is thinking, "a correction must be coming soon right?". Just one problem, everyone has been thinking that for the last 5-6 years. Then all of a sudden, a crisis arises and the markets start tanking but this time it's not due to inefficiencies within the financial sector. This time a coronavirus know as Covid-19, that is spreading posthaste, is causing an exogenous crisis to global markets. This 'Black Swan' event has taken the world as its own personal pond and with it the nerve of all human inhabitants. This has resulted in the global stock market seeing some of its worst days since 1987's Black Monday.
With the market having more mood swings than me without my morning coffee and the world dealing with a pandemic, fear and worry are bound to takeover. People are worried about their money and people fear for their health . I mean, people are literally buying all of the toilet paper out of the grocery stores. I can't find the reasoning behind it. In what way will purchasing all of the...you know what, I digress. Natural feelings of anxiety will creep in but these are times when you must stay calm and adapt. No doubt the virus is something to be taken seriously but the more time spent worrying about a problem, the less time is spent solving it.
“Be fearful when others are greedy, and be greedy only when others are fearful.”
-Warren Buffet
Buy in the dip
Now that we've weeded out the fake 'I wanna be a winner's who didn't wanna read, let's finally talk about how you can 'win' in a bear market.
This is a time when most will start pulling their money out of investments due to fear but if you stay calm you will start to realize that EVERYTHING IS ON SALE! No, this doesn't mean that you should just randomly buy stocks because they are cheaper but this does give you an opportunity to buy in low on stocks that are good. Research and analysis STILL has to be done on the company you invest in and sound investment decisions STILL have to be made. This doesn't guarantee that you will come out on top but provided things go your way, when the markets come back, you'll be so happy that you didn't panic like everyone else. Also, bear markets don't mean that everything is declining, it means that majority are declining. There were stocks such as Walmart, Autozone, H&R Block and more that rose double digits during the crash of 2008! Unfortunately, I wouldn't advise individual stock investing to everybody. This requires a certain set of skills and understanding and it is a high stakes game.
Stay calm and keep investing on
This is where persons systematically invest into an index fund over a long period of time (10+ years). Due to the U.S market having an annual average return of 10+% over its life, this shows that despite the tragic bear markets, the good outweighs the bad. So just keep funneling money into an index fund and if you haven't started yet then this is as good a time as any to start. Like I said, EVERYTHING IS ON SALE so this is an opportunity to get into an index at lower prices. This dollar cost averaging strategy will reduce the impact of volatility on your investment as your portfolio grows over time. I suggest everybody below the age of 40 take advantage of this approach to investing into the equity markets as it is very easy to do, can help you understand the market and is a sure way that you still make money long term even when the markets dip.
Bet against a market
If you google John Paulson, you'll be looking up a guy who became a billionaire by shorting (betting against) the housing market in 2008. He even had a book written about his accomplishment called, 'The Greatest Trade Ever' and that's why he wasn't mentioned in the more popular movie, 'The Big Short'. Now, betting against the market can obviously be very lucrative but again I would not suggest this approach to everybody. The stakes are even higher when you short the market because you don't only lose money you have but you start owing money you don't have and this can be a dangerous game to play.
To my Bahamian people
I know the options to purchase international stocks are not available to most and after reading this you are ready to start investing. Luckily the 'stay calm and keep investing on' approach, the safest approach taking advantage of a bear market, can be taken advantage of by you today. The International Equity Sub Fund offered by RF provides global exposure to equities and therefore is an ideal mutual fund to buy into to start this strategy. Please remember that equity investing is not recommended for person over 40 years old and risk-averse investors. For these investors I would suggest investing into RF's Prime Income Fund which is a fund invested into local fixed income securities.
Speaking of local investing
Our Bahamian market will likely take minimal damage from this pandemic once it does not affect operations for a prolonged period of time. If you didn't know that The Bahamas had a local stock exchange (the exchange is called BISX), please start learning about it. You can visit bisxbahamas.com today to become informed.
Thank you for reading. I encourage everybody to practice proper hygiene to the extreme and be very careful while this virus runs its course. Last but not least, please remember to remain calm and stay informed.
-Quentin E. Gibson
Quentin Gibson is a Sr. Securities Trader at RF and has over 7 years of experience within the financial industry. He is well versed in local markets and keeps abreast of international markets and their impact on the Bahamian economy.
Quentin has his Series 7 license and is a Certified Financial Planner.
Have questions or comments? Message Quentin on Instagram at fin.iq242!