When the virus started to make its way to the rest of the world around February last year (what feels like centuries ago, I know!) and started infected people, the stock market came cracking down like a domino. This was the whopper crash of 2020.
Investors and non-investors alike thought the world was coming to an end. And I donât blame them for thinking that. From one day to the next, our reality as we know it suddenly flipped upside down. It was a pretty scary time. But itâs not over yet. The virus is very much alive and is mutating as we speak.
On that fateful day, there were simply far too many sellers in the market than there were buyers. People were flogging it all. So, stock prices tumbled. And tumbled. It didnât matter if the company was as solid as a rock or if it was as flimsy as a paper cup. No one (well, almost no one) wanted any part of it. Tech, financials, healthcare, it literally made no difference.
Investors were simply too scared to hold anything for fear they might not make it out on the other side. And that the losses would keep on mounting. So what did they do? They sold when markets dipped to save themselves for anything worse than could happen. i.e dipping even more.
Nerves of steel
But hereâs the thing, those who actually held on (and did so for dear life) without giving into the very normal human response to sell were massively rewarded. And those who pounced on the market like lions catching their pray were rewarded even more. To say they snapped up stuff on the cheap would be a gross understatement! No risk, no reward couldnât be truer.
I doubt anyone will be forgetting that day anytime soon. Those who sold hugely regret doing so and those who bought on the dip (and this folks, was the real thing) wish theyâd have bought out the entire market! My problem was that I didnât have enough cash sloshing around at the time of the crash so I had to wait a little until I could pounce on the leftover meat. Better later late than never, right?
And guess? Only a short while after Thanksgiving, we were given a taste of a stock market crash. Black Friday turned into Red Friday as stock markets (including the seemingly invincible S&P500) took a wee tumble following news of this new variant.
Investors are getting rattled again since we donât know how effective our vaccines are against this strain. And, even if they are effective, in the developing world weâre not as vaxxed as we should be while much of the developing world are unable to get their hands on a vaccine. So this virus will just keep on spreading until we’re all jabbed.
Why sell?
The real question is what made all these investors sell when markets had already tumbled? Both on Red Friday and in March 2020. And pretty much any other market crash. My guess is that they were afraid of losing yet more money.
But the thing is, we only make an actual loss when we actually sell our stocks. Paper losses are different. They arenât actual losses! This is really hard to grapple with since when you check your app (or like my Dad, who prefers to use PC, bless him) and you see youâre in the red, it can be quite daunting.
If you know you’re the kinda person who will get really panicky and sell as soon as markets go down, maybe just stay outa your app (and off your PC!) for a good few weeks. Just try and forget about it. Go do some knitting and turn your attention elsewhere! Or, better still, head over to my blog page for some words of comfort. After all, if you aren’t planning on selling for a good few years you shouldn’t worry. But, I know this is easier said than done. I really do.
I used to get really itchy when I saw my stocks tumble. And yes, I’ve succumbed to selling at some pretty dumb times. I am no saint. But the point is that we learn from our lessons. Or better still, learn from me so that you can save yourself some pounds and peace! Now when markets tumble I barely budge. I didn’t even check my portfolio on Red Friday. I simply continued with my day. Like nothing had even happened.
Trust me, I dislike losing money as much as the next person but if youâre going to be in this for the long-run then you have to be okay with some degree of losses here and there because itâs just part of the deal. Granted, March 2020 was the quite the shock. For anyone. Seasoned investor or otherwise. But volatility (price swings) is the price you pay for playing the game. And the alternative (no risk, no reward) is way worse. In my opinion.
Will this bubble ever pop?
The thing is that no one in their wildest dreams thought that Central Banks would end up printing so much money (which theyâre still doing by the way) to bring about the mother-of-all stimulus packages.
As a result, equities have been on a fascinating and fast-paced journey. The IPO market (when companies go public to raise capital) has boomed. Fintech took on a whole new meaning and the US tech arena really was the place to be from hot EVs to AI and all else in between. Private equity and VC was the place to be.
This stimulus package not only saved the stock market but it propelled it to new heights. Take a look at some price charts and that massive dip in March now looks unrecognisable! Like a tiny dent. Especially for those tech stocks. Take Microsoft. It fell by more than 40% in Feb-Mar but do you know what? Itâs risen by 140% since. Not bad at all!
Since March 2020, the S&P500 has gone up by 90% while the Nasdaq (its tech mate) has gone up by 150%! Thatâs more than doubling. So yeah, the upside turned out to be pretty massive.
So, thanks to all this stimulus, what weâve got going on right now is a backdrop of market frothiness and bubble territory; euphoria (folk thinking that the good will go on till infinity), animal spirits and sheer craziness.
Take Rivian â the electric truck maker that just went public. It has a market cap of $100bn. Larger than General Motors, Ford and Lucid. But thereâs a teeny tiny snag. It hasnât sold many vehicles. Oops. And this is just one example of many. After all, companies want to cash out at the top. Right at the top. Not at the bottom. People keep calling a crush but it just doesn’t seem to be happening. However mad markets look.
Nothing is guaranteed
Up until now, stock markets (particularly the US) have practically priced in perfection. And this is the danger when markets are at all-time-highs. They become way more sensitive to any sort of bad news and I think this new variant qualifies as pretty bad news. Hence the recent wobble.
Have we reached the top? Is this the beginning of the bubble popping? Who knows. But one thingâs for sure is that this market madness can keep on going for a whole lot longer than either you and I wouldâve guessed.
If youâre investing for the long-term, youâre just gonna get have to get used to some turbulence and bumps along the way. If not, well, you wonât arrive at your destination. The one youâve been waiting for for so long.
Remember this: âfortune favours the braveâ. So be bold and be brave but donât ever be greedy – only when others are too fearful, of course!
Diversify your portfolio to prepare it for whatever storm may (or many not) be coming because if thereâs on thing thatâs certain itâs uncertainty.
So fasten your seatbelts, itâs gonna be a bumpy ride!
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
Knead Your Dough 