I’ve been a financial broker for many years and while I’ve always centred my proposition to clients as ‘lifestyle financial planning’, I have always veered away from recommending individual stocks or particular world indices.
That job is for people much more ‘tapped in’ to economic trends with a deep knowledge of the movers and shakers in different industries.
However, I am firmly of the belief that in a shellshocked COVID-19 market there may be opportunities for the uninitiated to trade, if they can afford to do so, a small amount of disposable cash and potentially avail of a very decent upside.
I get calls from clients every day all centred around the question: “Have we seen the bottom for stock markets?”
It is tempting to believe so after four days of fast action as investors have responded to the welcome sight of flatter coronavirus curves in Italy, Spain and Germany.
Some of the gains in individual stocks – those that had fallen the furthest – have been stunning.
Speedy boarders could have made a 20% – 30% return in 48 hours by buying shares in everything from airlines to online clothing retailers to engine makers!
What can these massive gains tell us? In truth, very little.
The fear of missing out as stocks bounce back is extremely tempting but it would be premature to draw wider morals.
Banks and governments have made lending conditions much easier which is extremely important but how the current lockdown recovery will work out on a consistent basis is truly up to the Gods.
For example, what if some of the lockdowns are rolled back but then partially reimposed? History would indicate that it’s far too soon to say that the bottom has already been here, at least according to Bank of America analysts.
They believe that the S&P 500, the main US index, “failed to retest or even fall below it’s low point on the 23rd of March if recession arrives”.
Their point is that a bear (falling prices) market in stocks tends to last about 11 months on average.
Granted it may be very different this time as most recessions aren’t caused by once off pandemics, but the stock market at the moment feels unpredictable.
The FTSE 100 has gained over 7% in the last couple of days as there have been lower infection rates in many countries.
This is encouraging but something tells me that this mini rally for share prices feels fragile. If anyone is to make any money now in trading, they better be willing to buy quickly and sell once they are happy with the price.
In truth, very few people do this and most hold on driven by a fear of missing out on more gains. Be careful, be very careful, what goes up can come down.
We know from many years of experience that there is no shortcut to investment success.
Yes, some people have struck lucky through buying and selling a high performing share at the right time, or indeed through investing in commodities or the likes of cryptocurrencies and have enjoyed huge returns.
But each of these approaches carries significant risk, and for every winner there is usually many losers.
So how do you achieve investment success, if the answer is not about picking winners?
Here’s our tuppence worth:
Develop a structured investment plan
Make sure your portfolio reflects your appetite for risk
Diversify your assets
Stay on your best behaviour!
