By Adrian Reid. Originally published at ValueWalk.
The COVID-19 pandemic has made an impact not only on public health and safety but on the business sector, as well. Over 20 million people have lost their jobs in the US alone, with businesses–SMEs in particular—shuttering left and right from losses or unsustainable operations. While the COVID situation may seem less than ideal for stock trading, there may be opportunities waiting for individual traders.
Q2 2020 hedge fund letters, conferences and more
5 Tips To Consider For Trading During COVID-19
To make the most out of a dire situation, here are some things investors should consider when trading during the COVID-19 pandemic:
1. Assess Your Risk
The most important thing to consider before trading during the COVID-19 pandemic is knowing the kind of risk you can handle. In a time of uncertainty like today, your priority should be to secure your necessities before dabbling in stocks.
Ask yourself the following questions:
- Is my income steady?
- Do I have enough to fulfill my basic needs and invest?
- Are there any financial obligations I need to handle?
- If I trade, am I ready to take potential losses?
For certain groups of people like those recently retired or about to retire, staying liquid may be a better priority. This means sticking to more stable and conservative investments.
For younger investors or those with excess assets to play around with, a more aggressive approach will be more appropriate. There’s no sure way to tell if your risks may pay off—however, the current state of the market can open up once-in-a-lifetime chances that could pay off greatly.
At the end of the day, the decision lies in how these potential investments line up with your personal financial goals and the amount of risk you are willing to take.
2. Observe The Impact Of The Pandemic On Industries
Coming from the first point, the global health crisis has affected businesses across all industries. This drastic change has caused many to wonder whether or not some companies can adapt and survive in the current economic climate. Now, more than ever, it is crucial to take a data-driven approach to maximize gains and minimize losses.
The best way to do this is to study stock market statistics and stay updated with the trends and updates in the industries you follow. In light of the “new normal,” changes to companies are not uniform. For example, industries like travel and events are on the downturn, while food and sanitation are receiving more business.
By keeping up with these streams of information, you can make better judgment calls on your existing investments and consider potential additions to your portfolio.
3. Separate Emotions From Investments
Amidst the feelings of worry and fear during the pandemic, some investors may have their financial outlooks colored a certain way. Concerns over the survival of companies and industries in this new landscape can create an emotional response and critically affect financial decisions.
As mentioned in the previous point, maintaining an approach backed with data allows you to distance yourself from your investments and make sound decisions to further your goals. Trend-following stocks, for example, are beneficial for those who want to test their luck in the upcoming trends but require the emotional detachment to make bank on their investments.
4. Prepare A Watchlist
Good investments are founded in research and planning. Given the market’s current volatility, investors need to be even more cautious and scrutinizing of their opportunities. Whether you’re looking for short-term or long-term investments, taking note of the companies you are considering is a necessary strategy.
Before putting a company on your watchlist, it should be able to satisfy the following criteria:
- Should offer value to you and the industry
- Has a unique selling point or advantage over its competitors
- Is run by trustworthy and competent people
- Offers you a margin of safety to avoid drastic losses
Once the list is ready, you will need to monitor these companies closely to find the ideal time to invest. While taking things slowly may seem counterintuitive, waiting for the right moment can make all of the difference in the payoff.
5. Invest In Resilient Companies
Part of risk diversification is spreading out your portfolio across a wide range of industries. The new normal has brought and is continuing to bring changes to how businesses are run and make a profit. Take advantage of these changes by putting your money towards businesses that are adapting, surviving, and thriving in these conditions.
Resilient companies can cover:
- Mainstay businesses that continue to be engaged with consumers
- Businesses with sudden surges in demand due to the new normal
- Companies that offer necessities before and during the crisis
- Businesses focused on answering new and emerging needs
Deciding to invest in resilient companies falls down to doing due diligence, examining your existing portfolio, and using the information to determine your potential gain.
While the current outlook in the market may still be negative, the unique situation that the pandemic has thrust the world into has opened up new perspectives for investors to explore.
It’s a matter of taking the necessary steps to assess your appetite for risk, observing the data, and making educated guesses. With these parts in play, you may come out of this pandemic with a stronger portfolio and find yourself one step closer to your financial goals.
About the Author
Adrian Reid is a stock trading educator and the founder of Enlightened Stock Trading. He helps busy professionals achieve financial freedom sooner by creating profitable stock trading systems that suit their personality and lifestyle.
The post 5 Guidelines for Investors During the COVID Pandemic appeared first on ValueWalk.
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