One lesson investors should learn from the collapse of equity markets in the wake of the coronavirus pandemic is that they should not make the mistakes of the past. And that has made them lose a good part of their invested capital in a very short space of time, as the stock markets depreciated in an average of 41%. In particular, given the possible appearance of a floor that stops the abrupt and vertical falls that stocks have suffered in these historic days. When a few weeks ago all were joys for small and medium investors.
But even in the most negative scenarios like the one we are going through, they must be removed positive conclusions. And this should be one of the preferred from now on: building an investment portfolio by learning from mistakes. Not surprisingly, one of the ways to learn in the always complicated world of money is by learning from our past mistakes and now we are in a moment that serves to carry out this special strategy. Nobody could imagine that this year we were going to reach this unpleasant situation. In some cases because sales have been made with many losses in the income statement and in others because we have simply been hooked on our positions.
If a lesson can be drawn for the future, it is that investment must be diversified above other series of considerations, as we have been warning in recent years about what could happen. Because equity markets are not always going to be rising, as has happened since 2012, with some correction intervals in prices and laterality. Because at the end of the day we are talking about the stock market, with the positive and negative that this kind of investment has in all users. And unfortunately a black swan has arrived that nobody counted on, not even the most reputable analysts in the financial markets. But we are in this new scenario and there is no doubt that we must react.
Investment portfolio: more securities
The first lesson to be drawn from this new scenario that the coronavirus pandemic has given us is that you should not be positioned on a single stock market value. If not, on the contrary, the capital must be distributed or distributed among several listed companies. With the aim of minimizing the falls that we are seeing in these hard days for all small and medium investors. To the extent that investors who had taken positions in IAG They have seen their savings evaporate in just a few days. By going from a price close to eight for each share to just under two euros and with the risk that it will not be listed again on the equity markets as a result of its nationalization.
Within this context in the international economy, no less true is the fact that these crises are better off with a diversification in the securities portfolio. Trying to opt for different stock sectors in which the defensive ones should in no way be lacking. In this sense, it is necessary to complement the investment in a way balanced and tight to our particular needs. Where the greedy profile that tries to obtain large capital gains in a very short space of time should not prevail. On the contrary, it is necessary to opt for securities that create value and that address very stable lines of business and that can even distribute dividends among their shareholders.
Get away from short deadlines
There is no doubt that to form an investment portfolio learning from mistakes from now on, much more must be set in terms of permanence. In the sense that you have to approach investments in the stock market as what they really are, an investment after all. Not speculative operations as the most aggressive small and medium investors in equity markets consider. This fact may in the end have some dire consequences for the interests of these profiles by users. Speculation in the stock market can make sense to carry out a specific operation, but as a common habit in all of them since in the long run you have all the ballots to lose.
While on the other hand, we cannot forget that investment can be channeled as a strategy to enhance savings. Through a stable savings bag facing the middle and especially long term, even to solve some other complex moment in the future or as a complement to retirement. But nothing else. Not surprisingly, we can be exposed to a war economy that will undoubtedly affect equity markets from now on. One of the keys to successful operations is directing them more long-term than ever. With this strategy, specific surprises that can create liquidity problems will be avoided.
Exploring new markets
Even in the most adverse scenarios, as unfortunately this is where we live, real business opportunities tend to emerge. For this reason, it is very important to explore new investment markets that until now had been unexplored by many small and medium investors. As for example, that of raw materials or especially precise metals since they tend to act as safe havens in the most unstable scenarios in traditional equity markets. Where savings can be made more efficient than through more conventional channels. But that is collecting a large part of the monetary flows by the large management funds.
On the other hand, and with regard to gold, it should be mentioned that it can be benefited by the low interest rates both on one side and the other of the Atlantic. In this sense, interest rates are very low and the prospects are not for strong increases either. As a consequence, the opportunity cost has been greatly reduced and if we add to that the costs of carrying out the debt transaction and the potential risk of long-term investment with a totally flat yield curve, these are reasons enough to start thinking that Central Banks are going to limit their gold sales to the maximum and it is even reasonable to think that they could be net buyers due to factors such as protection against inflation.
Be aware of the supports
Another investment strategy is based on being more active in monitoring our investments. If this is applied efficiently, very serious losses can be avoided for our income statement, despite the fact that now this movement has been very fast and has developed surprising all financial agents. From this point of view, when a support is drilled, then the price tends to fall sharply: the stock has broken a barrier that has been found in its decline, and once it is exceeded, it falls freely, hence the selling price has to be adjusted with the support level. When resistance is overcome, on the other hand, the price also tends to rise strongly. They are the effects that it has directly on the price of a security or index and that must be regularly monitored by the investor to take advantage of their operations.
A support (resistance) level strengthens as the price moves away from it after it has been tested. If the price rallies 10% after having tested a support, it is considered stronger than if it had only rallied, for example, 6%. Always bearing in mind that the response of equity markets around the world will depend on the level of recovery in the international economy. To the point that the different financial analysts propose various scenarios in the resolution of this economic crisis of special relevance to all.
While on the other hand, another of the keys to forming an investment portfolio by learning from mistakes is having more liquidity in our savings or checking account. Not only to survive the most adverse scenarios in the equity markets, but to take advantage of the business opportunities that the markets will provide from that moment on. With the goal of minimizing the effects of the economic and stock market crises, as is happening right now. Where you never know what will be the best decision to protect our money. But through a change in our habits in relation to the world of money, it can help us achieve these much desired goals. Since it is after all what this class is about in this kind of complex scenarios. We still have time to vary our investment strategy.