While Covid-19 crisis is far from over, global stock markets have already recovered most of their losses since the start of the crash on March 2020. For example, KLCI Index have recovered 67.8% from its lowest point of 1,219.72.
On the other hand, both Dow Jones Index (“DJI”) and S&P500 Index (“S&P”) have also recovered 63% and 67.2% respectively. I do not know whether there will be another market crash but there are lessons I learned out of this health crisis.
I hope I’ll be more prepared when another market crash comes again. So, here’s my top 5 lessons that I learned out of this Covid-19 crisis:
#1: HAVE A GAMEPLAN & STICK TO IT
I remember it was 16 March 2020 in the morning when KLCI market crashed. I was looking at the market using KLSE Screener App at 9.06am and KLCI was down 7.78%. This is the biggest 1 day drop and it is not everyday you get to experience this.
Many great stocks in Malaysia fell sharply due to this Covid-19 crisis. For example, Hup Seng crashed to a low of RM0.745. This company is known for paying a stable dividend per share of RM0.06 since the year 2015 and this gives a dividend yield of 8%. It’s a steal!!
Another example was Revenue Group, everyone knows that this company involves in the e-payment gateway kind of business. Similar to GHL System. Its revenue stream is recurring and is growing rapidly in Malaysia.
Revenue Group’s share price went from RM1.5 to RM0.67 per share. This gives a PE Ratio of 17x based on 2019 EPS and it was growing at a rate of 141% in terms of its net profit. Again, it’s a steal!! Since then, its share price has recovered 82% in just 3 months.
There were many opportunities to invest but the main question many people have, including me, is “which one?”. I learned that having a game plan is important. You don’t go into the market and just deploy your capital blindly.
Whether you are a dividend investor or growth investor, always have a “watchlist” of stocks that you like to invest in. Ask yourself – If you can invest only 1 stock; what would that be and why? When you have this watchlist, you will remain calm because you have a plan in mind and you will definitely won’t missed out such opportunity.
#2: DON’T BE PENNY WISE BUT POUND FOOLISH
This is one of my many mistakes that has cost me from making more profit. I remember that I was looking at the US Stock Market on 17 March 2020 and this particular stock “Adobe” crashes from $291.20 to $278.35.
At that point in time, I thought it would drop further allowing me to catch it for cheaper price and so I queued at few dollars cheaper which is $278.00. The next thing I know it had gone up to $297.00 but it was still trading a relatively undervalued and so I invested it without hesitating.
Had I invested without being so petty about that $0.35, I would have made a lot more. So, I learned my lesson now. There’s no point saving a couple of cents at the expense of a potential 6.8% of profit. Try to look at the big picture rather than focusing on saving some penny. Not worth it!
This was just one of the many stocks that I’m trying to save some penny. Facebook was another stock which I have been sucking my thumb till now. The stock went to a low of $137.10 on 18 March 2020. I thought it would go down further to $135.00, so I queued at this price and went to sleep. Turns out, it didn’t go down further.
Fast forward today, Facebook is trading at $216.08 per share at the time of writing this post. Way to go in saving that couple of dollars!!
#3: TIMING THE MARKET IS A WASTE OF TIME
This comes to my next point, don’t try to time the market. It’s pointless because technical analysis only works in a normal trading day where there is no big crisis event like the current Covid-19 crisis.
For example, if you apply the moving average on Uchitech, you will definitely won’t buy until both the moving averages crosses which is around RM2.40 per share level.
Rather than doing this, it is much profitable to buy when the price hits your target dividend yield since the company has been paying consistent dividend. This will allow you to catch some shares at price below RM2.00 level.
#4: USE DOLLAR-COST AVERAGING
Since all technical indicators have been broken during the Covid-19 crisis, I find that using dollar-cost averaging is the most effective method of investing. Let’s face the reality that you can never catch the bottom.
When Mastercard crashes from its peak of $344.45 to $290.00, I was quick enough to invest into it on 28 February 2020. Little did I know that it will crash further to $219.50 which I did not hesitate to average down on 21 March 2020 after my lesson learned from Facebook stock. Since then it has gone up to $289.34 per share at the time of writing. I’m still up by 12.6% for this particular stock.
That’s why having game plan like averaging down everytime a stock in your portfolio fell more than 10% – 20%, is way more effective than predicting when a stock is bottomed.
#5: DON’T GET AFFECTED EMOTIONALLY
I learned that investing during the market crash is different than those periods where there was no major crisis. I remember my overall portfolio was down by 30% both Malaysia and US Market during March 2020. Whatever I invested, the next day it drops further. It is depressing.
One thing that kept me going is to think long-term and stop looking at my portfolio to avoid being emotional. I just continue to focus on investing in good companies that are trading at below its intrinsic value.
While I still get affected emotionally sometimes, I think having a game plan does help me to remain calm and avoid the urge to sell all my existing stock holdings.
MY INSIGHTS
There are certainly more lessons that I’ve learned from this health crisis. But the above are the key ones that I want to really share. It also serves as a reminder to myself, so that I’ll be more prepared when the next crisis comes.
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