Nobody can dispute that the COVID-19 pandemic has changed our lives. At work, at home, at schools, in communities, in social life, in business, in government, in economies … every facet has changed. And fear and uncertainty whiplashed the investment markets
The first wave
Last year this time, I was writing about collars and caps’, ‘black swans’, ‘circuit breakers’ and record volatility. Traders paid you to take oil, the rand was at R19/$, gold was at record highs, and many stock markets suspended trading as they collapsed.
I suggested a ‘new norm’: the markets would not revert to being rational as traditional investors understood, and while COVID-19 precipitated a once-in-a-lifetime crisis, it arguably created significant opportunities.
How did markets do?
The US stock market reached record highs – S&P 500 up 16%; Dow Jones Industrial up 7% and Nasdaq up 44%. In fact, the S&P 500 climbed 65% from its lows in March. Asian markets did double digits. Shares in technology (Apple hit a market cap of $2 trillion) were clear winners as the world moved online, and health stocks and delivery businesses boomed. The JSE gave 4% for 2020 but the ALSI now trades at record highs, some 67% up from the crash last year.
How did investors do?
As governments worldwide poured trillions into the economy and social welfare grants, small businesses closed in record numbers and unemployment reached record highs. The death toll has been tragic.
Michael P Regan said on Bloomberg that ‘2020 has been a great year for stocks and a bear market for humans’. But billionaires worldwide added $3,9 trillion to their wealth. The world’s 10 richest billionaires grew their wealth by $540 billion. Only three of the top 50 billionaires saw their wealth decline. At home and in Africa, our billionaires saw an increase in their wealth.
In Schroder’s Global survey, 78% of investors changed their portfolio, some 53% moving to lower-risk investments but 35% seeking the opportunity to take higher risk. Millennials were twice as active as the Baby Boomers, the thinking being that Baby Boomers were more confident in operating within their plans while Millennials were prepared to take a risk.
A new breed of day traders seeking buying opportunities surged − easy technology, lower-cost platforms and more time on their hands. The stories of Robin Hood, Reddit and GameStop investors taking on Wall Street abound.
According to research by Oxford Risk, emotional investing costs investors about 3% per annum, and up to 7% in volatile times such as this pandemic. Dalbar’s research evidences that year after year, most investors only achieve half of the market growth as they try to time the market. There were many who lost wealth.
