Right now i’m witnessing a vast number of traders and investors panicking about the markets falling. In today’s article I want to provide some insight on trading the coronavirus pandemic.
I have been inundated with messages of worry and concern from traders/investors who follow my youtube/facebook groups regarding the markets reaction to the coronavirus hitting europe. Comments referring to it as a “bloodbath”. The FTSE closed down 3.3% on Monday and fell a further 1.9% on Tuesday. These moves seem to have prompted some panic, with some traders and investors who started investing at the start of 2020 currently finding themselves down now after getting off to such a great start.
This can be demoralising, I know.
However, I wanted to give you some perspective on the matter which may help ease any concerns you may have and assist you in trading the coronavirus pandemic.
I’ve done this in the form of video. It is the best way for me to communicate my message across. I hope you get the time to give it a quick watch.
In the video I downloaded 12 years worth of daily FTSE 100 data showing the open and close price of each day. I used that data to identify the daily % changes of the index. I then identified every 3% fall in value or worse over those last 12 years. I identified the reason for the drop (according to the various media outlets) but more importantly, the amount of time it took the FTSE index to recover. When the FTSE falls, our stocks fall. Bad stocks fall harder than good stocks usually. Likewise, during a recovery, good stocks will rise faster than bad stocks. Therefore the index is our benchmark. It is the return % we are looking to beat. In a year where the FTSE finishes at -5% we would not expect to make a great deal. Last year 2019 the FTSE closed up 9% on the year. The portfolio made +38%.
I urge you to watch the video. It is only 20 minutes long. Contained within is some very interesting findings, showing just how long we historically have needed to wait for a recovery. In some cases of a 3% drop or more it has recovered in days. More commonly about a month.
The overall message then is hopefully clear. Don’t panic. The market will recover, it always does.
I pick my stocks based on them having the best of the best odds of rising over 5,10 or 20 years. All that matters is where the price sits when I’m wanting to sell. Everything else in between is simply noise. I had no intention to sell my stocks and I certainly won’t be selling them during this period. That would be madness. In fact, it’s at times like that that we can buy these fantastic stocks at cheaper prices. This is exactly the Warren Buffet way.
In fact, this is what he said today: “Has the 10-year or 20-year outlook for American businesses changed in the last 24 hours or 48 hours? You don’t buy or sell your business based on today’s headlines. If it gives you a chance to buy something that you like and you can buy it even cheaper it’s your good luck.”
If anyone has any genuine concerns about trading the coronavirus, feel free to drop me a line at firstname.lastname@example.org. Otherwise i’ll be keeping an eye on the index and watching to see how long this recovery will take.
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