One year on, what can investors learn from such a challenging year?
Lockdown: one year on
It has been one year since the UK’s first lockdown, at the time it seemed unimaginable that a year on the UK was just about to emerge from its third lockdown with crippling effects on businesses in certain sectors of the economy and this is not forgetting the physical and mental health of the nation as well as the lives lost. For most investors this global pandemic is difficult to compare to other past crises since there are so many other causes and effects on economic and financial outcomes, but those that are a little more mindful will want to assess and learn from events of the past year.
So what are some of the key lessons learned over the last year?
First of all, don’t ignore the science. Many thinkers and scientists have, over the years warned that a global pandemic was one of many threats to humanity and the normal workings of the world. While humanity is far from being annihilated, this crisis has certainly created economic destruction greater than any other crisis in living memory. When the news of a virus in China first unfolded, the West treated this as an Asian problem, much likes SARS or other regionally focussed pandemics. However, in a globally interdependent world, scientists warned that it will be inevitable that it would spread. Yet, our political leaders, specifically in the UK and the US took a rather dismissive approach and we have had a disproportionately bad outcome. I believe the lesson here is that if an event can happen in some far away land, then it can happen closer to home too.
Whatever it takes
Since the great financial crisis of 2008, central banks and governments have changed the way they intervene and deal with an economic crisis. Having experimented with ultra-low interest rates and quantitative easing with success (although long-term impacts are yet to be felt), policy makers are much more willing to do “whatever it takes” to prop up economies in the present by pushing the burden to the future. We will not all agree whether this is the right thing to do, but this is what policy makers have purseud during the financial crisis, the Eurozone debt crisis and now the Coronavirus. Unless, we learn that we have some disastrous consequences in the long term of this strategy, then this will be the policy for the next crisis. Investors therefore can to some extent feel that the central bank’s “put option” remains in place.
Invest for the long term and diversify
Nobody could have predicted the exact way this crisis has played out and positioned their portfolio to take full advantage. Not all growth-focussed tech stocks did exceptionally well, a lot have benefitted from the transition to working from home. Online shopping and food deliveries however will feel this as just a temporary benefit as we return to places of work and pass by the high street along the way. The same can be said of defensive shares; food and other consumer staple producuers have done well but then some drugs and healthcare providers such as GSK and Smith & Nephew suffered due to patients not visisting doctors or postponing elective sugeries. During this crisis, investors with a diversified portfolio should have slept far better than those with aggressive or defensive portfolio. It would have been difficult to time the ups and downs in each sector accordingly, those who have ridden the ups and downs - the buy and hold investors I think, will be more content when this crisis is over.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.