And so that wraps up 2020 and into 2021 we go!
The past year has definitely been filled with turmoil, unexpected events and sadness for many. COVID-19 wreaked havoc on our daily lives and routines, sending us into countrywide lockdowns and new measures to protect us from the virus.
But with any adversity, there are always lessons to be taken away to help us bounce back and come back stronger. And 2020 is no exception.
Lesson 1: Be Greedy When Others are Fearful
As one of Warren Buffett’s most famous quotes, this quote could not be more applicable for this year.
If you were invested in the markets this year, you were probably well aware of the rapid market crash in March, where the overall market fell by more than 30% in a short span of 1 month.
Little did many of us know, but that would be the bottom for the year and we would never see such prices again. The markets rallied hard soon after, leaving many to wonder what was going on.
Countries all around the world were still announcing shutdowns and COVID cases were still skyrocketing. But the market didn’t care.
Many investors, myself included, considered the possibility of a dead cat bounce, which was a phenomenon in which after a sharp crash, the prices will rise for a while before continuing to dip. After all, it happened in 2008 as well, which sent the market dipping further all the way into 2009.
But it didn’t, it continued rallying all the way into 2021, breaking new highs as we enter the new year.
And till date, there are still people who are convinced that the market will crash lower than the March bottoms from today and are still holding their cash tightly, waiting on the sidelines.
It is in such times, when everyone continues to expect the market to dip further and when everyone is afraid to buy, that we should be doing our own buying. Buffett’s quote is echoed by Baron Rothschild in the 18th Century as well, saying, “The time to buy is when blood is in the streets”.
Of course, I understand, that especially as a new investor, buying when things are red is definitely terrifying, especially after seeing big names like Apple, Microsoft and Google fall more than 10% in a single day.
During this time, I learnt from some more experienced investors that I knew that we could combat our own emotions by:
- Dollar Cost Averaging: If your strategy mainly involves dollar cost averaging, simply stick to your strategy and you would’ve come out alright through this mess.
- Buying in Tranches: This means to split your money into batches and to enter the market slowly. In a sense, buying in tranches is a variant of dollar cost averaging. Once you have split up your money, you can buy in every time the market dips by another X%. Most people I know like to use 10%. So every 10% the market dips, they will put in another portion of their money into the market. Others I know will increase the amount they put in with every subsequent drop. This means that with the first 10%, they might put in 20% of their money. With subsequent 10% drops, they will increase each addition to 40% each time.
- Setting and forgetting: Setting and Forgetting means to determine a price that you’re willing to buy at and then simply setting your order at that price before continuing on with your daily life.
Of course, each of these strategies do come with their own set of risks, such as running out of spare cash early into the crash, or not knowing where to set your buy order. But the key obstacle which these strategies remove is the issue of “shifting the goalpost”.
Shifting the goalpost refers to when you constantly lower the price that you’re willing to buy the stock at, resulting in you never being satisfied with the current share price. I was guilty of this myself. I remembered telling myself, I would buy Microsoft shares at $150. But it reached $150 so quickly, so I shifted it down to $140. And $140 it hit, but the markets didn’t look like they were stopping, so I waited and waited.
When Microsoft rebounded on 24th March, it shot up 9% in a single day and I had missed the bottom.
Lesson 2: Be Fearful When Others are Greedy
With the first half of Warren Buffett’s famous quote, we must of course, have the second half.
During 2020, the market rallied tremendously from the bottoms, closing of the year with an almost 68% gain from the bottom. With this meteoric rise, many individual stock picks exploded too, with many doubling, tripling and beyond.
But when every pick goes up and all you’ve seen is green, there will be greed in the market. Investors will be blindly buying without fear of the downside risk. Suddenly, there are “investment gurus” and “trading coaches” all over Instagram, Facebook, YouTube, heck, even TikTok. But it is when we are greedy that we become complacent.
I guess what I’m trying to say is, this year has been extraordinary in terms of stock market performance. To expect every year following to be like this would be dangerous and may cause serious losses if we do not tread carefully.
Like the saying goes, “Everyone’s a genius in a bull market”.
One fine example of greed in the market, has been the electric vehicle (EV) company, Nikola Corporation. Nikola was a company with several zero-emission vehicle concepts, but without anything in production yet. It listed in June 2020 and its shares saw a parabolic 100% rise in the 3 days following the completion of the listing.
Banking on the EV hype from Tesla, Nikola Corporation was valued at more than $28b at its peak. But what many investors were ignoring was the blatant lack of revenue from the company. In fact, Nikola’s Jun 2020 earnings release showed that the entirety of their $36,000 revenue came from installing solar panels for none other than their own Executive Chairman, Trevor Milton.
Lesson 3: Be Adaptable
But aside from all of that, COVID also caused an acceleration in the digitalisation and transition to tech for many companies. Lockdowns and work-from-home (WFH) arrangements left many companies scrambling to find solutions to enable these arrangements. In fact, several tech companies have even remarked that they might maintain a WFH arrangement even after COVID has completely blown over.
But more importantly for us, I think it shows us that even in black swan events, there will be companies that benefit from the crisis. In 2020, it was cloud based, SaaS type companies that really excelled.
Zoom Video Communications Inc is one prime example of this. I’m sure all of us have used Zoom at some point during this pandemic, be it for work, for school or just to catch up with friends easily. COVID pushed Zoom into the world’s spotlight, with their last 2 quarters showing an increase of over 350% in revenues from the same quarter the year before.
More than just video-conferencing companies, companies that supported cloud services such as Microsoft with Azure and Amazon with Amazon Web Services also did well. Other sectors that received a boost included E-Commerce, Cyber-security and Telehealth.
What this crisis showed was the importance of being adaptable to these shifts in how the world behaves and being able to take action on these changes. During the May to June period, I was alerted to such a trend and took up several of such positions that I intended to hold for the long haul.
Lesson 4: Make the Best Out of Your Situation
On my birthday in 2020, the Prime Minister of Singapore announced what was known as the Circuit Breaker period, where we were all to stay at home, aside from essential activities. Dining out was prohibited and most companies had to switch to a WFH arrangement. Wearing a mask when outdoors became mandatory soon after.
The new normal (Photo by Wesley Tingey on Unsplash)
Our lives were changed so drastically with a sudden announcement and for many people, Circuit Breaker was a tough time. For some, being cooped up at home was stressful, especially with families with strained relationships. For others, working from home with their children, pets or construction going on downstairs, was just not conducive.
I acknowledge that I am blessed with an understanding family that supported my work from home arrangements. As such, I was grateful for this period as it granted me the opportunity to:
- Spend less money and time on public transport: Working from home allowed me to spend less on my transport needs, allowing me to increase my savings in that regard.
- Pick up some new skills: During the Circuit Breaker, I also picked up some web design and UI/UX skills through Coursera. While it wasn’t entirely applicable to my work or life at that point, later in the year, these skills allowed me to start up TortoiseMoney!
- Focus on Health: Since spending more time at home, I also ate more home cooked meals (which I would like to think are healthier) and exercised more too.
At the end of the day, no one wished for COVID to happen, and I’m sure all of us have been affected in one way or another, with some worse than others. To everyone who has lost someone or something this year, my heart goes out to you.
Nevertheless, 2020 has been a one-in-a-million kind of year and there were many lessons that I took away from my experiences this past year.
I hope the year hasn’t been too harsh on you and here’s to a year of better finances, better health and better lives in 2021!
Photo by Bofu Shaw on Unsplash