Can we do it? I’ll not beat around the bush, nobody can, unless you are super lucky or Michael Burry of ‘07.
The Comparison
Many so called analysts may say in 19XX, ‘X’ happened, ‘Y’ crashed and X% was the correction and XX% was the growth after Z years so X will happen again. I staunchly support the opinion that every crisis (X) is different and it is unfair to compare the correction percentages etc. of past crises to form our investment decisions solely on this. For example: earnings growth rates were different during the dawn of the GFC, which were actually better than the pre-COVID period (also let us not forget IL&FS, Jet, YES to name a few). Well does that mean there’s room for more correction? Well that is my point: NOBODY KNOWS
The Anticipation
Sometimes the Optimism Bias kicks in and ‘Warren Buffets’ start finding ‘undervalued’ small cap stocks. Nobody (except a few) knows the exact future macroeconomic impact of COVID in say 3 months. It is a function of good public governance and policy which is indeed tough to achieve.
The Hope
So… stop investing? Hell no. Well I am not a PhD, but what I can say is that if you have a strong and non-ignorant (or Non-Trump) administration (in my opinion, at least the developed countries like the US which is very much interconnected with several other countries shouldn’t have misjudged the Business and COVID tradeoff. Guess what Mr. Governor, dead people can’t run businesses. Yes, a bad economy can ruin and end lives too, but not at such pace if you have good policies). You can make decent gains out of this pandemic (excuse the irony). How you ask? Well I think these are some of the better tools:
As a commerce student I am a big fan of PBV (price to book value ratio), especially in times like these as it gives the value of the business as if it is getting liquidated. So real values of machine-heavy companies are not going to change like their share prices unless the machines become highly irrelevant, which is highly unlikely. Thus, a staggered investment in big undervalued names in terms of PBV doesn’t look like a bad idea for now.
Another strategy could be to invest in companies with a good liquidity situation, decent reserves and sound leadership, because they will be the ones who survive the lockdown unlike the ones which could go bust within a week with no cash flow.
In the end, I just hope that the next couple of weeks are better for the world and markets. Until then, stay safe.
By Ishan Nagpal
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