The effects of the corona virus on the stock market are immense. It scares the stock markets. The Dow Jones Industrial Average (DJIA) lost 12% or more than 3000 points over five days from February 24 to 28, the largest five-day drop since the Great Recession. The DJIA experienced its largest one-day decline on February 27 of this week (1191).
China plays a key role in the corporate supply chain. For this reason, analysts fear that companies in China will not supply parts to companies such as Apple and Walmart, which will affect the results of these companies. Fear of the unknown causes panic. Stock markets hate uncertainty, and this virus is full of uncertainties: when will there be a vaccine? How are countries going to contain it and so on?
Corona virus stock market impact may continue
No one knows how long the effects of the corona virus will last on the stock market. However, history shows us that the stock markets react excessively and then continue their upward momentum. These days, the rapid spread of the virus increases fear, causing people to react excessively. We must stop and not rush for the exit.
Markets quickly recovered from previous viral epidemics. Will the impact of the corona virus on the stock market result in a loss of realized capital for you? The market change itself does nothing. You only lose money if you sell below the market price. The results of some companies will suffer from insufficient inventory in the short and medium term. Other companies will win. Although we do not know the severity of the virus after previous market reactions, caution is the most important answer.
Are you a value investor with targeted companies in your portfolio? Review your goals and stay on track unless you see changes in the intrinsic value of the business. Have you speculated and tried to make a quick buck with a margin account? If so, you will have a challenge as the banks will name your margin. This is the risk inherent in using a margin account to speculate.
If you are not a speculator but a value investor, now may be a good time to identify value stocks and select them at attractive prices. There will be several. Whoever you are, be careful, reject the herd mentality and think about these things:
Stay the course
Review or develop an investment goal and plan ahead before adjusting your portfolio. Why do you have or want to invest? Your reason will determine your investment strategy. My favorite strategy is to buy blue chip stocks with a long history of rising dividends. I hold these shares, I review their fundamentals from time to time and I act in the event of permanent change.
You can find valuable stocks today. Market fluctuations provide a great opportunity to buy solid companies with a good track record. Remember, you only lose or gain on sales, not when the markets fluctuate.
If the intrinsic value of your investments changes, confirm your strategy and sell your assets, even at a loss. Do not time the market recovery. The market could decline for several years, like the Tokyo Stock Exchange, which has been below its bubble level for more than two decades.
Don’t let generic asset combinations affect your asset allocation between stocks, bonds, cash and commodities. They are unique and your mix should suit you in your life phase. Think before rushing towards so-called safe-haven commodities like gold, which have no intrinsic value.
If you are in the red zone for retirement five to seven years before your retirement, your goal should be capital preservation. So avoid the stock market.
Don’t panic: focus on your goals, plan, and long-term strategy. Update them and make sure they match your needs and risk profile.
It will also go away, but only God knows the moment.