It has been around two years since the coronavirus first surfaced in China. And around a year and three-quarters since Covid-19 turned into a full-blown pandemic. There have been all kinds of ups and downs since, with many investing lessons for me. But the one investing lesson that I will remember for a long time is to always expect the unexpected.
Unexpected stock market crash…
Because as far as I can see, that has been the overarching theme for my stock market investments in the past couple of years or so. And I have not one but two examples that could persuade you, the reader, to believe so as well. For the first, we only need to look back to March 2020. Tremors to the stock markets in the UK were visible even in February last year as coronavirus cases started spreading. But it was not until the lockdown was announced in the country that the FTSE 100 index crashed by 10% in a single day to sub-5,000 levels.
It was a golden investing opportunity. If I had kept some idle funds in my investment account for such a day, I could have bought some of the best performing FTSE 100 stocks at dirt-cheap prices then. And they would have held me in very good stead in the year to come. While I did not make purchases that day, I did fortunately do so while the stock markets were still pretty weak in the days that followed. Those investments have done very well indeed.
… and a rally!
Just like the we did not know that a stock market meltdown is going to happen, we also did not know that a stock market rally will happen in November 2020. No sooner were the vaccines developed, that investors turned bullish. Within a couple of weeks or so, the FTSE 100 index gained more than 15%! Let me put this in perspective. In the entire last year, the index has risen less than that, by around 12% at the last close at the time of writing.
So, if I had been feeling despondent about holding on to my beaten-down investments, that feeling was gone in a flash. As the rally ensued, my holdings’ share prices rallied. If I had cut my losses and run from those investments in panic, I would not have seen the gains I am seeing today. I could, of course, have exited those investments and bought stocks of more promising-looking companies. But in the current uncertain environment, who is to say how that would have turned out?
One last point
There is something to be said for staying the course. And this brings me to what we at the Motley Fool often say, which is to stay invested for the long-term. Never mind the short-term gyrations. It can of course happen occasionally that our best quality investments go awry. This can be for reasons ranging from sudden discovery of company mismanagement to structural changes to industries. But by and large, these things happen rarely. And they are usually restricted to a small number of companies. Typically, the unexpected stock market crash or boom, which is what I am referring to here, can be a great time to either buy or reap rewards from past investments.
