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3 reasons why the 2020 stock market crash could help you make a million

The stock market crash of 2020 knocked back the portfolios of many investors. In some cases, the falls have been horrific.

Sadly, some shares probably won’t go on to recover very quickly, if at all. In a world featuring Covid-19, the outlook for sectors such as travel, hospitality and others, look grim. But that could all change fast if a vaccine is discovered for the disease.

However, a vaccine may not arrive fast enough to save some firms and many will likely go bust. But it’s not all doom and gloom. Setting aside for a moment the human tragedy of the pandemic, every stock market crash brings opportunities with it too. I can see three reasons the crash of 2020 could help you make a million.

New demand

Some sectors are experiencing greater demand because of coronavirus. And, in some cases, individual company profits could elevate permanently. For example, the shift to home working could become a permanent feature in the economy as companies realise how beneficial the cost savings can be.

That’s just one example of several trends that could fuel enduring growth in a world living with Covid-19 and beyond. Right now, I’m getting some good results investing in shares within sectors such as IT, Software, Betting & Gaming and Healthcare. I think sectors such as those are fertile ground right now for stock pickers.

Cheap shares

A second group of shares are selling cheap because of the pandemic. Generally, such firms are still trading now despite the virus, either partially or completely. With such businesses, I think a decent strategy could be to buy their fallen shares. You can then ride a recovery as the world normalises after the pandemic has faded, or when we have a vaccine.

There are rich pickings in this category in sectors such as distribution and retailing. There’s also a lot of operational resilience on display in the food industry, whether companies are manufacturing, distributing or retailing.

Then there are some special cases — shares primed to come back strongly, in my opinion, when lockdown restrictions ease sufficiently. I’d look for companies with a strong niche in their markets, such as Autotrader and Rightmove among others.

Long-term perspective

Any short-term advantage gained from a recovery from the 2020 stock market crash is just the beginning. To make a million starting from the lows of this crash, I reckon you need to take a long-term approach to share ownership.

Great investors such as Warren Buffett and others have made their greatest gains by holding for a long period, measured in years rather than in weeks and months. Buffett advocates thinking of yourself as a part-owner of the businesses behind the shares you hold.

If you were the only owner of the business you wouldn’t buy and sell it quickly. And if you hold shares with the same tenacity you would if you were the only owner, the business will have time to generate the returns that could help propel you to your million-pound fortune.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Auto Trader and Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.