According to news reports, Europe’s medical institutions are beefing up their resources in case of a second wave of Covid-19 infections. And I heard an interesting interview this morning with Mark Carney, the ex-Governor of the Bank of England. He observed that businesses could be retreating from globalised, just-in-time supply chains. Instead, perhaps there’s a trend towards localised, just-in-case procurement.
Preparation is everything in choppy markets
The theme that links these two stories is preparation. Indeed, much of the world seemed under-prepared for managing a pandemic. That seemed true when it came to personal protective equipment (PPE), ventilators and bed space. And globalised supply chains made catching up with demand more difficult.
Indeed, when human economic activity and transport systems essentially shut down, it’s hard to make and distribute stuff. But had there been just-in-case stockpiles and local supply chains, maybe managing the pandemic wouldn’t have been as fraught with difficulty as it proved to be.
And there’s a massive read-across for businesses in general, whatever they produce. This pandemic has taught the world much, and we may see big changes in the way companies and institutions operate going forward.
But the lessons can be applied to many walks of life, including investing in this choppy stock market. We never know what is going to happen next. Right now, for example, I think the stock market is behaving in a conflicted way. Investors seem to be focusing on the twin possibilities of a second Covid-induced crash and a sharp recovery because of the return of economic activity as lockdowns ease.
5 steps I’d take right now
Meanwhile, we investors can make ourselves ready for either outcome by preparing now. And one way to minimise the effects of a second market crash, if it comes, is to invest with a long-term perspective in mind. For example, any dip in the share-price chart that arrives over the coming weeks or months could look far less significant in your portfolio 10 years from now.
Another good strategy is to forget about the market averages such as the FTSE 100. Instead, focus on the news flowing from the businesses behind your shares. If you are buying individual stocks, you are not buying the entire market. And individual shares can behave differently to the aggregated sum of all the stocks in the market.
A third way to mitigate the volatility in this choppy stock market is to invest in stages. Regular monthly investments can work well. That way, you’ll rarely be committing all your funds at a general market high or a low. In some ways, such pound-cost averaging can help to iron out volatility.
If you are worried about the economic uncertainty in the air, you could hold some money back rather than investing it all. And finally, you may also wish to go through your portfolio to weed out any holdings where you have low conviction about the strength of the underlying business.
But perhaps the biggest way you can prepare right now is by working hard on your watch list of great businesses that you’d one day like to own some shares in. Preparation now could pay you handsomely down the road.
