COVID-19: How I’m investing through this uncertainty

Wow! The new decade isn’t messing around! 2020 has really started with a ton of uncertainty and fear around the COVID-19 virus and the market is now plummeting. As a result I’ve been getting questions and messages from those who are nervous (and rightly so!) Questions like “How will this impact your investment strategy?”, “What should we do in this situation? Should we buy, sell or wait?” and of course “How should we be investing through this uncertainty?”

These are perfectly reasonable questions in the face of the current (potential) pandemic! Well here’s my take. Let’s break it down.

Disclaimer: The contents of this blog are my own opinions and does not constitute financial advice.

The Situation

What was initially thought, at the end of 2019, to be a minor nuisance that will be swiftly contained by authorities has quickly turned into a major disaster with the CDC of the United States essentially admitting that a spread in the U.S. is inevitable – and the market quickly plummets for it.

Now every media outlet is essentially making bets around when the W.H.O. will reclassify this spread as a pandemic. Although that hasn’t happen yet, the market has already took preemptive actions and dropped by more than 12%. If and when a pandemic is called, believe me, the market will drop further – but I’m not worried.

Huh?

Well, of course, I am worried from a health and safety point of view, but even on that note, I’m not too anxious. That’s because I count myself lucky to be living in Singapore. Out of all the countries in the world, I believe Singapore has handled this outbreak in the best manner – so health-wise we could do much-much worse than being in Singapore.

However, when I say I’m not worried, I’m talking financially. Is it because I have an amazing portfolio management secret that allowed me to not be impacted by the market downturn? No.

Let’s take a look at how my portfolio has fared shall we?

Impact on My Portfolio

Saying that my portfolio did not escape this crash unscathed would be a massive understatement. The best way to put it would be it got pummelled.

Remember in my end of 2019 reflection post I mentioned that it performed extremely well and ended the year with above 13% annualised return?

Well it ain’t like that no more!

In the past 9 days alone, my portfolio went from XIRR of 16.91% at the peak on the 20-Feb-2020 down to just XIRR of 7.47% today 29-Feb-2020. I went from an absolute gain of 27.37% down to just 11.32%, a portfolio value drop of over 12%.

Here’s what that looks like in it’s glorious graph form:

That doesn’t too bad!

However, this doesn’t quite reflect the extent of the drop since I did top up the portfolio with fresh funds in January as well as February. So let’s take a look at the gains graph alone:

Now that’s a lot scarier. I went from a total gain of almost S$75,000 down to almost S$25,000, a loss of almost S$50,000 in just 9 days! Pretty insane given the movement.

Here’s the percentage gains and annualised returns chart:

(If you want to track your portfolio in a similar manner, you can refer to my portfolio tracking spreadsheet template.)

So there you go, not a pretty picture! Looking at these charts, it’s only human to feel the pinch of loss, especially when I expect the market to continue down further in the short term.

[Update 02-Jun-2020]: This has turned into a multi-part portfolio update series where I share how my portfolio performs during this COVID-19 crisis, you can see my other portfolio updates here to see the play-by-play update:

• 1 Month Later (March 2020) – Investing during a crash.
• 3 Months Later (May 2020) – Crash Canceled?

Then why are you not worried?

Well despite all the bad news, it’s not that bad and there’s quite a number of silver linings to look forward to.

I won’t be needing the money I have invested for a relatively long time

Remember, we should only be investing with money that we won’t be needing in the near future (next 1-2 years) and we should have a cushion of emergency fund. It’s precisely for situations like this.

By only investing using money that I won’t need in the short term, it prevents me from panicking in times where the portfolio takes a nosedive.

Now, if I really needed the money here for something soon, I probably won’t be as calm.

The market drop isn’t that much in the grand scheme of things

When I say it’s not that bad, I really do mean it.

Although it feels like the market is going down and down, we’re only really back at the October level so far, just 4 months ago so we’re not in crazy low territory. Not by a long shot. Here’s a chart.

Which also means that…

This is a sale! A great opportunity to get stocks on the cheap

Many who were sitting on the side-lines – holding cash while watching the market climb ever higher, wishing for an opportunity to get in when the market corrects. Well this is that opportunity. The market hasn’t been this cheap since October and the discount could deepen in the next few weeks – a perfect time to jump back in.

However, why not wait for the market to bottom first before buying?

Nobody has a crystal ball, timing the market is a fool’s game

Let’s face it, nobody knows when the market will hit bottom. It could go down another 20% because the virus is out of control or it could go back up tomorrow because a vaccine is finally invented!

There are too many things outside our control that influences market sentiments. There’s no way to predict what will happen in the short term.

If you wait until the market begins to move up before buying, you may not catch it in time OR it might go up a bit on good news but continue tanking again – which will cause you to regret not waiting longer.

Sooner or later, the market will rise but this time you know better! You wait longer and thus miss the buy on the way up – causing you to kick yourself over it.

It’s a never ending cycle of regret and this is dangerous. Having the mentality that you can time the market will give you a lot of grief and anxiety. This is why most people lose money in the market.

I know I cannot time the market, I won’t know when the bottom is, all I know are the fundamentals. So it’s best to leave emotion out of it and stay the course because…

I still have a very long investment horizon and the market will recover

Yes the virus is scary and can cause a lot of death and hamper the global economy if it is not controlled. However if we look at it objectively, the death rate in developed countries, with prepared health systems, is around 2%. For 80% of the patients, they recover without any major issues.

The chance that this virus will destroy the world as we know it is virtually zero. It will blow over eventually. Businesses will continue to operate, people will start going about their lives again.

The principles that I talk about in my post about why index investing works will continue to hold true. Over the long term, I completely believe that this will show up as just a blip – like World War I, World War II, the Spanish Flu and all the previous market meltdowns. The market will recover and we’ll benefit from staying in the market no matter what.

If you need a bit more convincing, let’s talk about the world’s worst market timer.

Introducing the world’s worst market timer

What if we’re so unlucky that every time we buy into the market, we always choose the day right before the market crashes?

Well you can read about how that turns out in this post on the worst market timer.

TL;DR: Although they only invested a total of $184,000 (and they invested right before the worst market crashes of all time), because they never sold out and continued to stay in the market, they still ended up as a millionaire.

That’s the compounding growth power of the market.

Then what’s the plan?

Well, as you’d have already gathered, I am optimistic about the long term prospect of the market despite the immediate doom and gloom.

My plan this year is simple, continue buying as much as I can whenever I can. That’s it.

I will be receiving my annual performance bonus in the coming days and you can bet that I will be putting all of it into the market when I receive it.

I also plan to continue putting more funds into the market as and when I receive my monthly pay check and average down.

The benefit of investing in broad index is that I’m not holding individual companies which could definitely go bankrupt if they are hit hard enough by the downturn due to COVID-19. The index may drop significantly but it cannot go to 0 unless ALL of the companies in the index goes bankrupt.

Then eventually it will make it’s steady climb back up.

To me, this is a great buying opportunity, there’s nothing to fear.

Further reading to calm your nerves:

• There’s a market crash coming – by JL Collins
• The market always go up – by JL Collins

Until next time!

FPL