Home Investing Strategy Get Smart: Things Will Get Much Worse Before They Get Better

Get Smart: Things Will Get Much Worse Before They Get Better

As we enter the fifth month of the COVID-19 pandemic, things are starting to feel rather surreal.

It wasn’t that long ago when economies were growing and the outlook seemed rosy.

Within a space of a few months, the dream turned into a nightmare.

Numerous people have died, jobs have been lost, and businesses are struggling to cope in this new reality.

Investors have been left shell-shocked as stock markets crashed in March, only to recover some of those losses last month.

Even blue-chip companies have not been spared the carnage, with many falling to multi-year lows.

How much worse can this get?

Is there any silver lining to all that’s happened?

Grimace at the pain

Many companies reported declining revenues and plunging profits in their recent quarterly announcements or business updates.

And those are considered the lucky ones.

The weaker companies that are directly impacted by the pandemic have reported growing losses.

Operating cash flow has turned negative and it becomes a case of “survival of the fittest”.

The Business Times reported that for April alone, over 8,500 business entities closed shop, twice March’s numbers.

It’s a staggering statistic, to say the least.

There are only a handful of businesses that have managed to escape unscathed, or even thrived.

Most investors will be grimacing at the pain of paper losses within their portfolios.

Short-term, acute challenges

It’s important to realise, at this point, that this economic pain is self-induced.

Countries are voluntarily shutting their economies down to contain the spread of the coronavirus.

Businesses are now facing acute, but short-term, challenges.

If these businesses have a strong business model and a robust balance sheet, investors can count on them to survive through this crisis.

Governments are not standing idly by.

Many are propping up their economies by doling out support packages to prop up people and businesses.

In a way, the current situation is a litmus test for businesses.

Only the strongest and most resilient will survive and go on to prosper in the post-pandemic world.

Endurance is the key to survival

Stock markets are driven by sentiment and emotion in the short-term.

And right now, most people are feeling dejected, despondent and pessimistic.

They are not wrong to feel that way.

Things will probably get much worse before they get better.

If you are looking for a sliver of hope, it may be hard to come by as we are still right smack in the middle of the worst pandemic since the Spanish Flu of 1918.

Endurance and perseverance, though, will enable an astute investor to remain calm.

These attributes are needed to carry investors through intense short-term pain.

Get Smart: Adopt a longer-term investment horizon

In any economic downturn, investors will experience the pain of paper losses are valuations and share prices fall off a cliff.

However, we are not investing in a company just for the next few months or quarters.

The idea is to stay vested in the company for years, or even decades.

If we stretch out our investment time horizon, the pandemic will seem like just a blip in the long-term growth story of great companies.

Remember that the best companies have been through multiple crises before.

The fact that they are still around means that we, as investors in them, can continue to keep the faith.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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