The rebound in global stock markets last month was almost as dramatic as it was baffling to some. The Dow Jones Industrial Index registered its best April for 82 years.
Even my two public model portfolios made headway. KIP, which focusses on income-generating property shares, put on 5%. Meanwhile, MMM, which focusses predominantly on Malaysian consumers, gained 7%….
…. Not too shabby for holding onto a bunch of ordinary dividend stocks and doing very little for 30 days.
But here’s the thing: hasn’t the IMF forecast a world recession this year? Haven’t banks posted dramatic falls in profits? Didn’t the price of oil plunge to below zero on a lack of demand for the black stuff?
Haven’t 30 million Americans filed for unemployment aid? Haven’t more than 3 million people around the world been infected by COVID-19?
Hasn’t more than half the world restricted its citizens from moving around freely? Haven’t a swathe of Singapore REITs cut their distribution?
The list of bad news goes on. More could be on its way….
…. so, why are stock markets behaving as though everything is just tickety-boo? What has been driving the market higher? It seems almost unfathomable….
…. Is the market in denial that the deadly pathogen could be with us for the next two years?
There certainly doesn’t seem to be any good reason why anyone would want to buy shares right now. But that is only true if we aren’t able to look beyond the virus.
At some point, we will emerge from this healthcare shock that has morphed into an economic disaster.
Consequently, the world might not look the same as it did before the pandemic. Things will change. The way we go about our daily lives will change. But dealing with change is part and parcel of investing.
Investing should always be about putting our capital into businesses that will generate an acceptable return on our money. It is never risk-free because there will always be trouble ahead. There will always be change….
…. This time it was a virus. Next time it will be something different.
So, the real question is not the source of the trouble. Instead, it is where those businesses that you have invested in will be in the next decade.
So, what is driving the markets?
It is savvy investors who can weigh up immediate risk against potential reward. Not all businesses will survive. But identifying those that will not only survive but emerge stronger is what investing is all about.
There will be setbacks along the way. Vaccines could fail. Medication could prove ineffective. A second wave of infection could hit harder than the first….
…. But for long-term investors with the right stocks in their portfolio, it is merely more twists and turns on a very long journey.
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Disclosure: David Kuo does not own any of the shares mentioned.