Economy,  FIRE,  Life,  Stock Market

Coronavirus Investment Strategies – 4 Ways to Profit During Volatile Periods

Reading Time: 4 Minutes

Buenos Dias!

Welcome back peeps. Hope everyone’s self-isolation is going well!

Anyhow, I read an interesting fact this week.

After the epic rollercoaster that was the first two weeks of March, the markets have come roaring back from recent lows.

So much so, that people are speculating that a bottom has been found, and are looking for ways to jump in.

I mean, just look at this chart this week, courtesy of respected commentator Alan Kohler:

Two things jump out from this.

Firstly, I would hazard a guess and state that the ones who punched in that search term are newbies to the stock market and investing in general. Because if you knew how to buy stocks, you wouldn’t be searching for it.

Secondly, following on from the first point, a significant portion would be young ‘uns who have probably only seen one major downturn, that being the GFC (I am in this group also).

The GFC of course, was a sudden crash that exploded out of nowhere, the aftermath of which fuelled a credit and money printing boom, and then the longest bull market on record off the back of cheap money.

Unfortunately, that is the sum total of our recessionary experience.

But this ignores the fundamentals rapidly taking shape globally.

Unemployment rates are spiking, governments are chucking huge amounts to prop up entire economies, and most importantly, COVID-19 rates are still increasing, with some nations still on the cusp (India anyone?)

Which is why I am not convinced that a bottom has been found.

However, there is money to be made in all markets.

If you are new to investing, here are 4 strategies you could look at to navigate these uncertain times.

ETFs and Passive Investing

Risk: Low

Timeframe: Medium-Long  

Sleep At Night Factor: High

ETFs and Passive Investing is investing into a basket of an underlying index. Your investment tracks the performance of this index.

Many people swear by this strategy because it is cheap, is completely passive and best of all, has had whooping great returns in the last decade (courtesy of the post-GFC bull-market):

As evidenced with this perfectly drawn oval.

Doubling, tripling or QUADRUPLING (and more) your money in 10 years by doing virtually NOTHING is pretty darn good.

And look, the index in this example, the S&P 500, started just above 100 points, currently it is just shy of 2,500.

If you believe markets rise through history (they’ve always done so), then getting into indexing at these levels represents a very good buying opportunity.

ETFs and indexing is what plenty of people pursuing FIRE swear by.

Dollar-Cost Averaging

Risk: Low-Medium

Timeframe: Medium-Long  

Sleep At Night Factor: Medium-High

As the name suggests, this involves investing the same amount of money consistently at regular intervals over a long period, irrespective of market prices going up or down.

Business Insider did a great piece explaining how DCA works, but as an example, let’s say you used DCA on ABC shares for $1,000 every month.

You might have something that looks like this after 6 months:

If you had used all your $1,000 to buy ABC shares in month 1, you would have only bought 10 units at $10/share.

You’ve now got 0.27 extra shares adding to your return, at a lower average entry price of 98.33.

DCA is a good strategy to “keep you from panic selling when the market is acting wild. And it can also help you resist the temptation to go all-in on high-risk, speculative investments”.

Imagine if you had DCA on Amazon shares from the dotcom boom onwards? You would have ridden the early highs, gotten absolutely crushed 90% (NINETY!!!) and then ridden the massive tsunami in recent years…

Editor’s Note: Amazon is probably an extreme example.  

Day Trade

Risk: High

Timeframe: Short

Sleep At Night Factor: Low

As the name suggests, day trading is not so much investing, as it is speculating. Trade positions are opened and closed typically within the same day, more often in hourly blocks, though can last a few days and on rare occasions, weeks.

Make no mistake, day trading involves huge risk as you are relying mainly on technical analysis as opposed to the fundamentals.

Also, trading so often has increased transaction fees as well as a very limited time to be on the “right” side of a trade.

Python Day Trading Algorithm on AWS - Flush Arcade
W…wow… what a setup.

Hail Mary

Risk: Bring On The Pain

Timeframe: Short-Medium-Long

Sleep At Night Factor: What Sleep?

This is otherwise known as the “all-in” trade.

Which is why there is such an obsession about “when the market bottoms”.

Because logically, you make the most money when everything is cheapest.

Problem is that, no one knows when the bottom is.

And as the name suggests, you are banking literally EVERYTHING at the one time in the hope that it goes up.

Personally I’ve done a few “all-in” trades before, and lemme tell ya, they’ve all been stupid, dumb decisions.

The problem with the Hail Mary is that you have no more ammo left and are completely at the mercy of the markets.

Sometimes it pays off big-time, like Afterpay a couple of weeks ago ($8.01 – $22.15 in a week).

Ridiculously satisfying Rainbow Road shortcut/skip (Mario Kart DS ...
Insane hack.

But the overwhelming majority of the time, please… just don’t it.

However, I will say this.

The only true time to go “all-in” in my opinion, is when there is “blood on the streets”.

After the panic stage, after capitulation, after despondency, when there is NO HOPE left.

This is the point of maximum fear and maximum opportunity.

The problem is, it’s easy for me to sit here and type words out, and for you to sit there and read these words.

If we actually get to that point – the sheer amount of terror and uncertainty prevailing in the economy and in our jobs… well, you let me know your thoughts then.

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P.S. As always, all thoughts are my opinions only – do your own research please!

2 Comments

  • Erin

    Great article! My boyfriend has been wanting to get more into trading and right now definitely raises some questions as to whether it’s a good time or not. I will share this with him! Thank you!!

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