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How To Build An Effective Investing Strategy During COVID-19 Market Turmoil.

Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.


  • The coronavirus has created generational buying opportunities.
  • Many sectors have fully recovered, since equities tanked in March. A handful of stay-at-home stocks have rewarded investors richly during this current pandemic.
  • The market experienced a healthy, short-term correction on Thursday and Friday of last week, as some investors took profits from a few stocks that have become highly overvalued.
  • Investors should not make drastic changes to their portfolios, based on short-term market volatility. Historically, long-term investors have always been rewarded richly.
  • I provide my perspective on how I and other investors should navigate these turbulent times.

Note: This article was first published on NewVestor.com.

The coronavirus-induced market bear wreaked havoc on 401k, IRA, brokerage and other investment accounts during the nadir of the pandemic. While some investors fled in droves, others stood their ground outright and fought the bear. Both winners and losers were created.

Since equities fell off a cliff in mid March 2020, many sectors have fully recovered. Particularly, the technology sector (XLK), stay-at-home stocks (AAPL, AMZN, NFLX, FB, TSCO, ZM, TDOC, etc.) andd a few healthcare stocks (WST, AMD, DXCM, PKI, etc.) have been big winners. Investors who took advantage of the generational buying opportunities created by the pandemic have been rewarded richly. Since the rapid rise and recovery, there have been incessant cries for a pullback, particularly in the technology sector. Are the bubble-maniacs and financial pundits beginning to see their wish come to true?

On Thursday and Friday of last week, chaos and panic were everywhere. The market experienced a healthy, short-term correction, as many investors took profits from a few stocks that have become highly overvalued. Tech stocks got hammered hard. The tech-heavy Nasdaq Composite Index (IXIC) ended the week at 11,313.13 or down -3.27%. The S&P 500 Index finished the week down 2.31%. Other previously high-flying stocks weren't immune to the market's wrath: AAPL, -3.08%; TSLA, -5.50%; AMZN, -3.15%; TDOC, -4.93%.

Investors have been busy blaming the coronavirus pademic for the current stock market headwinds. But they fail to see the plethora of early Christmas presents that is right in front of their eyes. As the saying goes, "When life gives you lemons, make lemonade." And lemonade you should be making right now. The coronavirus has dropped lemons everywhere. Will the most recent slump continue? Was last week's volatility a harbinger of more market turmoil ahead? Nobody knows. Here's what I believe investors should be doing right now. That's what I'm doing.

Invest for the long-term. Don't expect to get rich overnight.

Investing in the stock market is one of the best ways to amass massive wealth. But investing won't make you rich overnight. Unfortunately, many people have unrealistic expectations about investing. Such expectations can lead to disappointment, and cause you to abandon investing altogether. You should invest consistently and exercise patience to help you build sustainable wealth. Historically, stock market peaks always prevail over valleys in the long-term.

Implement a keep-but-trim approach.

As with all bear markets, some sectors will be losers and others winners. Although small caps seem to be making a comeback, the coronavirus has not been too kind to them. The Russell 2000 index, which tracks the performance of America's smallest companies, is down -7.98% YTD. On the other hand, the S&P 500 index is up 6.07% YTD. Market trends and momentum can be an investor's best friend. As of right right now, the investing landscape seems to favor growth. Should you trim your small-cap holdings? This is a decision only you can make. If you do trim your laggards, do so strategically and meticulously. Always keep in mind that your winners of today may become your losers of tomorrow.

Don't listen to the naysayers and "experts".

Investing is inherently volatile. Obsession with short-term market movements and volatility can be a portfolio killer. If you are a long-term investor, focus and discipline are your best friend. During the early weeks of the stock market rally and recovery, following the coronavirus pandemic, many investors disinvested from the stock market, and stayed on the sidelines. The idea was to protect whatever little profit they had accumulated; they didn't trust the rally. The so-called experts and pundits kept alluding to a nineties-style bubble. Those who heeded the constant doom and gloom preaching turned out to be some of the biggest losers! If you have a strong investing objective and strategy, stick to your plan. Ignore the short-term noise, naysayers and experts. Remember: nobody knows what the stock market will do from one minute to the next--not you, not the experts.

"The individual investor should act consistently as an investor and not as a speculator."

Ben Graham (American investor)

Don't be afraid to sever ties with perpetual laggards.

We've all made investing mistakes. Most, if not all of us, at one point or another, bought what we thought was a great stock or mutual fund. Sadly, we would later find out the investment was a bust. Sometimes, investors keep on holding to that security, hoping for a rebound. Oftentimes, the turnaround never happens. As as an investor, you must be flexible enough to know when to hang tight or when to cut your losses. You must never be afraid to part ways with a consistently under-performing investment and re-invest the proceeds in better securities.

Don't buy the "hot" new stock just because everybody else is buying it.

Jumping on the latest hot stock because everybody else is buying it is one of the dumbest investing decisions you can make. Sure, you may win big in the short-term. But if the only reason you invest in a stock is for the fear of missing out on the current gains, you will set yourself up for investing failure when the stock implodes. Zoom showed us this last week.

On Monday 08/31/2020, Zoom Video Communication quadrupled revenue and boosted profits. The following day (09/01/200), the stock skyrocketed over 40%, as many new investors jumped on the bandwagon for fear of missing out. The day following the surge, shares of Zoom dropped 7.46%. You must always take a close look at a company's entire bottom line or fundamentals (e.g. debt, earnings, among other things) before investing in the stock.

Don't fail to diversify your investments.

Diversification is an investing strategy of allocating money to different asset classes to minimize risk. For example, if you invest your money in only one asset class or sector and that sector suffers a financial downturn, your portfolio could pay a big financial price. Conversely, if you spread your money across different asset classes and one sector falters, the other assets in your portfolio may protect your investments from volatility and risk.

Don't chase yields.

Whether you are a growth-oriented or a dividend investor, chasing yields is an investing mistake that can eat away your capital. Oftentimes, an investor invests in a stock or mutual fund solely based on past returns or high dividend yields. Sadly, this investing mistake can be a hindrance to your portfolio's returns. Always keep in mind that past performance does not guarantee future results.

Don't borrow or withdraw money from your IRA or 401k.

Unless you absolutely must, don't borrow or withdraw money from your retirement accounts! Life is unpredictable. You can never predict when the next financial emergency will strike. You may be tempted to withdraw or borrow money from your retirement account during periods of financial hardships. But if you can avoid it, you'll set yourself up for maximum financial rewards. The longer your money stays invested, the greater the financial returns. Consider setting up an emergency fund to avoid tapping prematurely into your 401k or IRA.

The bottom line

The reality is nobody knows how long the coronavirus pandemic will last. But you can take steps to set your portfolio up to outlast the pandemic. Ignore short-term stock market volatility and stay the course. Don't time the markets. Invest in high-quality stocks. Start with just a few bucks. Don't wait until you have a lot of money to start investing. Expect to make mistakes; every investor does. Learn from your mistakes. Above all, invest for the long term. Historically, stock market peaks always prevail over valleys in the long-term.

Analyst's Disclosure: I am/we are long AAPL, TSLA, BGS, STOR, SCHD, VICI, TSCO.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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