It is hard to believe that we are only halfway through 2020! The year has been such a rollercoaster that historians are probably racing to write the first books about it. There are certainly enough investing lessons we can take from the last 6 months to fill a book. In fact, I think there are 3 timeless investing lessons that are worth highlighting.
1. Always prepare for the unexpected
There have been plenty of 'oh crap' moments so far this year. Not only did we get hit by plunging share markets, negative oil prices, job losses and social isolation, but we faced a run on the one thing we rely on even more than a good hug; toilet paper. Talk about being caught short!
It goes to show how hard it is to forecast low probability events. As investors, we need to stay vigilant and stay ready. Preparing for the unexpected can be as simple as having a diversified portfolio, keeping debt under control and considering how exposed your wealth would be to an unexpected shock.
2. The benefits of automating investing
It hurts when we lose money. It's often said that we feel the pain of a loss twice as much as the joy of an equivalent gain. So when the market plummeted in March, a natural reaction would be to sell everything and hide under the bed.
The investing lesson here is that by systematically buying shares throughout, even as share prices tumbled, investors could have dodged the pitfalls of emotional investing and scooped up beaten-down shares like Afterpay Ltd (ASX: APT) and Nearmap Ltd (ASX: NEA) at bargain prices.
3. Find companies that can endure
Some of the best-performing companies of the last six months are those with the capacity to endure. These are companies that had strong balance sheets, robust demand and wide economic moats. An example is A2 Milk Company Ltd (ASX: A2M) which seized the opportunity to deploy some of its huge cash pile and increase its stake in key supplier Synlait Milk Ltd (ASX: SM1).
We'll come back stronger
I think we have all been tested on our capacity to endure so far in 2020. By reflecting on these experiences and understanding the investing lessons, we can grow and come back stronger in the years ahead.
