2020 is certainly a year that we will not forget in a hurry. Never before (and hopefully never again) have we seen such incredible volatility on the Australian share market.
At the height of the pandemic, there were days when the S&P/ASX 200 Index (ASX: XJO) moved more in a single session than it would ordinarily do in a whole year. This was much to the delight of day traders, who thrive on volatility.
But for the average investor, this volatility was unsettling and a lot of tough lessons were learned over the last 12 months.
Here are two lessons learned during 2020:
Diversification is important.
Over the last few years, the bull market has seen most shares and sectors heading higher. In light of this, investors could be forgiven for entering 2020 without a truly diversified portfolio. However, the last 12 months have demonstrated just how important diversification is.
At the start of the year, nobody could have predicted what would happen to the travel market and thus the shares of Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB). Investors that were overweight with travel shares will have undoubtedly underperformed investors with more balanced portfolios.
Market crashes are opportunities.
When the share market is crashing and the ASX boards are a sea of red, it can be hard not to panic. But, as Warren Buffet once quipped, "Be fearful when others are greedy, and greedy when others are fearful." The latter certainly proved to be excellent advice during the COVID-19 pandemic.
For example, at the height of the crisis the Afterpay Ltd (ASX: APT) share price dropped as low as $8.01 and the SEEK Limited (ASX: SEK) share price fell to a low of $11.23. Since then, the two companies have seen their share prices rise a massive ~1400% and 154%, respectively. This means that $10,000 investments at their lows would now be worth $150,000 and $25,400. Anyone brave enough to be greedy in March, will have been rewarded handsomely.
