Managing Portfolio During Volatility

Long term gains will help the patient, determined and resolute investor

- AJAY BAGGA

The spread of the coronavirus pandemic globally has had a severe impact on global stock markets. With over 242,000 infections and 10,000 deaths, the epidemic has drawn comparisons with painful periods such as World War II, the 2008 global financial crisis and the 1918 Spanish flu outbreak.

Most markets have slipped down 20 to 30 per cent plus, with individual stocks lower by anything up to 50 per cent. As an example, on March 19, the entire US airlines industry had seen its combined market worth fall to $51 billion. This for an industry that had used $39 billion over the last 5 years for share buybacks.

As always happens in large scale events with increased uncertainty, not only risky assets but even so called safe haven assets like gold have seen a fall in prices. Only cash and that too US dollar cash, seems to be the king for now, as all assets, from stocks to bonds to government securities to currencies to metals and other commodities fell sharply.

As all of us are grappling with an uncertain medical event of the coronavirus, markets have started discounting widespread economic destruction due to this and have fallen hard and fast. The market gave no warning on Feb 19, 2020 before it started its fall, to become the fastest ever bear market in the US. Very few investors had a chance to pull out their funds in time and even now most retail investors have stayed invested. The 2008 experience has shown that, the stocks that fall the most, on average don’t recover the fastest. Rather it is the stocks that fell the least that will form the nucleus of the next bull run.