Billionaires are made in crisis

The world is going through unprecedented times and every aspect of human life has been distorted by the outbreak of the coronavirus (COVID-19).

Notably, financial markets around the world have been hammered by the pandemic. In Nigeria, after a strong start to the year, the stock market has tumbled, worsened by a collapse in crude oil prices.

Specifically, foreign as well as local investors ignored the attractive dividend yield inherent in several stocks, as fears of an imminent naira devaluation and global market instability, amplified panic sales, and flight to safety.

…the current market condition, largely driven by COVID-19 outbreak, presents another opportunity for decerning investors to take a strategic position rather than waste the crisis.

A popular investment quote by Warren-Buffet – one of the most successful investors of all time, says “be fearful when others are greedy and be greedy when others are fearful”.

The last global financial crisis in 2008 gave birth to new millionaires after the crisis was over. According to Reuters, the number of World millionaires increased by 17% after the global financial crisis as the stock market’s rebound around the world created wealth for investors.

Notably, we make bold to say that the current market condition, largely driven by COVID-19 outbreak, presents another opportunity f o r decerning investors to take a strategic position rather than waste the crisis.

Certainty, the equity market will be poised for a swift rebound once the pandemic clears and activities return to normal. Thus, we believe this is the best time ‘buy the dip’ to be able to ‘sell the rally’ in the future.

Do your research: As much as the times provide an opportunity to buy cheap stocks, an investor must also take caution before investing. The breakout of COVID-19 has put many businesses near bankruptcy and a lot more businesses are suffering from liquidity problems. At the same time, some businesses are benefitting astronomically from the pandemic e.g companies in Telecommunication, Retail Food, Insurance, and Healthcare.

Therefore, it is important that you carry out your research before investing. Read research reports, follow the news, carry out a fundamental analysis of companies and understand the business model as well as long term and short-term impact of COVID-19 on the businesses before you decide. In case it gets too complicated, reach out to your stockbrokers or financial advisers for expert advice.

Don’t put all your eggs in one basket: What this means is that you should diversify your portfolio. The risk is generally high across various investment assets- equities, bonds, and even short-term instruments, due to the pandemic. Therefore, it is necessary to take extra care by ensuring that your portfolio is made up of a good mix of investment instruments.

Don’t invest all you have: As enticing as investing is, it is also important to keep a reasonable amount of liquid cash because of the current unpredictable environment. The money should be enough to sustain your family for 3-6 months. This is to provide a buffer in case there is an unexpected shock to the income of the household.

Caution– Be a smart investor

This is an excerpt from UCAP Speaks, A quarterly publication by the United Capital Plc