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Investment Lessons from the COVID Crisis

The coronavirus pandemic has taught people all sorts of lessons. And there are important takeaways for investors as well.

For one thing, however bleak things seem, you mustn’t panic.

Joachim Klement is an investment strategist, based in London.

“I think in this crisis, just like in any other crisis, the investors that have done best are the ones who didn’t panic, that didn’t try to sell in a panic in March, when everything seemed to end, including the world”.

It appears that those who remained long term investors and stuck to their goals, have actually benefited from the recovery that we have seen since late March, which was unexpected.

Joachim states that the stock market rebound took many investors by surprise, given the dire economic forecasts at that time.

But this a common misunderstanding.

Investment lesson #1: The stock market and the economy are two very different things.

“If you compare the composition of the stock market it is very very different from actually the real economy. For example, consumer goods and retailers, shops et cetera, are about 15-20% of the real economy if you measure it as part of GDP. But it’s only about 10% of the British stock market. It’s even more extreme in the US, where more than 20% of the market cap are IT companies, where IT as a direct contribution to GDP is only about four or five per cent, so it’s a total mismatch between what is happening in the stock markets and what is really happening in the real economy”.

One of the most important investment lessons to remember is that most, if not all investors have made a mistake at some point or other. You must see them as learning experiences, so you avoid making the same mistake again.

We keep hearing how unprecedented the coronavirus crisis is. In some ways it is, but in others it’s not particularly out of the ordinary. There will always be uncertainty. No one knows the future.

The best approach is to be aware of the range of possible outcomes and invest accordingly.

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