Managing your portfolio is always key to investing success. Now there’s a new wrinkle: pandemic stock portfolio management. Here are a few things to consider.
Life is an evolving process. Changes naturally unfold as the decades pass. Your food intake changes. You go from baby food to chicken nuggets to soda & Subway sandwiches to various activity-specific diets that are controlled by your exercise routine, pregnancy, frequent travel, allergies and developing health issues. Your exercise habits change. You go from crawling to running to full-on team sports participation to couch potato or desk jockey or Mom (need I say more on that one?) to purposeful power-walker to limping and cautious octogenarian.
Your approach to managing your stock portfolio changes, too. You might have begun by buying high flyers without any regard to the company’s finances, solely focused on buying hot growth stocks that would hopefully double in a few short months. After a while, you realize that’s gambling, not investing, and you get tired of the profit-and-loss roller coaster.
You move on to an investment strategy that’s based on some sort of principle: fundamental analysis or technical analysis or your Dad’s advice or your familiarity with a specific industry. Along the way, you tweak that strategy with an additional focus on dividends or lower price/earnings ratios (P/Es) or sector diversification.
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It’s time to add another layer of focus to your stock selection: Pandemic Stock Portfolio Management. This is not about people being sick. This is not about a wave of deaths that’s ebbing and flowing across the globe through the first half of 2020. This is about the economic fallout from the lockdowns, in which citizens were quarantined and businesses were impaired from their normal, revenue- and profit-producing activities.
I know that you would prefer to stick with the investment plan that you’ve had in place for several years, but you need to understand that professional portfolio managers – the folks who move the global stock markets – are all adapting to these new business realities. The better you understand why they’re buying NVIDIA (NVDA) and selling Carnival Corp. (CCL), the better you’ll understand how to improve your portfolio returns during the new economic recession.
Here are a few key things to remember for your pandemic stock portfolio management strategy:
Pandemic Stock Portfolio Management Strategy: 5 Things to Remember
People are not gathering in large groups. They’re afraid of catching germs and viruses. Investors need to be wary of companies that rely on packing people into close quarters. These industries include airlines, casinos, movie theaters, hotels, cruise ships, and even retail shopping and restaurants. If these companies can’t operate normally, there’s no chance that their balance sheets are going to remain healthy. Do you want to invest in unhealthy companies? No, because the goal of stock investing is achieving capital gains. Investors can most dependably achieve capital gains over multi-year periods by owning shares of healthy, growing companies.
Do you know what they call people who invest in unhealthy companies on the hopes that the companies will soon solve their financial problems and thrive again? Gamblers.
Job loss will harm the housing market. Everybody’s talking about the government throwing money at lower-level workers who temporarily lost their jobs during the lockdowns. But news stories and reality are often two very different things. You know what nobody’s talking about? An awful lot of mid- and high-level career workers lost their jobs too. When the lockdowns end, there’s not going to suddenly be a mad hiring rush for corporate salespeople, actors, interior designers and C-suite executives.
The waiters and baristas who lost jobs did not have mortgage payments. Nobody buys a home on a barista’s salary. But mid- and high-level career workers are the backbone of the housing market and the breadwinners within families. When they lose their incomes, they scramble to assess their savings and assets, lower their spending to the bare bones, and make tough decisions. Not only will these people not be buying homes any time soon – thus lowering the demand for new home purchases – but many will be selling their homes in order to achieve lower housing payments on smaller properties, cashing in second homes (that little cottage on the lake), and even moving into their parents’ basements. As an investor, you don’t want to own stocks that cater to a thriving housing market during an economic recession that features high unemployment among skilled workers.
People are doing lots more work and entertainment at home. Neither sickness, lack of mobility, social anxiety or unemployment will make a dent in people’s use of cell phones, televisions, computers or other electronic devices. Now more than ever, they’re upgrading their assortments of home office equipment and services to enhance their new work-at-home lifestyles. They’re accessing a tremendous amount of streaming entertainment and educational activities. You can confidently invest in companies similar to Apple Inc. (AAPL), Zoom Video Communications (ZM), DocuSign (DOCU), Applied Materials (AMAT), Netflix (NFLX), Verizon Communications (VZ) and their industry peers. (This was a random list of names. Use your personal investment criteria to choose the right companies in each industry, or visit Cabot Wealth Network to subscribe to an investment advisory that caters to your portfolio management style.)
People are saving more and spending less, and they’re receiving retirement plan distributions. While online shopping has certainly given Amazon.com (AMZN) a huge revenue boost this year, overall, people are spending less. U.S. savings rates are higher than ever in 2020. In addition, people who lost jobs are receiving distributions from 401(k) plans and other assorted business retirement plans. Much of that money will flow toward investment management, life insurance and annuity companies, and you’re in luck! As an industry group, those companies are generally very financially healthy and their stocks have low valuations. Consider adding any of these companies to your stock portfolio: Equitable Holdings (EQH), Voya Financial (VOYA), Brighthouse Financial (BHF), Charles Schwab Corp. (SCHW) and their peers. And yes, even people who are scared about long-term job loss will initially be making retirement plan rollover decisions. More than 40 million people have lost their jobs in the U.S. We can roughly estimate that half of them will be making new investment decisions in the coming year.
Businesses are realizing that they need less office space. Almost all companies that remained up and running during the lockdowns sent their employees home to work. Now they’re all analyzing how to proceed in the future. We don’t know yet whether 10% of employees will continue to work from home, or 60%, but we can safely assume that 100% of these employees will not be returning to their traditional office spaces. That means that businesses will be downsizing the amount of office space that they lease. That’s not good news for the commercial real estate market. As an investor, you’re going to want to avoid owning stocks or REITs that focus on commercial real estate.
There are many other changes taking place in global commerce. Learn more from your favorite analysts at Cabot Wealth Network.
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