Investment Lessons from the COVID Crisis

 

VIDEO TRANSCRIPT:

Robin Powell
Joachim Klement/ Liberum Capital
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RP: 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.
JK: 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.
Those that have stuck to their guns, remained long term investors, they have
actually benefited from the recovery that we have seen since late March,
which so far nobody has really expected.
RP: As Joachim says, the stock market rebound took many investors by
surprise, given the dire economic forecasts at that time.
But this a common misunderstanding. The stock market and the economy are
two very different things.
JK: 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.
RP: Most if not all investors have made a mistake at some point or other. The
important thing is to see them as learning experiences, so you avoid making
the same mistake again.
JK: There are two lessons that the average investor can learn, first of all the
value of long term investing. To stick to an investment through the ups and
downs. It’s really hard to do that in practice, especially if the world is going
upside down, but there are some tips and tricks that you can do in order to
create that discipline to stick with your investments into the long run.
The other lesson that an investor can learn from this crisis once again is that
you shouldn’t necessarily trust the forecasts of experts because as we’ve
seen time and again, especially in this crisis, the experts are often very, very
wrong.
RP: 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.