Barita Insights: Weekly Newsletter September 7, 2020

Analyst Insights

Investors may be tempted to think that this is a terrible time to invest as the impact of the coronavirus pandemic continues to assail economies. Unemployment has spiked, and some parts of our economy are still struggling to resume operations. However, we must train ourselves to look to the future when investing as the future holds two main scenarios, a recovery where a vaccine is found or a recovery where we must co-exist with the virus. What you can be sure of is that we will recover, and what investors must think about is how they want to be positioned once this recovery has taken place.

Firstly, investing in any market is not a get rich quick scheme, regardless of what you have heard. Particularly, we like to view it as the new age of saving. This is due to the low-interest environment we operate in, making more traditional forms of saving less attractive. However, this does not mean that opportunities won’t present themselves along the way which allows investors to make better than expected returns from the market. It is our belief that this crisis has presented such an opportunity and investors must not ignore low asset prices but instead take advantage in order to benefit in the long run.

Investing is filled with unfamiliar terms. You’ve heard how risky the stock market is and you know it’s all about timing, buying low and selling high. The good news is you can keep it simple, stick to the investing basics which we will discuss below:

  • Have a Reserve – First and foremost, we recommend having an emergency cash reserve to cover 3-9 months of expenses before you begin getting in investing. It will help stop you from being forced to sell when circumstances change unexpectedly.
  • Set Long-term Goals – You should determine your reasons for investing in the stock market. Will you need your cash in six months, two years or longer? Are you saving for retirement, for future expenses or to purchase a home?
  • Understand your Risk Tolerance – Your risk tolerance is how you feel about risk and the degree of anxiety you feel when risk is present. In psychological terms, risk tolerance is defined by Michael Lewis as “the extent to which a person chooses to risk experiencing a less favorable outcome in the pursuit of a more favorable outcome.” Understanding your risk tolerance allows you to align your portfolio to reflect your risk level. This will help to improve your overall risk management.
  • Diversify Your Investment – it is well renowned that experienced investors such as Warren Buffett and Andrew Carnegie do not endorse stock diversification. They are confident that their extensive research will identify and quantify their risk. However, do not make the mistake of thinking you are like Buffett or Carnegie; the most popular way to manage risk is to diversify your exposure.
  • Control Your Emotions – this is tied to our first point on having an emergency cash reserve; this gives you the confidence to trust your investment and not react every time the market becomes volatile.Historically, equity investments have enjoyed a return significantly above other types of investments while providing good liquidity and transparency. Investing in the stock market is a great opportunity to build large asset value and with our local market still having depressed asset prices due to the COVID-19 pandemic, this provides investors with an excellent opportunity to acquire assets at attractive prices. You are never too old or too young to begin investing.

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Written by Jonathan Cook, Research Analyst

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Conclusions

The story for much of the past generation...

The story for much of the past generation has been a familiar one for the U.S. economy, where the benefits of expansion flow mostly to the top and those at the bottom fall further behind.

Some experts think the coronavirus pandemic is only going to make matters worse...

Some experts think the coronavirus pandemic is only going to make matters worse.

Worries of a K-shaped recovery are growing in the alphabet-obsessed economics profession. That would entail continued growth but split sharply between industries and economic groups. It’s a scenario where big-box retail and Wall Street banks benefit and mom-and-pop shops and restaurants and other service profession workers lag. Though not readily visible in GDP numbers for the next several quarters that will look gaudy in historical terms, the uneven benefits of the recovery pose longer-term risks for the national economic health.

Interest rates are likely to stay low for years...

Interest rates are likely to stay low for years as the economy fights its way back from the coronavirus pandemic, Federal Reserve Chairman Jerome Powell said in remarks published Friday afternoon.

“We think that the economy’s going to need low interest rates, which support economic activity, for an extended period of time,” Powell told NPR in an interview after the nonfarm payrolls report was released earlier in the day. “It will be measured in years.”

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