“Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” - Milton Friedman
Many investors have enjoyed record-setting rises in stock prices recently. But in many cases, they are also getting antsy and fearing a second coronavirus-related downturn. While being an investor today is far from being worry free, feelings of panic and dread could obscure one’s ability to rise to the occasion. As we have seen in previous examples, those who are able to remain disciplined and follow a proven process during a crisis can avoid painful and long-lasting losses – as evidenced by the many who emerged from the last recession as winners.
So, the real question for today is whether your portfolio is positioned for the next crisis? Are you positioned to not just simply survive, but thrive? Naturally, that requires a proper mix of stocks, bonds and cash. But it also means looking at sectors of the economy that could benefit from the changes taking place.
What sectors have led the current market advance? It has largely been technology firms that started in the 90’s and survived and evolved after the tech bubble. When you add in Facebook, the so-called FANG businesses (Facebook, Amazon, Netflix and Google) are now clear winners during this unforeseen crisis. They have become essential business models.
In addition, new outliers have entered the picture. One such firm, Zoom Video Communications has seen its stock rise YTD by 310% as of July 16. The video conferencing firm has become essential to businesses like ours that are remaining active during the COVID-19 shutdown. What other sectors are poised to benefit?
With the S&P back in positive territory, Healthcare, Biotech and other forms of technology may be ready to lead the next recovery. It could also be wise to take a look at more traditional, lower profile sectors such as utilities and real estate. Growth could give way to value. And we haven’t even mentioned tech pioneers Apple and Microsoft as we look to future opportunities. The best news is Americans are resilient, industrious and innovative.
Oh, there may still be hurdles and setbacks. It’s possible that the tech heavyweights could be poised for a pull back. But that doesn’t mean you should get out of the stock market entirely, and now is not the time to sell off losers in your portfolio. Instead, look for ways to diversify. We don’t have a perfect crystal ball to tell us when the pandemic goes away or even the impact of the November election, but there are many good indicators that suggest we can get past this.
While you can’t avoid taking some defensive measures, we are also looking at how we may prosper at the end of the recession. Innovation has powered the clear winners during this pandemic, and this could be foretelling what may lie ahead.
One of the most obvious aspects of this recovery is that companies will need to be smarter. For context, we only need to think of the graveyard of dot-com businesses left behind in the 90s. They died not because they didn’t try – they just didn’t get it right.
Today, Zoom is showing the way. How many others are set to breakout because they have the right model for what is next?
Unfortunately, many investors have reacted emotionally to the developments of 2020. In the heat of the moment, they decided it was too much to handle and got out of stocks altogether. Those able to stay the course have marched ahead.
We are in an environment that sparks innovation. It is what will determine whether this set back is permanent or temporary. There was never a better time to review your long-term plan with your advisor. Today’s challenges will lead to change. And the smart money will look to turn that change into opportunity.
Thanks for reading,
This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.
David B. Root, Jr.