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Coronavirus driving people out of the stock market

The impact of the coronavirus on the stock market is immense. It’s scaring the stock markets. The Dow Jones Industrial Average (DJIA) lost 12% or more than 3,000 points over five days from February 24-28, the biggest five-day drop since the Great Recession. The DJIA recorded the largest single-day drop (1,191) during that week on February 27.

China is a key player in the companies’ supply chain. That is why analysts fear that companies in China will not deliver parts to companies like Apple and Walmart, which will cause these companies’ results to suffer. Fear of the unknown is causing panic. Stock markets hate uncertainty, and this virus comes with a lot of uncertainty: when will there be a vaccine? How will countries contain it, etc.?

Coronavirus impact on stock market could linger

No one knows how long the coronavirus stock market shock will last. But history shows us that stock markets overreact and then continue their bullish momentum. Today, the rapid proliferation of the virus increases fear, so people overreact. We need to pause and not rush out.

Markets quickly recovered from previous viral outbreaks. Will the stock market shock of the coronavirus lead to a realized capital loss? The market changes, per se, it does nothing. You lose funds only when you sell below the market price. The results of some companies will be affected in the short and medium term due to insufficient inventory. Other companies will win. Although we do not know the severity of the virus, judging from previous market responses, the key response is caution.

Are you a value investor with target companies in your portfolio? Examine your goals and stay the course unless you see changes in the company’s intrinsic value. Have you been speculating, looking to make a quick buck with a margin account? If so, you will have a challenge because the banks will claim your margin. That’s the inherent risk when you use a margin account to speculate.

If you’re not a speculator but a value investor, now might be the perfect time to identify value stocks and select those at bargain prices. There will be several. Whoever you are, be careful, reject the herd mentality and reflect on these issues:

stay the course

  1. Review or develop an investment objective and plan before adjusting your portfolio. Why have you been or want to invest? Your reason will decide your investment strategy. My preferred strategy is to buy blue chip stocks with a long track record of increasing dividends. I own these stocks, review their fundamentals from time to time, and act when there is a permanent change.

  2. You will find value stocks today. Market fluctuations provide a great opportunity to buy solid companies with good track records. Remember, you lose or win only with the sale, Not when markets fluctuate.

  3. When the intrinsic value of your investments changes, confirm your strategy and sell your holdings, even at a loss; whose market recovery time. The market could be down for several years, like the Tokyo Stock Exchange, which has been below its bubble levels for more than two decades.

  4. Don’t let generic asset mixes influence your asset allocation between stocks, bonds, cash and commodities. You are unique, and your mix must suit your stage of life. Think before you rush into so-called safe-haven commodity assets like gold, which have no intrinsic value.

  5. If you are in the red retirement zone, Five to seven years to retirement, your goal should be preservation of capital, so avoid the stock market.

  6. Don’t panic: focus on your goals, plan, long-term strategy. Update them and make sure they fit your needs and risk profile.

  7. This too shall pass, but only God knows when.

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