My Journey in Investing: Portfolio Update For Covid-19
The state of the United States Stock Market, from the introduction of Covid-19 to the United States, has been a turbulent one.
This article will give a general summary of the market as well as an update on the state of my portfolio.
Like most of us know, in response to the spread of the pandemic, the stock market dropped nearly 30%, beginning on February 20th. As we would soon see, due to these fears regarding the epidemic, a series of major sell-offs starting in late February and carrying on into March would constitute a stock market crash. The all-time market high on February 12th quickly plunged throughout the end of February when all indexes reported massive single-week loses. The week of March 9th to 13th saw a 12% drop in the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500 Index. The exchange would have to pull a circuit breaker on more than one occasion.
I was fortunate in so that out of fear, I went on an emotional selling spree on February 24th before the massive drops began in March.
My decisions:
After seeing how rapidly stocks were dropping through the S&P 500 and Dow Jones Industrial Average, I feared that I would lose all the gains I had made over the past five months. On the 24th, while heading to school, I read a Wall Street Journal describing the possibility of a depression. Out of snap judgment, I opened up the trade website on my phone and sold all my stocks except that in LuluLemon. My logic at that time was that activewear was unrelated to the industries that would be most affected by COVID-19 and thus would perform fine.
My logic during that time was flawed. Had I slowed down, I would have understood that in this situation, nearly all companies would face large drops in the stock price as a result of the hysteria occurring in Wall Street. After that, however, specific stocks would capitalize on the market opened up by COVID and those ones would be the ones to provide the best returns to its investors. Amazon and Netflix would flourish as a result of the stay at home order issued in response to the pandemic. In fact, Netflix drew 15.77 million new customers over this period, which greatly exceeded the projected membership numbers had everything been “normal.” Additionally, the success of its newly released original shows during this time period, namely The Tiger King and Never Have I Ever, are solidifying Netflix as the king of streaming.
Amazon stock is also seeing success, as is to be expected. With people staying home, the safest way to purchase goods is to do so online. This resulted in their stock rallying to new heights. As a result of this surge in business, the company has reported around $75 billion in revenue, which exceeds most estimates for Quarter 1. Overall, according to the Observer, “Amazon stock had climbed 28 percent … while the S&P 500 index had fallen 12 percent” since January 20th. Bezos’ warning for shareholders to take a seat after revealing projections for $4 billion in profit for Quarter 2 is not likely to shake most investors’ bullish attitudes towards the company. In fact, after coming under fire recently for poor treatment of its workers in light of the pandemic, it may improve the company’s outlook to show that it is diverting profit to improve worker conditions. On an unrelated note, it is troubling, however, that not much is being said about the Amazon warehouses. Former Amazon VP Bray Poter’s resignation did make waves on the internet, however.
There is one other company that is hard to ignore: Delta Airlines. When I initially purchased shares in the company, I did so with the belief that United Airlines was an inherently doomed after its various scandals over the past several years, making Delta a strong company to take over the market. COVID shattered this entire mode of thought. Airlines have crashed, and Delta is no exception. This is not surprising because the virus has resulted in the evaporation of hospitality and travel as a whole. I’m celebrating selling my shares in this company. Just recently, they announced to be flying planes at half capacity in order to ensure that social distancing occurs. The situation has greatly changed from the past when planes were overbooked to ensure maximum revenue. There is no doubt that this pandemic will devastate the Airline industry; however, what is even more chilling is Buffett’s exit. The legendary investor dumped all of his positions in the Airline industry with the belief that a post-pandemic world will not use airplanes to travel as frequently as they did before.
Future Decisions:
I tend to think that what is going on is not a sector-based drawdown in leisure, hospitality, banking, and a couple of others … but there are implications for every single business so [that’s why it is] important for a company to reset. — Chamath Palihapitiya, Social Capital CEO
Currently, the economy is showing signs of trouble, especially with unemployment having reached around 23 million people two weeks ago. Surprisingly, however, the stock market is performing very well. While the 31% rise does not put indexes back at the levels of early 2020, the returns are definitely surprising given the current state of most companies. Understanding why this rise is happening is necessary to make smart investing especially since volatility is at an all-time high.
A key reason for the stock marketers rally from the crash is the fact that investors think the government has their backs. The CARES Act allocated much of its substantial $2.2 trillion fund into bailing out airlines and providing loans to other large, struggling companies. In fact, the government virtually poured money into companies and thus the market responded well.
Jerome Powell and the Federal Reserve also demonstrated their propensity to aid the Stock Market by quickly responding to the crash by cutting interest rates to encourage spending.
Another possible reason is that investors are reflecting their optimism for the future in their purchases. The worst seems to be over and their purchases reflect the notion that things are going to get better quickly.
This may not be the case, however. Emily Stewart, a journalist for Vox, reports after haven spoken to several executives and bankers that massive uncertainly lingers behind all their judgments. The state of the virus itself is not fully understood and neither are the long-standing economic repercussions. Others report that since technology companies are still flourishing and bonds are performing poorly, they have no other option but to buy in.
In the end, however, it is important not to get caught up in this frenzy to buy and take advantage of the volatility in the market. Many believe that this is a great time for buying low and selling high. This “fear of missing out”, however, can ultimately amplify devastating results in the coming months if the situation does not improve.
As of right now, I am staying clear of the market. I will continue researching various industries and sectors so that I can make a smart decision when looking to re-enter. When I do make my purchases, I will be sure to take a look at several companies occupying a similar market space so that I can take an in-depth comparison of their products and apply comparative valuation metrics.