Navigating the winners and the losers
INVESTING during COVID-19 has been fraught with uncertainty, heightened volatility, fear and despair.
Most money managers erred on the side of caution and chose to stay liquid in low-risk investments.
However, amid the turmoil of the year, many people found themselves with a lot more time than they had ever had before, and experienced the joy of adapting to Teams, Zoom, Skype and the various online platforms required for success. But as we approach a new year, how do we navigate the winners and the losers?
Start with looking at the prospective investment’s price history. The objective here is to understand how an asset performed at the worst possible time in the financial markets. Prior to this, analysts would look at the price dips experienced during the Sub-prime crisis, but we are now presented with a new golden opportunity. We can check the prices of the asset during the worst part of the crisis (March 2020) and compare it to the performance of its peers. For people in risk, this is a gift, since you don’t need to build a model to stress test prices since every asset was tested!
There were winners this year, and some of the easiest to spot would be companies like Zoom in the US, whose price on December 31, 2019 was US$68.04 and as at December 4, 2020 was US$412.49 and folks, this is actually a decline as the vaccine news has made investors less enthusiastic about the company. Zoom’s price peaked at US$568.34 on October 19, 2020. Locally, companies like Gracekennedy increased their net profit attributable to shareholders by 35 per cent for the nine-month period ended September 2020 and Benjamins, which is not publicly listed, but due to the nature of their business with goods like rubbing alcohol and sanitiser, we know demand would be high. Anecdotally, stories abounded of stores running out of desks and laptops as people busily created their home offices.
If we had to do a tally, you could shut your eyes and immediately state that the losers outweighed the winners. I do not wish to single out any company here, as they are the majority, both locally and internationally. However, the real question is: Which of this year’s losers will be next year’s winners? Before we address that question, we could not let a year like this pass without putting in a plug for diversification. Changing circumstances will be good for some companies and bad for others, but we cannot know in advance which companies will suffer and which will thrive until we see the nature of the specific upheaval in the market or how or if the company will respond or pivot. We have to expect market shocks every few years. Therefore, diversification across sectors is your best defence.
How do we invest in 2021? We start with the information that we have.
We know that a new administration will be in place in the US with the stated intention to get the pandemic under control, we know that there has been remarkable progress with the vaccines and we may get the opportunity to see former President Barack Obama get his on the television. We also know that many of the companies who experienced the setbacks will fight their way back to profitability next year. With that in mind, we cannot wait for everyone to jump in and run up the prices of these assets, we have to carefully analyse companies’ prospects and assess the ones with the best chance of making a comeback.
Happy Investing!
Yanique Leiba-ebanks is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual, and institutional investor. Visit our website at www.sterling.com. jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm