‘Buy, when there is blood on the streets’ – the old Wall Street saying perfectly summarizes the last few months on the stock market. Sayings are not just sayings because they sound funny but because they have hidden truth inside of them. For years, the biggest profits were made by people who bought during uncertain and scary times. This time is no different.
If you ask me how to invest during the COVID situation my answer will not differ from any other time or situation. The main principle of stock trading is to buy low and sell high. Over years, retail traders tried to complicate their own lives by making trading harder than it actually is. Using countless amounts of strategies, indicators, oscillators and they still forget the simple rule, that on the stock market you earn money when you buy low and sell high.
I do not want You to think that buying low and selling high is the only recipe for success. You also need to know what to buy. Covid-19 Trading is a perfect example of that, where you can clearly see what mistakes can be made. You all know Zoom, right? Zoom Video Communications. The company made a huge success during the pandemic. The conditions during COVID showed us that the majority of personal meetings held on a daily basis could be as simple as an email or a quick video conference. Zoom made those video conferences available and which in return made the company a huge success. OK, but where is the mistake here? Well, thousands of new inexperienced investors, flooded the market buying Zoom shares. Sounds ok but they were buying the wrong company! Instead of buying shares of Zoom Video Communications with ticker ZM, they were buying ticker ZOOM, representing Zoom Technologies, which happened to be a small developer of mobile phone components based in Beijing! The price of ZOOM surged to the moon and then collapsed while ZM shares are close to the all-time highs. Those who bought ZOOM on high levels made a terrible mistake. A lesson for the future? Read the labels carefully!
Zoom Video Communications is not the only company from the digital world that benefited from the virus. Actually, almost all of them did. Fintech and digital companies were the hottest stocks on the market. Along with the biotech and pharma stocks…for obvious reasons.
One of the biggest concerns of governments and economists was that the global demand for goods will collapse. People were locked at home, shops and malls were closed. Sounds kind of scary for retailers but wait a minute. People in many countries received a lot of money from the government. Free, freshly printed money that was about to help them survive those harsh times. Maybe they saved some but for others, it was free money to spend on online shopping! Bored, locked citizens, decided to log in to online shops to buy things, which would help them overcome the quarantine sadness. That buying spree was a golden nugget for payment companies like PayPal, Visa, Master Card, or Square. Modern, Silicon Valley companies made amazing profits and returns, dinosaurs from the banking industry, not so much (where we have a huge impact of low-interest rates but this is the topic for another article).
Will this appetite for trendy fintech companies ever end? Some may say: no, it’s not possible, this is the future old man! Fair enough but traders before the dotcom bubble were saying the same. Internet companies in 1995-2001 were skyrocketing. Then, the bubble burst. Doesn’t mean that the internet was a bad idea. We all know it was great and it worked out. It is just that it tends to happen on the stock market, where too many investors get overly excited about one particular instrument, asset, or idea and we see it soaring for that period of time. Fintech companies are here to stay but just try to make sure that you will not be the last one to switch off the light i.e. try not to be the one who will buy shares on top, right after a bubble will burst. That brings us to another crucial mistake that can but does not have to be made. Some traders think that if something goes up, it cannot go down. History teaches us that sometimes it can and can go down with a bang! Do not be too confident and do not try to chase the train that already departed the station, just because your friend did it and is bragging about it during his trendy TikTok dance. Bitcoin traders from the end of 2017 can tell you something about it. Oh boy, I remember receiving several calls from friends asking me if buying a bitcoin for 18k USD is an awesome or just a great idea because the guy on TV said that BTC will soon cost 100k USD. We all know where it finished but all I can say is that my friends are very grateful till today.
New low prices attracted many new investors to the market. If you are one of them, remember that fear and greed are never good advisors. Be responsible and reasonable. Protect Your capital and impose strict rules and risk control. Financial Market is for humans but spend some time to learn how it works.