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By 10 July 2020 | Categories: sponsored content

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Towards the end of 2019, everyone was hopeful that 2020 was going to be life-changing on a massive scale and, believe it or not, it did not disappoint! ‘Covid-19’, ‘Lockdown’, ‘The Novel Corona Virus’, ‘Welcome to the New Normal’ have been some of the many terms that the world has had to come to terms with in the past few months.

Almost overnight, citizens all across the globe saw the economic and social aspects of their lives shut down and the terms of engagement for both aspects redefined by their governments. Face masks, social distancing, restricted trading for certain industries and restricted working hours and conditions, were all new realities that announced themselves. Much like the substitute teacher that needs to assert their dominance on the first day of school.

News of the pandemic sent many African residents into a flat spin of fear. The most evident concern being the reliability of their monthly income in order to feed their families and pay bills. Normally, during times of intense pressure, we have the comfort of crying on the shoulders of our friends and families but, unfortunately, we were all restricted in our interactions with them in an effort to flatten the Corona curve.

The social and financial pressure was only increased when economists gave their forecasts of the detrimental changes in the economic environment that citizens should brace themselves for as a result of the lockdown. This includes skyrocketing unemployment, cash constraints for all sectors of large business, dwindling small business environments and very little help from government.

One would imagine that, with all the chaos that is threatening the very livelihood that we’ve all grown to be so attached to, citizens would pull the plug on all cash outflows and try their best to store up as much as possible. It would seem that as much as there were people who took that approach, the number of people who jumped at the opportunity to claim some low hanging fruit, in the form of investments, was surprisingly high. A surprising phenom happened: The average Joe started trading forex and CFD’s.

Data revealed that most regulated forex brokers in especially South Africa experienced new records in first time traders.

South Africa was hit with some very disturbing news towards the end of last year with the country’s investment rating being dropped to junk status. Coupled with the hit of the Covid-19 pandemic, it seemed like the perfect storm to ensure an economic collapse. Granted, there are many who have felt the pinch of that perfect storm but there have also been many people who have seen the opportunity to set up long-term rewards.

Financial advisers and bankers alike were hard at work convincing consumers to continue with their monthly investment contributions and not to shipwreck their long-term investment plans because of the overwhelming short-term instability. On the flip side, they were also trying to handle the influx of new investors who were holding tightly to the principle of ‘Carpe Diem!’ and demanding that they take their money and place it in unit trusts and market linked accounts.

The nation-wide lockdown sparked some interesting behaviour amongst the nation’s population and expert investors were quite perplexed at the rise in ‘doomsday’ antics. A popular piece of advice making the rounds pointed out the lack of vision that many people had regarding the behaviour of the markets: “People with poor mindsets are spending all their money on hording toilet paper right now instead of investing in stocks.”

The JSE started 2020 above 55 000 points and was holding steady even amidst the news of Covid-19 starting in certain parts of the world. Unfortunately, once the newly discovered virus was declared as a pandemic and the lockdown in South Africa initiated, the JSE plummeted to below 35 000 points.

This news was absolutely heart breaking to many existing investors as they watched helplessly as their investment portfolios were marking red movements day after day. But a lucrative opportunity presented itself to potential investors who were willing to take the risk of parting with sums of cash to seize the moment of becoming part of the market’s leading companies at a discounted price.

Experienced investors will agree that the super-rich get excited when there are signs of turmoil in the markets because, as market history and trends will show, they often believe that the dawn shall come again. So, they decide to take the free cash reserves which they have in ample size, and plunder the proverbial ruins of a fear ridden market in the confidence that the rise will soon come.

It is amazing to see the same pattern at work so close to home in South Africa. The JSE has already climbed back to a level of 55 000 points in July 2020, which means that everyone who chose to invest in the midst of the market chaos could have already experienced a potential growth in their investment of 40%. That is a staggering return in such a short period of time!

The opportunity that the Covid-19 pandemic provided for investors needs to be looked at in two folds. All investment decisions can fundamentally be seen as either long-term or short-term, and investors always relate their decisions while keeping this and their risk appetite in mind.

Firstly, short-term investors will agree that the quick gains that they made from the fall and rise in the markets was greater than those which they have seen in a long time. Those short-term gains will most likely be used to cushion the economic blows that are still ahead of us because of the pandemic.

Secondly, those who were looking to bolster their long-term investment portfolios with shares in big companies that pay great dividends would’ve been satisfied at acquiring more shares for their money and subsequently earning themselves more dividend income in the years to come.

It’s clear to see that many people reacted very differently to the Covid-19 pandemic and it’s fair to say that their reactions were in line with the opportunities that they identified or the risk that they were trying to mitigate.

One thing is certain, those who were solely focused on mitigating the speculative doomsday risks, instead of seizing the opportunities of the proverbial low hanging fruit, are definitely experiencing an unpleasant after taste after making sense of the aftermath.

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