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Investment in the Time of Coronavirus: Five Rules of the Road

While financial contractions, market crashes, and worldwide disasters are facts of life (albeit largely "black swan events," in the words of "Fooled by Randomness" author and market strategist Nassim Nicolas Taleb), the 2020 global Coronavirus pandemic (and consequent economic downturn) is particularly challenging; it's a financial crisis, but also a health and welfare one.

Governments are treading a fine line between avoiding an irrevocable economic disaster and trying to prevent health care systems from cracking under the pressure of too many cases and not enough care workers or hospitals. This crisis is also unusual because it's been both swift and brutal; the S&P 500 Index hit a record high then tumbled into bear market territory in what felt like seconds. Supply and demand is also out of whack, with shortages of labor and medical supplies on the one side and an excess supply of oil on the other. To echo the most common email introduction used as of late, these truly are "unprecedented times."

So where does that leave investment strategy? Should we err on the side of caution, or take Warren Buffett's advice of being "greedy" when "others are fearful?" Or perhaps a hybrid approach that takes both philosophies into account?

We've rounded up five suggestions to help you survive (and potentially thrive) during this unique and difficult period in history.

1- Be patient. Rome wasn't built in a day. In crisis markets like the one in which we find ourselves currently, it's completely natural to look at your entire portfolio at once get caught in fundamental security analysis. This is simply pointless and incorrect. The better you understand your portfolio, the more confidence you will have investing into air pockets, watching, and waiting. The markets will bounce back; history indicates that they always do.

2- Avoid predictions. It is easy to start the day with optimism and get stuck in all the articles and noise, only to make decisions based on this data and look foolish by mid afternoon. Nobody, no matter what they claim, has the power of precognition—so avoid chasing headlines and delving into studies that promise otherwise.

3- Stay invested. Keep a Stoic, even keel with your portfolio and remain allocated. The upswing and reversal will come comes, (and the majority of the upside potential will come in a limited number of sessions), so you will unlikely be able to get invested in time. In all of the bear market cycles we've seen over the past two decades, the inflection point only became apparent with the passage of time. No bell is ever rung to signify the bottom. We might not even be there yet.

4- Monitor quality. This one is important- do not get anchored to the points from which prices have fallen. Quality stocks now offer enough potential upside that you don’t need to take existential risk with leveraged balance sheets. The pattern recognition from 2008–2009 was that stocks could generate very high returns once they recapitalized.

5- Be alert for fallen angels. T. Rowe Price defines a "fallen angel" as a company that is "economically quite large and/or highly rated but amid a financial crisis see their market caps (or ratings) compressed into small‑cap or junk territory." It's important to note that these companies can present both opportunity and risk as they fall into benchmarks. After the global financial crisis of 2008-2009, many of them soon recovered their mid‑ or even large‑cap status.

Like everybody else, we are watching the virus, the efforts of governments and health authorities to tackle it, and the response of markets to it. As it is impossible to predict when the bottom of the market will be reached, we continue to focus on remaining invested, remaining vigilant, and looking for good‑quality companies (including fallen angels) that should rebound strongly when markets recover.

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