Tag: Coronavirus

All Coronavirus related articles are found here. Educative, informative and written clearly.

  • The Global Recession – How to Survive?

    The Global Recession – How to Survive?

    The Global Recession Is Here
    Are we deep in the global recession? Yes, we are, and if we are not yet, we will be in a short time. There is no doubt about that.

    By Guy Avtalyon

    It isn’t a question, the global recession is here without a doubt. But how long will it last? Will it be short-living or painful? Is there any chance of recovery by the end of the year? What will come in the aftermath of this recession? What will the world look like when the coronavirus outbreak ends? So many questions!

    The COVID-19 pandemic is making changes to the global economy very quickly. Hence, giving any prediction is extremely challenging. One thing is so obvious, this is a shock with a great impact on the economy. 

    Some economists are expecting the global economy to decline by almost 2%. The GDP is down, unemployment is growing, inflation is rising almost all over the world. It looks like the whole world is on its knees. 

    The rapidity with which this COVID-19 pandemic is growing has required another cycle of huge cuts to any GDP predictions. 

    How can we know the global recession is here?

    First of all, no one expected that the virus would spread this fast and only rare economists warned of the impact of the coronavirus outbreak on the global economy. Today, we can claim with the high level of certainty that we entered the global recession. 

    We have lockdowns across Europe, the US, parts of Asia, and many other countries. That has to be the baseline for any predictions. These lockdowns could degrade GDP across the EU and US, for example, by 7% to 8% this year, experts said. 

    Moreover, the global GDP for this year is equal to the planetary financial crisis. The direct stroke to enterprises and jobs in the first six months of this year will be much worse, stated economists.

    The lockdown policies have prompt and dramatic effects on daily economic activity reducing them daily by about 20% from their regular levels. For example, the three-month crisis with a five-week lockdown period reduces GDP by 20% a day. That means a 7% to 8% drop in quarterly GDP.

    Something is very wrong in the global economy right now

    The coronavirus crisis has sent the global economy into a fall. So many industries have ground to a halt. For example, tourism, restaurants are closed, hotels, air travel. Also, many factories reduced production and fired their workers. Unemployment is rising almost everywhere. Everybody stays at home. Almost the whole world is producing less and we’re spending less. 

    The stock market suffered huge losses and enormous daily changes. The trading has been almost halted. 

    So, the global recession is here. But what are the full magnitudes of this? It is pretty obvious we cannot know that now and the question is will we be capable of estimating it soon? Some experts are trying to explain the situation in which the global economy is right now. Also, some of them warned before the coronavirus outbreak there is a possibility of the recession to come this year. Of course, no one could predict the coronavirus pandemic. That just gave speed to the downturn. 

    The economic consequences of the exponential spread of the virus is shocking financial markets all over the world. Market volatility exceeded its peak during the global crisis 2009 and equity markets and oil prices falling to their lowest lows.

    Large drops in asset prices and high volatility will impact economic actions, for example, through credit and investment flows. Lower stock prices can grow the debt-to-equity ratio and restrict their access to credit. The logical end can be bankruptcies. Banks can reduce lending because companies’ and customers’ defaults of loans rise. The result in banks’ balance sheets will be worse. Do you understand that the global recession is already here?

    How to survive the global recession?

    Recession is defined as two consecutive quarters with negative economic growth. It can be caused by, for example, monetary panic. That caused the Great Recession, for instance. Also, the recession may come due to the rising oil price which is defined as an economic shock. One of the reasons behind the recession can be something that John Maynard Keynes described as “animal spirits.” We experienced it with the dot-com bubble. Also, the mixture of all three may cause a recession. 

    Today it is coronavirus and lockdowns caused by its outbreak and the focus on health protection due to it. The companies halt, workers are fired, demand and revenue fall. The only thing that increases is our concern on how to overcome the global recession we have now. But there are several ways to decrease the loss.

    In the article “Roaring Out of Recession,” Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen noticed that through the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies they examined done terribly: some went private or went bankrupt, or were sold. Nevertheless, 9% of the companies did manage to recover in the next three years after a recession. They succeeded to exceed rivals by 10% or more in the meaning of sales and profits growth. Moreover, their earnings rose regularly and the companies remained to rise.

    May the global recession last for a long time?

    Almost the whole world is caught in the recession caused by the coronavirus pandemic. The fears are growing. As long as people’s physical communication is a possible danger, companies cannot move to regular conditions. And once, when this pandemic ends, maybe the regular condition before the pandemic will not be regular. What if people start to avoid shopping malls, cinemas, theatres, restaurants, crowded concert halls? Even after the virus is contained or the vaccine is available? The economic recovery may take years and years. The global economy is frozen, the global recession is on the scene. But life will bounce back. The coronavirus will be tamed and put under control, and people will come back to their factories, offices, and shopping malls, of course. 

    But even after that, the new world that will begin will be gagged with stress. And, when that will be? No one knows. Millions of people lost their jobs and that affects the societal costs. What if bankruptcies leave the industry in a vulnerable status, exhausted from investment and reforms?

    The families may stay upset and risk-averse. What if this pandemic makes them tend to save? Some social distancing measures could remain indefinitely. If this situation endures and people continue to hesitate to spend, the whole world will have a big problem. Yes, life will bounce back, but psychology cannot just like that. It is more likely the recovery will be very slow and last for a long time.

    Bottom line 

    Developing countries have severe consequences already. The money is running away, commodity prices are falling, oil for example. This scenario is visible in Chile, Mexico, and many other countries. China is a slowdown and that has a great impact on countries where the factories with components are. Europe is in recession, the US is still fighting with the coronavirus pandemic. 

    People are lonely now, but they will be starting to return to normal life. But if they had to spend all their savings, and if they destroyed the credit ratings or declared bankruptcy, then they will not be capable back to normal life. 

    No one can say with a hundred percent certainty how long the global recession will last. We are pretty much sure that the recession started in March in the US but we cannot say when it will end. Well, the recession in the US or the global recession isn’t officially declared nor it can be. We all hope it is a remarkably deep but short-lived recession. 

    If your days are too long try to short them, learn something new, for example. Read the “Two Fold Formula” book, it may give you some interesting ideas. But before you start to implement the new knowledge, test it by using the our preferred trading platform.

    Stay safe! #StayHome

  • Good Returns On investment – How To Know Where To Invest?

    Good Returns On investment – How To Know Where To Invest?

    Good Returns On investment - How To Know Where To Invest?
    The long-term returns seem attractive, and it is easy to start investing. But you must have realistic expectations.

    By Guy Avtalyon

    Good returns on investment is what every single investor wants. But some have unreasonable expectations. Especially beginners. They are hunting stupid high returns on investments and lose money. No matter what asset class is, they are looking for high rates of return. Nothing is wrong with that, but a dose of reality is necessary for investing. Dreaming is okay, of course since it can motivate us to reach our goals but if our dreams are unrealistic it can deliver us the stress when we unveil that reality isn’t like our dreams. 

    So, everyone including beginners in the stock market must understand what are good returns on investment. We would all like to become rich overnight, that is a legit dream but the real-life is something different. One of the main problems is that beginners don’t understand the effect of compounding nor how it works. Most of them don’t know what good returns on investment means, how much it is.

    First of all, temper your expectations. 

    Over almost the last 100 years, the stock market’s average return is about 10% per year. But returns are infrequently average. So, if you are one of the new investors you have to know several things about what good returns on investment is. 

    What are good returns on investment?

    You have to know that historical data shows that the average stock market return is 10%. Are you surprised? What did you expect? Oh, we know! You heard the stocks are among the riskiest investments and the high risk may provide you a high potential reward, right? That’s true but it will not happen overnight. Let’s go back to average stock returns. 

    The S&P 500 Index is the benchmark measure for annual returns. When we said the average annual return is 10% it wasn’t quite true. The truth is that you have to reduce this 10% by inflation. For example, if you start to invest now you can expect to lose buying power of 2-3% per year which is caused by inflation.

    The stock market is directed on long-term investments. That means you can invest your extra or saved money you will not need for the next five years or longer. If you don’t like this you may prefer a shorter investing period, for example, a year or two. Well, then the stock market isn’t for you. Choose one of the lower-risk alternatives. For instance, a savings account. Yes, you will have the lower returns, but you’ll be protected from stock’s volatility.

    As we mentioned above, the average return per year is 10%, but it is actually far away from average. There were periods when it was dramatically lower but also the periods when the returns were much, much higher. That’s due to the stock’s volatility. We have to say and this may sound illogical for beginners, but even during the volatile market’s years, returns can be good.

    Your expectations must be fair

    Honestly, you have to learn this. Especially if you’re a new investor. You may think you can earn 25% on your stock investments over several decades. We have to tell you, your expectations are extremely big. It’s not going to happen. Maybe this is rude to say, but that’s insane. Yes, we know you found someone out there who promised you that high returns, but you have to understand cush lied to you. Such is counting on your lack of experience, and on your greed. Are you greedy? Go to the casino! Start gambling! Stock investing is a serious job, hard work, also connected with a lot of pleasure and passion with one single most important goal – to have good returns on investment and over time, to provide financial security for yourself. Well, and maybe, just maybe you’ll become rich. 

    So, your financial foundation should never be based on dangerous opinions and actions. Don’t be irresponsible. What you really need is your investment to provide you a nice retirement, you wouldn’t like to end up with less money than you expected.

    The meaning of good returns on investment can be confusing for someone, particularly young investors because when you enter the stock market you might know only about a 10% annual return rate. But keep in mind, you don’t have guarantees that they are going to repeat themselves. The returns on investments never were a smooth or upward path. remember, markets are volatile and you may suffer great losses over time. But what is important and everyone should know that that’s the nature of the free-market. Over a long-time period, you’ll beat the market if you follow some rules.

    How to calculate the rate of return

    Let’s say you already have determined your investing goals. You clearly know what your target is. Also, you have to identify the amount of capital and time you have to invest. All information you need is in front of you. So, let’s see the magic of compounding.

    For example, you have $2.000 to invest. Assume that the annual rate of return is 10%. After one year you’ll have $2.200, right? But what if you want to sell your whole investment after 2 years, for example, for $3.000. Super done! Your profit is $1.000 which is a 50% return. Amazing! Oh, wait! You have to pay capital gains taxes. Take away 15% from your gain. Well, your profit isn’t $1.000, it is $850. You’re left with $2.850. Well, you still have good returns on your investment after two years. It is 42,50% now. Did we have inflation? Of course, we did. So, you have to count inflation of 4% for 2 years. 

    Let’s do it.

    $2,850×0.96×0.96=$2,626.56 

    That is 31.32% real return of your investment. This $2.626 amount still isn’t bad but it’s far away from your $3.000 and 50% where we started this calculation.

    Look, the annual rate represents the profit you earn on your investment per year, or how much will you get in return for each dollar invested every year.

    There is a simpler calculation. Just find a simple percentage. For example, you invested $1.000 and your gain is $300. What will your return be? 

    (300/1000)x100 = 0,3×100 = 30%

    This approximative value. But if you want to know the exact you’ll need the first calculation we showed you. That is a well-known ROI, return on investment.

    Can the stock market give you good returns on investment?

    The stock market is unstable and unpredictable, so you’ll never have any guarantees there. But if you consider this 10% average return you’ll understand that investing in stocks may provide you financial security in the long run.

    What are the good returns on investment today?

    Well, the answer is pretty complex but to make it simpler, use this rule of thumb: If the recent returns were higher than average, the future returns will be lower. 

    That’s why it is much better to calculate, for example, 6% or 7% of the average annual of return when estimating your returns over time. Because, as you can see, this average return is rare. It is higher or lower. Also, there is some psychological effect, if you expect too high returns you’ll be disappointed if your investment never gives you that. Also, you’ll be glad if your investments beat your expectations.

    The best approach in the stock market, if you want to make real money, is to buy stocks at good prices and sell them at a profit.  What is a good price? To figure it out you’ll have to know how much money you want to get when you sell it.

    Good returns on investment for an active investor is 15% per year. For this to reach you’ll need to be aggressive in looking for bargains. It isn’t hard to achieve. For example, your buying power can be doubled every 6 years if you have average annual returns of 12% after you pay all taxes, also, count the inflation for each year. This is one way to beat the stock market. The other is to become a trader but a smart one. The coronavirus is causing people from almost all parts of the globe to halt their activities. People are urged to stay home, schools are moving to online learning. Take this as an advantage and learn something useful, why not?

  • How Long Will The Bear Market Last?

    How Long Will The Bear Market Last?

    How Long Will The Bear Market Last?
    Stock markets over the world experienced great losses from the beginning of this year due to a massive sell-off caused by the COVID-19. 

    How long will the bear market last? We believe not forever. In fact, the bear markets are much shorter than bull markets. Especially when they are driven by some event. Coronavirus outbreak is such an event. like this one is. But if we take a look at historical data we may conclude that the question of how long will the bear market last, pretty naive. How is that? Well, this kind of bear market recovers very fast.

    How can we be so sure?

    Let us explain. If we want to put different types of a bear market into categories, we will see we can put them into 3 key categories based on the type of drivers. 

    The first type of bear market is caused by the business cycle. That is when growth leads to inflation, interest rates increase too fast, the yield curve inverts, demand decreases, loan activity decreases, etc. They are so-called cyclical bear markets.

    The second type is caused by market bubbles, much more leverage, turbulences, and disruptions on the credit markets. In other words, this structural type of bear market occurs when we have structural asymmetries in the market or economy. So, we are pointing to another type of bear market, the so-called structural bear market. We already saw it in the 2008-2009 market downturn.

    But also, we can recognize a bear market driven by some event which is this one, caused by a coronavirus outbreak and global pandemic. Of course, this kind of bear market can be triggered by some crises, wars, political instabilities, etc.

    How long will the bear market last?

    This month can be an important test for stock-market investors. Everyone is looking for hints that the worst of this stock market massacre is ended. But the coronavirus outbreak moves on and demands at least short-term economic distress. In the next several weeks we will be faced with more and more bad news as a pandemic is spreading. That may cause further sellings. Bad news has such an influence on the stock market. Also, a surge of business failures can occur. 

    The experts sound pretty sure that the stock market’s bounceback last week is a good sign even though all markets are volatile. The stock market was dropping with great speed into the bear market. But yet, there is a hope that March lows for main indexes may be kept from further declines. That is just our opinion, based on the reaction of central banks. 

    Well, this bear market isn’t easy for any investor. Even the most optimistic investors claim that further decline is possible before the stocks find the bottom. That is true especially if we know that sharp rebounds are possible before retesting new lows. But as we said, there is a logical chance that recent lows can be the last we saw and rebounds can be better than in former significant selloffs.

    Predictions for the stock market

    Robert J. Shiller, a Nobel laureate is exactly certain about the stock market in the long run. His concerns are about how long will the bear market last, where the stock market is heading.

    He wrote for The New York Times:

    “It is too simple to assume that with its steep decline, the market has already discounted epidemiologists’ forecasts for COVID-19. By this logic, the stock market would fall further only if the virus turns out to be worse than forecast.”

    Yes, but we are dealing with an entirely unknown situation. We never have had before such a massive lockdown of everything companies, whole industries, millions of people, the numerous countries. This is a totally unique event.

    But Robert J. Shiller added in his column:

    “People are seeking reassurance from homespun investment advice, like the old nostrum that the percentage of stocks in your portfolio should be equal to 100 minus your age, come what may. If you are 60, for example, you should hold 40 percent stocks, under this rule.”

    And also admitted that “this advice isn’t grounded in any scientific truth about financial markets.”

    Well, this advice isn’t bad, it is good advice. It isn’t against common sense. While people are doing something, taking action they may feel better. That is from a psychological point of view. Also, it is a quite reasonable decision to risk less in such a market downturn but yet inspires you to take action. 

    Shiller advises further “buying just enough to restore the stock balance after market declines.”

    Bear markets rule a short time

    Maybe this is the answer to the question of how long will the bear market last. Bear markets rule for a short time. What we can expect is the market data will be weak in the weeks ahead. The problem is what are we expecting.

    Stocks in March entered a bear market with record speed. After March 23 they were bouncing sharply. But DJIA has the biggest first-quarter decline of -1.68% on record with a 23.2% fall. The S&P 500 Index had a decline of -1.51% on a 20% first-quarter fall this year. It is the biggest since 2008. After March 23 both indexes had a rebound and for example, DJIA had its biggest three-day gain, which had been seen last time in 1931.

    Let’s see how long this bear could market last?

    As we said we can recognize three main types of bear markets: caused by the business cycle, caused by some event (like this one) and a structural bear market.

    The most severe is the structural bear market because it is the result of problems in the financial system and capital markets.

    A cyclical bear market is bad also but tends to fix itself over a short time and sufficient policy answers.

    And last but not the least, the bear market caused by some event. According to historical data, this kind of bear market was shorter, less critical on the downside. Such a market took less time to recover. It is quite logical. Before the market was hit with a drastic event such as a coronavirus outbreak, the markets all over the world were in good condition. And you see, that’s why we think that it does not take as long for the economy to recover once the shock of this event disappears. It’s true that so many people lost jobs in the early stage of the pandemic, the companies are faced with shutdowns and limitations. But when this kind of problem disappears, everything can return in normal pretty quickly.

    Bottom line

    How long will the bear market last? There is no way to predict that, honestly. Who can predict when the market will bottom? From what we know, the bear market will end even before bad news stops coming up to us. For investors, the main point is to be ready for that first day of recovery, they have to adjust their positions for that to join the rebound when it happens. We believe it can happen sooner than many investors expect or predict.

    In the meantime, we recommend investors wait for it calmly. Stay focused on long-term investments and don’t let your emotions take control of your decisions. Use this period to learn something new and expend your horizons.

  • Stock Market Bottom And How To Recognize It

    Stock Market Bottom And How To Recognize It

    Stock Market Bottom And How To Recognize It
    Nobody can with certainty predict a stock market bottom. Still, it’s worth at least thinking about different entry points to let your money work for you.

    By Guy Avtalyon

    The questions for the past several weeks mainly were all about the stock market bottom. Did the stock market hit the bottom? Will the stock prices stop dropping? Have stocks reached support levels? When will prices stop falling? 

    Stock traders have so many questions these days and weeks. But do they really know where to look? 

    Maybe one of the most terrifying jobs related to investing is about the stock market bottom and how to recognize it. The idea to predict when a given stock will hit the bottom is old as much as investing and trading. The point is to recognize the point where the stock will no longer drop. The rule of thumb is: buy low, sell high. The problem arises when we have some unpredictable events in the market such as this one, coronavirus pandemic. That has an influence on the global economy, almost all economic and political events, and decisions. So, with a high level of certainty, we can say finding the stock market bottom can be a discouraging job.

    Well, this kind of question traders ask almost every day but are they looking in the right place to find the answer? For example, investors are looking at Dow Jones. Is it the right place? We are afraid that the value of DJIA isn’t able to alarm you when the stock market hits the bottom. Okay, it will tell you but after it happened. 

    So what to do? 

    How to recognize the stock market bottom? 

    If you want to find it, you’ll need some indicators. Indicators can tell you when is the stock market going to hit a bottom but also when it is going to recover. By using indicators you’ll not miss the beginning of the wave. When buying a stock you want to do so at the lowest possible price but you wouldn’t like to hold falling stocks. You would like them to start rising after you bought them, right? That’s why it is so important to recognize the stock market bottom. The point where the stock can find support.

    That knowledge can give you huge profits and prevent huge losses. So, how can we know with certainty that a stock has touched a low point? To be honest, no one can do that with 100% certainty and consistency, but traders and investors have some tools, fundamental and technical trends, and indicators. They arise in stocks when they are about to tap the bottom.

    The indicators of stock market bottoms

    Some indicators can help us determine when the stock market is going to form a bottom. What we really need to have are indicators of the health of a global economy and what the main participants in the market are doing with their money. But keep in mind, there is no such thing as a magic indicator to identify a stock market bottom. We have to look at several indicators to have an idea of the economy’s and stock market’s health.

    Second, we have to look at history because it will tell us that the average bear market persists about 17 months. Also, it corrects around 35% from the maximum. But keep in mind that you cannot find the two bear markets alike 100%. All we can do is to suppose that the next will be similar. 

    Further, we have to understand the valuation. For example, the S&P 500 has a P/E ratio and earnings. The P/E ratio will move up and down depending on the market period. It will be up when we have good earnings growth, all ratios including the P/E ratio will go up. But when the circumstances are changed, with rising pessimism the valuation is likely to go down. 

    For example, when the S&P Index was above 2.500 the P/E ratio was at 19.

    Also, the higher the VIX is, the chances for the stock market to hit the bottom are growing. These first two days in April this year, VIX traded between 54 and 57. If we take a look at historical data we can see that in 2008, the VIX was somewhere between 70 and 95. During the March this year, VIX traded over 75.

    Other indicators of the stock market bottom 

    The stock market fell over 25% in 3 weeks. This is the sharpest drop in history. The biggest decline occurred on March 12th, the biggest since the market crash in 1987. Many investors thought that a stock market hit a bottom. 

    If you want to recognize when the stock market bottom is, check out your emotions. Did you feel fear at that time? If yes, you were one of the millions with the same emotion. Fear was so obvious in the middle of March. To be honest, almost all were panicked.

    But we have to try to be reasonable. Just take a look at the charts and the technical levels for those days. Can you notice the major pivot? Do you notice a bottoming tail and a huge volume? 

    Okay! A major pivot, bottoming tail, and a huge volume on the same day and combined with a market 3-weeks decline of 25%, are indicators there was some at least short-term bottom.

    What to do when the stock market is near the bottom?

    The most intelligent investors started to buy those days. Small chunks, nothing big. Smart investors are doing such a thing to accumulate their full positions. The point is to buy 25% or 30% even 50% of the total position. That will keep your potential stress down and provide you an all in all a better average. But remember, don’t buy some small-cap, go for the brands. 

    Where is the market bottom now? 

    That is the most frequently asked question since coronavirus appeared. 

    Market experts like to say that it’s impossible to time the market. Well, it isn’t the truth. If we can see the market tops, why shouldn’t we see the market bottoms? Institutional investors know that. Follow what they are doing. Their actions could be the key bottoming signal. Follow-through has been noticed at almost every stock market bottom. This signal is extremely important because it can provide you profits when the early stages of a new market uptrend is confirmed.

    The quest for a stock market bottom

    This signal works quite simply. When there is a sustained stock market downturn, the first rising day from the index low is most important. That could be the beginning of a rally attempt. No matter which index you are using S&P 500, Dow Jones or Nasdaq. 

    According to some experts, the gain expressed in percentages isn’t important at this point. Also, don’t pay attention to the trading volume. What you have to look at is a down session and the moment when the index bounces after a great drop and closes close to session highs. Some experts deem that closing in the top half of the day’s trading range is adequate also.

    Further, find a bigger percentage gain in higher volume than the prior session several days in the rally attempt. This time period is making it possible for short covering to resolve and for a rally attempt to gain ground. The rally will be halted in place only if the index reaches a new low.

    How will the market react after the pandemic?

    It is good if the market supports the new buyings, but if it doesn’t, just be patient. Sometimes, breakouts are visible on the charts after a few weeks. This market crash caused by the coronavirus outbreak has a large supply of stocks making the new base. But a lot of them have yet to bottom.

    If an index suffers a decline in higher volume shortly after the follow-through day, the signal will fail in most cases. If close below the low of the follow-through day, it is almost the same. It is more the sign to start selling the stocks you bought recently.

    These signals don’t mean you should rashly jump into the market since they tend to fail after indexes have dropped clearly in a short time. That happened with the stock market correction in February. The more suitable is to buy a few stocks, maybe one or two, and test how they will work. If there is a real uptrend your stocks will rise.

    Every investor wants to know when trends are going to make a significant change. Will they reach tops or bottoms. The truth is no one knows that for sure. Only the big volume spikes, and staying stick to the chosen sector, will give you some clue if the stock has reached the lowest level from which it will not decline more. We pointed just one of the numerous scenarios. There are many others. 

  • Coronavirus Is Crashing The Global Markets

    Coronavirus Is Crashing The Global Markets

    Coronavirus Is Crashing The Global Markets
    COVID-19 is crashing the global markets but history has shown that the markets bounce back again and again over time.

    Coronavirus is crashing the global markets but investors are returning to China. It looks like the appetite for Chinese shares is rising again. For example, Pinebridge Investments from New York. According to CNBC this firm “had total assets under management of $101.3 billion as of the end of last year, including $25.5 billion in stocks and $64.3 billion in fixed income.”

    Despite the fact that the novel coronavirus is crashing the global markets fund managers start buying Chinese assets again. And all Asian markets rise moderately.

    Major markets in Asia were up nearly 1% yesterday (Tuesday, March, 30) and Hong Kong and South Korean shares rose about 1.5%.  

    Fund managers have recently boosted China A-shares. It was “a small single-digit” starting position and now is “a low double-digit weighting.”  So we can conclude the Far East, led by China, is already showing recovery.

    China President Xi Jinping presented strong growth signals. Goldman Sachs reported the Chinese policy is concentrating on demand. Also, the government’s concern is to sustain employment, financial markets, trade, and foreign capital. 

    Russian financial market

    On the other hand, the Russian economy has been shaken by the coronavirus pandemic. The main impact on the Russian economy came from the breakdown of the production pact between Russia and Saudi Arabia. This was a shock for traders all over the world. The consequence was intense volatility on the Russian stock markets which dropped around 20%. The value of the ruble also is down around 20% from the beginning of this year.

    The price of oil futures is rising 

    Coronavirus is crashing the global markets but recently the analysts showed some optimism toward financial markets. 

    Oil futures surged on Tuesday after dropping to their lowest levels since 2002. Maybe the oil prices allow the best check of how investors anticipate the economy to function. The rising price of oil futures is probably a weak sign because on the other side we have gold as a standard safe-haven investment but the price of gold dropped significantly in trading on March 30. 

    When coronavirus is crashing the global markets it looks like there is no safe place to put money. Another safe place was longer-term U.S. Treasury bonds, also known as T- bills, but it dropped also.

    Investors’ worries have not gone away yet. The stock market is still volatile. The VIX index is still at historically high levels. It fell a bit two days ago but this level still shows an extreme stock market volatility.

    Coronavirus is crashing the global markets – what investors should do?

    Here is what investors should do while the coronavirus is crashing the global markets. First of all, every single investor must understand the value of the overall portfolios is lower. But it is a paper loss, why would you transfer it in true loss? That is exactly what you would do in case you try to sell. So, sit back and do nothing. Don’t check your portfolio every single day. Put away your desktop or laptop computer and turn off notifications on your phone. The time for your reaction has passed anyway. You can’t do anything now. Just try to stay calm and avoid stress. As a serious investor, you should be prepared for market volatility. Even for this extreme one, that we have now. 

    Market volatility is a good time to start investing

    If you can’t sit in peace, start small and not frequently. For example, buy a small chunk of stock per week. And repeat it until you buy what you want. Diversify your investments across major asset classes, don’t buy from the single one. 

    This period when the coronavirus is crashing the global markets is a good time to enter the market. The stock prices are low, you don’t need too much money to buy them and you can start with small parts buying from time to time. This is a great time to estimate your personal risk tolerance. But you have to follow some rules.

    The rules to follow when the markets are down

    As we pointed before, invest gradually. This means you have to invest a predetermined amount into the same asset over a long time. In this way, you’ll be able to buy more chunks at lower prices (we suppose you want to buy stocks when the price is low, that’s the rule of investing – buy low, sell high, right?) Thus this method will allow you to buy less when the price is high. So, even if you are a total novice in the stock market by doing this you’ll implement one of the most efficient strategies – a dollar-cost averaging. 

    When you estimate where to invest try to find and pick the stock for long-term investment. That’s the reason you shouldn’t start investing if you don’t have saved and put aside cash equal to at least three months’ salary. You will need that money for rainy days. You can invest the rest of your money. 

    Compound interest and diversification

    Keep in mind the advantage of compound interest. That’s when you earn interest on the interest you receive, but you must have an investing plan and stick to it. And the mother of all investments, diversify.

    Diversification will give you more exposure to a wide range of stocks.

    Remember, the current market drop can give you a very good opportunity for young and new investors who can play for a long time. All researches highlighted the young people who invested systematically during market corrections and during the market downturns done better than the others who withdrew. 

    The existing investors should hold their investments tight. Remember, this period when coronavirus is crashing the global markets is just a stress test. Nothing more. Don’t let your emotions lead you, don’t sell your shares in a panic. Sell only if you have some urgent need for cash.

    It’s impossible to pick the market bottom. Resist those thoughts. If you want to trade the stocks you can learn more in the “Two Fold Formula” book. Also, you can check it with our preferred trading platform.

    Bottom line

    Coronavirus is crashing the global markets, that’s the reaction of the market to the spreading of a pandemic. From some point of view, it was expected. A virus outbreak can cause many problems. From day-to-day individual activity to global productivity. This new COVID-19 virus changes the economic outputs since it is progressing in almost every part of the globe. 

    The investors are reasonably worried. The broad disruption to global trade could have a large influence on global growth. Along with these fears in the financial markets, the fears for individual safety is due to the threat of the virus itself. This level of fear may cause even the most rational investors to play by emotions. As negative news appeared the investors with lower risk tolerance started to sell in panic. And as it was expected, they caused a market correction. Just keep in mind, the market corrections are normal even in a bull market. The market needs to neutralize bad behavior. For example, FOMO. But the market will move forward despite anything. The markets will bounce back again. Also, it will be more sustainable. It just needs some time to catch a breath.

  • How to Survive the Market Downturn?

    How to Survive the Market Downturn?

    How to Survive the Market Downturn?
    The global uncertainty due to the coronavirus outbreak forces investors to a smart allocation. Avoid companies with high debt, stay focused on the sustainability of earnings.

    By Guy Avtalyon

    How to survive the market downturn? We heard so many investors asking this. Boosting the concerns were profit warnings from the companies in Europe, the US, and all over the world. Everyone is talking that a key earnings target would take longer to meet. The reason is the coronavirus outbreak adds uncertainty in the main markets. Many well-known large companies plunged and had to mute growth for this year due to the COVID-19 outbreak. We are sure you are following what’s going one with that and also, we hope you are following WHO’s advice to protect yourselves.

    Our concern is how to survive the market downturn, what investors have to do now when the markets are down.

    Financial pandemic

    Asia Pacific markets dropped today (February, 28) due to fears about the coronavirus. These fears continue to urge a global sell-off.
    Japan’s Nikkei 225 dropped more than 3% in today’s morning trading. South Korea’s Kospi and Australia’s S&P/ASX 200  fell more than 2% each.
    Hong Kong’s Hang Seng fell 2.7%, while the Shanghai Composite fell 3.4%.
    Also, we have a historic plunge in the markets in the US. Three major US indexes slipped into correction territory on Thursday. The S&P 500 had the worst day since 2011. The Dow sank 1,191 points, which is a drop of 4.4%. This was the worst one-day point drop in its history.
    Coronavirus appears as a ‘financial pandemic’.  The global oil benchmarks, US crude, and Brent crude fell Thursday lower by 3.4% and 2.3%.
    Even China search giant Baidu warned that revenue could fall as much as 13% in the first quarter and its core business could fall by 18% compared to the same time last year.

    How to survive the market downturn?

    So, the coronavirus has continued to spread, the stock market has started to feel the uncertainty. No one knows how this situation could affect companies over the world. Or investors. This epidemic like any other came suddenly and caused a shock to the global economy. As always, this situation lead (and it did) to great changes in the stock markets. Investors’ fears became a truth. And also, this led to panic selling.

    What a great mistake!

    Why do we think it is a great mistake? Okay, we all want our wealth to grow, not to vanish. These stock market ups and downs are hard to look at for all of us. That’s why it is so easy to be caught in emotions.

    Investors are frightened and worried and that can lead to panic. And panic can lead to quick and imprudent sellings. We want to help you to avoid this mistake that may cost you very much.

    Let’s take a look at an example that may help you to learn how to keep your hands off your investments. Especially now with a major market slide. Let’s say you entered this year with $100.000 in your investments. But it is the end of February and the stock market is dropping (You have the last data above) and let’s say, you already lost $10.000. Can you afford to lose an extra $10.000 if the market continues to fall? So, how to survive the market downturn? If you want to survive this storm your first thought might be to sell off, for example, mutual funds and move into the money market. That’s a mistake, that’s wrong. Don’t do that! The stock market can rebound. Yes, it will take a few months till then, at least two, but when it does that you’ll be able to recover your losses and gain more. So, don’t keep your money on the sidelines. Investors that did such a thing extremely regretted it.

    Try to separate your emotions from the investment decisions. One day, very soon, whatever looks like a disaster now, can be just a twinkle in your investing history. 

    How to survive the market downturn by keeping fears under control?

    Do you know a saying on Wall Street? It is something like: The Dow climbs a wall of worry. What does this saying want to tell us? Dow Jones will continue to rise despite economic downturns, pandemics, natural disasters, or any other catastrophes. That’s why we have to keep our emotions under control, our fears in check. This market correction just looks like a massive disaster but it is just one short period in the market’s cycle. 

    Well, how to tell you this? When some economic slowdown appears it is so normal for the stock market to go negative. For long-term investors that means nothing. They bought their shares at a low price when the market was down. So, consider if there is a buying opportunity. Always keep in mind the old maxim “buy low and sell high”.

    Reexamine your portfolio and your investment strategy instead of panic. Choose to be strategic with actions.

    What are the benefits of a declining stock market?

    The market is down, so what? Will it be a market correction? No one knows. What do we have to do? To stick to our investment plan and goals. Don’t damage your portfolio. 

    Investors turn into stocks when the market approaches new highs. When the market drops they are running away. So, what are they doing? Buying high, selling low? The consequence is that they have poor returns. Can you see the problem? It doesn’t have to be like that. Some investors know how to benefit from the market drop, how to survive the market downturn.

    Ways to survive the market downturn

    Firstly, they know how to recognize the problem, meaning they understand the essence of investing. With that knowledge, it is more possible to avoid unfavorable investment performance. So, learn! 

    If we sell out of fear when the market is down, we are actually generating minimal returns. At least, we should think about this before executing a trade on such occasions. The next step is to change our mentality, the way we think. For example, we all like when the price of electricity goes down, right? But we are not excited when the stock price is going down. Here is the catch! 

    How can money go further?

    It can be achieved if we buy more shares since the prices are lower. We can buy more shares even if the amount of money we planned for that stays the same. So, our money will go extra. Further, we can reinvest dividends. That can be a notable portion of our returns. We found some studies that show the dividends added 5 percentage points of the entire 7.9% returns of stocks. These studies cover the period from 1802 to 2002. So, if we want better returns we need to reinvest dividends.

    One of the benefits of a declining market is a chance to sell high and buy low but through rebalancing. This means we have to sell winning assets, the assets that increased in value, and provide money to buy assets at a lower price but with a good future perspective.

    Typically, bonds are better players in everyone’s portfolios, so sell them and go into stock funds. Analysts revealed that this only step in rebalancing can increase risk-adjusted returns, even up by 21%.

    Is the dropping market a good experience?

    A dropping market provides us priceless experience. Don’t underestimate this. That new knowledge will give us a valuable answer on how to survive the market downturn in the future. At least, we’ll be able to understand how we manage our emotions. That can be the core of our future investment goals. If we feel uncertainty about every small change in stock price, we should go into a safer investment. Maybe stocks are not for us. But if we enter the fight and end up with more winners, only the sky’s the limit. 

    We don’t like to guess if this will be a market correction or not. No one can do that, whoever tells that can predict the next stock market move, lies. We don’t know.  All we know is that the best way is to stay in your investment plan. This is smart trading!

  • Markets Are Down – Should We Invest Further

    Markets Are Down – Should We Invest Further

    Markets Are Down
    The spread of the coronavirus has disturbed investors. The fears of new outbreaks can push down global demand. The S&P 500 closed down 3% on Tuesday, the index is deeper in the red.

    Markets are down, an inverted yield curve is noticed, coronavirus is progressing and spreading all over the world. Everything tells us that we should be afraid. This inverted yield curve is proof of investors’ fears. They are starting to fear the worst and sell in panic. Almost all benchmark indexes are decreasing. While we have several things that can help- us to avoid infection by COVID-19, what can we do to protect our investments? 

    Stock markets suffered two big drops so far this week. Coronavirus outbreak made a great influence on the global stock markets. An economic downturn has increased quickly following China. It is the reality now in the US, Middle East, and Europe.

    The best sign of how this situation is difficult is visible among the investors who are looking for safe havens for their capital. But there are so many signs that worry us. The yields on U.S. government bonds are dropping to near-record lows and showing red flags. Further, returns are higher for short-term debt in comparison to the 10-years bonds meaning, yields continue inverted. Everything is opposite to the regular situation and some of the experts think that is the sign the recession is coming.

    But our intention is not to cry over this situation. We would like to discuss how to turn this market downturn to our benefit. Is it possible at all? We are receiving controversial information from our governments, experts have their interests also. That makes confusion among investors especially when it is so obvious that stock markets are down. As we said, let’s try to find the way out there. The mother of all questions is:

    Should we invest when the markets are down?

    In short, yes. Why shouldn’t we? We should invest in any case no matter if the stock markets are down, sideways, or they are up. The essence of investing is to reach settled financial goals. To do that we have to keep our eyes on our investments, to the stock prices, no matter what kind of market condition is. That’s a general duty while investing. Otherwise, everything will go apart.

    Let’s say you are going to shop and you notice that something you planned to buy is on discount. What will you do? Step away? Will you buy it or not? Of course, you will. When it comes to stocks, why would your decision be different? As far as we remember, investors’ mantra is “buy low, sell high”, right? Actually, when everyone is selling, the smart decision is to buy. That is according to Warren Buffett. But where is the catch? Don’t buy if you didn’t plan that or just because you saw someone is doing so. Buy only after you made a consistent plan of your investment. Buying cheap stocks just because they are on sale can be the wrong move.

    Buy, buy, buy

    We don’t want to diminish the influence of the coronavirus outbreak. It is a horrible situation, a possible dead-ending disease, very dangerous. But what we know is the financial markets have been almost immune to the influences of earlier epidemics. 

    Stock prices are affected by various outside factors and some of them have nothing to do with companies’ operations, that’s true. The prices will decline on the bad news such as the coronavirus outbreak or a downturn in the overall economy. But that has nothing to do with the company, to repeat. The circumstances like this one actually represent a great opportunity. For example, you were looking at some company for a long time and its stock was too pricey for you. Due to the markets down it becomes cheaper. Maybe you have enough capital to buy it since it is such a good market player. 

    We have a great reason to change our position and buy more stocks

    Why not? It is a good time to buy more at fire-sale prices. But what if you don’t have suitable cash to deploy? Think! Maybe you can find one or a few investments in your portfolio to sell and buy a new one.

    Always keep in mind, your investment decisions should be based on your financial goals, not managed by market movements. That’s why you should buy stocks when markets are down only if you wanted particular stock and it is suitable for your goals. Don’t rush with that because buying stocks just because they are cheaper at this very moment is also an emotional reaction as much as selling when the markets are down.

    What are we doing instead?

    Well, we are doing smart trading. We must have a plan, investing schedule and stick with it. That means we already planned some cash reserve and we are ready for a situation like this new market downturn is. So, we are able to look at this like a buying opportunity that comes.

    Buying stocks while everybody is selling isn’t a strategy without risk. There is always a chance that the market doesn’t go to the bottom. But if we buy when the markets are down, we have a chance to have larger gains when the market rebounds. More than the investors who didn’t buy.

    A few days of bad news are not a reason to sell in panic

    To be honest, drastic drops can be upsetting to look at. The markets trended upward for so long and suddenly we have this. But we have to consider this situation as a buying opportunity.
    The worst strategy when the markets are down is to sell your portfolio. Okay, maybe the worst of the worst is to take the short positions. The stock market knows how to punish investors who are too bearish.
    Rather, maintain a notable piece of your portfolio in stocks, even now when the stock markets are down. The point here is to be in position and take advantage when the markets turn forward. Of course, you would like to protect your portfolio against dangerous market forces as much as possible.

    So what and how to do it?

    Well, you have to reduce your stock exposure but you have to keep the main strengths. Keep the winners. You can sell the positions that are not performing well because they represent the weak part of your portfolio. So, during the market correction or situations like this one when the markets are down, those stocks or funds might get the most critical hit. Further, even when the markets are down you may have some positions that are extremely good but you assume that they will not play so well. Your actions should be – take a profit. Yes, why not? Just do it at market peaks to have profits.

    Further, consider the way you invest, maybe it’s time to change something. Maybe index-based ETFs are not the best choice, they work well during bull markets, but bear markets are less safe. 

    Don’t follow the prevailing sentiment and sell investments. Rather sell risky positions, for example, some with a high beta. Also, think about selling some with a history of volatility. Yes, we know there are some investors who sell their positions in the most steady companies to avoid losses. What we can say is that they are very nervous. Who else wants to sell everything and sit at the sideline? You know, the market will bounce back one day. But if you sell everything you hold now you will miss big gains when it happens. Sell risky investments only, as we said. Hold blue-chip companies!

    Bottom line

    The keyword for overcoming the market’s downturn is advance preparation. There is no better strategy. The nature of the stock market is to experience declines from time to time. Preparations mean having enough cash to provide ourselves more opportunities in investing. Think about this downturn as a normal cycle. As said, it is so normal for the stock market to go down after it reached its peak. Savvy investors made some other preparations while the market was at the peak. They already lowered their exposure on time.

    But it isn’t too late yet. At least once in life, every single investor has to deal with weak market conditions. So, we truly believe you are prepared for this one. Stay calm, lower your exposure to stocks, sell stocks that are not good players, buy more. But never try to stay at the market with knee-jerks reactions. Don’t sell in panic, that will ruin your investments, your capital, family and finally you. Stay stick with your investment goals and wait for the market to rebound. It is the only proper way to overcome the market’s downturns.

  • The Black Swan Event – Is it Coronavirus?

    The Black Swan Event – Is it Coronavirus?

    The Black Swan Event
    No one can predict the Black Swan event, but this coronavirus is a danger in many ways.

    The question could coronavirus be the Black Swan event for the stock market, started with the increasing number of infected people. But this reason isn’t the only one that generates this question. Numerous companies temporarily shut down their operations in China. According to CNBC, General Motors’s spokesman sent an email that stated the company said to its employees that it will keep its factories in the country shut through Feb. 9. General Motors is the largest U.S. automaker in China. Also, Starbucks temporarily shut down almost half of the existing locations in the same country. Moreover, if the infection progresses, the company will close more without hesitation, said its CEO, Kevin Johnson. Google is another large company that temporarily closed its offices, and Microsoft employees in China will work from home until Feb. 9. Amazon and Google have restricted employees to travel to China. Also, many airline companies slashed or stopped their flights to China. All due to government-imposed travel bans in China.

    Markets reaction

    Markets are reacting to the potential consequence of the coronavirus blast.
    Global markets sold off on Monday but started to stabilize on Tuesday. The stocks are still close to record highs reached recently. But the comparisons with the 2003 SARS is out the question. Though, everyone makes them. 

    Could coronavirus be the Black Swan event for the markets?

    Let’s say this, in 2003 China growth was reduced by 1 percentage point. But the growth rate of China’s economy since 2003 increased and China has a bigger role in the worldwide markets today. Maybe the markets shouldn’t be so careless this time.

    The coronavirus could have a far more serious impact on the world economy than the SARS epidemic in 2003. At the end of 2002, the Chinese GDP was estimated at around $1.5 trillion, 4% of global GDP. In 2019, the Chinese GDP was $14.3 trillion and above 16% of global GDP. In the time of the SARS epidemic, China just joined the World Trade Organization. That’s the main difference.

    Influence on the global economy

    According to some estimates, today even a small downturn in the Chinese economy can cause volatility in the global oil market and global trade, for example.
    Firstly, the number of tourist and business trips to China is already declining. Further, China’s GDP growth rate could decline by 0.5% to 5.6 percent this year, as a result of the outbreak of the virus corona epidemic, according to some experts.
    As we can see, the coronavirus has already impacted the world’s commodity markets, including the oil market. 

    The price of Brent crude oil has fallen 14% since the beginning of this year, largely due to news from China and continues to decrease.

    But could it be a Black Swan event?

    The coronavirus is an understandable concern to stock market investors. Since the stock market is overbought and in such a condition, it can be extremely unsafe and vulnerable. Some investors are convinced that the coronavirus epidemic could cause the Black Swan event in the markets. Moreover, they started to buy on dips thinking that this event is temporary and will not live for a long time.

    We all hope so since medical science has dramatically advanced and the virus could be contained. But who can predict what is going to happen in the markets? The Black Swan event could happen or not. There is a 50/50 chance, in fact.

    Investors should be realistic. The coronavirus can be a seasonal event and by spring it can be contained. But as we said, even such a small and short-term event may cause changes in the stock prices. Of course, when the number of cases is increasing, the stock market is decreasing. The main problem to the market is that this virus appeared in the time of bullishness in the stock market. This is a critical point.

    It can be the Black Swan event for the Asian market

    Asian markets fell Thursday, January 30. The reported number of coronavirus infected increases every minute. That makes difficulties for the global economy. Hong Kong’s Hang Seng Index (HSI) had its worst day since August this year on Wednesday, January 29. The index lost 2.1% and it already has fallen over 5% in January. 

    Japan’s Nikkei 225 sunk by almost 2% on Wednesday. South Korea’s Kospi fell 1.5%. But Taiwan is the biggest loser among the Asian markets, Taiex fell 5.5%.

    So, the virus can really disrupt China’s and Asian economy. How far it will spread? Will it affect the global markets? 

    Several circumstances could lead coronavirus to affect asset prices on a global level. On Monday, January 27, the US stocks dropped significantly gaining a new low record since October last year. The fear is rising. Investors are moving their holdings from risky stocks to safe havens. The coronavirus affected the global markets. Is it a Black Swan event? The risk is high and also the possibility. The influence of coronavirus on global stock markets is than SARS could ever do. 

    How is it possible the coronavirus affects markets so quickly?

    First of all, the news is spreading very fast creating reasons for turbulent market moves. The virus’ is spreading over the world fast and leads to market downswings. The global supply chains are interconnected tighter than ever. The trade networks are complex and, at the same time, vulnerable. So, some kind of domino-effect is very possible. If the coronavirus spread extensively that will influence the companies based in China. 

    Also, if the coronavirus continues to spread, it could reflect in stock prices. Well, one of the biggest global economies is affected already.
    JPMorgan decreased its  GDP estimate for China on Wednesday, indicating a “demand-side shock” caused by the coronavirus. 

    Thus, the positive 2020 economic predictions can be undone very easily due to coronavirus.