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The Covid-19 (Coronavirus) created a wave that shocked the world, wreaking havoc on so many, but for a lucky few can result in opportunity. Jobs were lost, businesses continue to shut down and a shudder of uncertainty continues for so many, yet the US stock market continues to climb higher since the brief March correction. We look to make sense of it by sharing data and strategies from professional investors that have continued to come out on top in times of uncertainty in both public and private markets.
S&P 500 Market performance 2020

How will Covid-19 Continue to Impact My Portfolio?

Many average individual investors are spending their extra time, from not being able to go places, investing and trading, riding a bull run from the March dip. I am amazed at the growing places I am hearing stock tips. If you're portfolio contains heavily weighted public equities in the US stock market, it’s likely you’ve seen the value of your pot tumble from news of the pandemic spread, but then recover, hopefully ending the 2020 year ahead.

While many suffer, I feel lucky to be healthy, with a steady income, looking to assess ways to tackle this storm to ensure a continued financial stability. I look to find opportunities of value in times of market dips and uncertainty. Over the years I have worked with public companies on their digital transformation, but have focused my equity analysis on private equity at Fund Wisdom. I aim to draw connections with the macro economic challenges more readily observable in public markets to the private startup space.

After reviewing the overall market performance from an index of the S&P I look to understand how the uncertainty may be measured. We can get a gauge on this through the CBOE Volatility Index (VIX).

VIX 2020

Increasing US Federal debt, uncertainty on vaccination schedules are major factors in the spikes that can be seen in the chart for the year. As a result, there has been a significant reduction in the liquidity in certain asset classes and overall lending. Research by Bain and Company discussed Covid-19 and its market implications, stating ‘the impact will not be known for several quarters. The challenge arises knowing where and when to invest. Investing with a short term focus in a highly volatile market increases risk, however investing for the long term allows you to pick up some bargain investments if you are able and willing to hold over the next 3-10 years. This will hold true for both public and private markets. Being familiar with geographical approaches to the pandemic and how specific governments/central banks are navigating tax, monetary policy and the like can also be beneficial for minimizing risk in your portfolio, particularly if certain areas are heavily reliant on one particular industry.

Many industry professionals have commented on the implications of Covid-19 for the average investor. Conor Moore, Partner at KPMG Private Enterprise discussed the new business opportunities that are beginning to arise out of the Covid-19 gloom. For example, business to business (B2B) companies ‘developing more robust communications software systems’ to tackle the new remote working environment. Further professionals such as the Fintech Team at Andreessen Horowitz looked into the impact of Covid-19 through the Banks, finding the general sentiment to be ‘oddly optimistic’, with Banks being better prepared for the financial repercussions of Covid-19 (perhaps learning from the troublesome 2008 period) and also finding largely positive consumer behavior with ‘no drastic change in consumers ability to pay off their loans’. The question arises as to whether government stimulus programs are the underlying backbone behind this consumer tendency and what exactly will happen when it all dries up...

Opportunity

It’s evident that the pandemic has had a devastating impact on small businesses worldwide, although investing in large public companies is effective for a long term, lower risk portfolio, many individuals are still seeking innovative companies able to come out at the forefront of the pandemic.

Some industries and businesses have been hit hard, but the fundamentals of the business is still strong with cash on hand to weather the storm and recover, creating a great value buy. News of the vaccine rolling out globally provides some hope, but how this will impact in the short and long term is not certain. Almost all industries have seen some kind of turmoil during the crises, turning this into your time to buy when others don't recognize the long term value is a winning strategy.

We look to find and share resources to gain an edge on the market. I have seen several advertisements by The Motley Fool offering research and tips for investors. We have partnered with them via an affiliate relationship because of how helpful many of the forum and message board discussions have been for me. We are interested in your opinion on the public market stock advisor tool. It offers 2 new stocks each month, leveraging the active community that originally attracted me to the site. They discuss reviewing various asset classes, focusing on both beginner and advanced investors, but seems to be focused primarily on public markets. 

Value: Travel, Hospitality, & Retail

Research by Mckinsey showed that revenues in the fashion industry will ‘likely fall by 27 to 30 percent from the year before’. A nightmare for some investors with a heavily weighted portfolio towards this industry that may need to liquidate, but an opportunity for you.

Statista is a useful resource when it comes to accessing Covid-19 statistics which showcased monthly changes in retail sales across various industries in the United States. They provide useful insights into how various sectors are developing post pandemic. Resources like this can allow you to navigate different industries and uncover value investments in public and private.

Non Accredited Investing Portals like StartEngine offer 9 retail focused startups raising capital.

 

Retail Investments StartEngine

Bubble?

Despite the many losers to the Coronavirus, it’s evident some industries have been thriving. The "work from home" WFH, culture has led to a spike in online shopping and hence many E-commerce focused companies have seen a spike in earnings. A survey by Engine found that on average people are spending 10-30% more online. A further survey conducted by Valassis of 1000 US adults found that 42% said they were spending more online and only 8% stating they were spending less. The challenge as we see it is trying to understand what the inevitable drop in spending in these areas will be when brick and mortar purchasing resumes. Many companies are frantically fighting to transition to this digital focused way of life. We have observed digital natives like E-commerce giants Amazon and Ebay spike as can be see in the chart below. The question is if too much growth is now baked into the current market price and we are seeing a bubble? 

e-commerce bubble

While it is possible public companies may be selling at a high price to value ratio in the e-commerce space private markets may hold further potential from the limited access. Wefunder currently lists 17 companies listing their shares for sale in the sector and StartEngine offers 13.

Wefunder e-commerce


Food and beverage sales are up, although with a different buying psychology. People are not able to eat at restaurants as much, causing grocery purchasing to increase. Research by Shipbob (a shipping and fulfillment partner for e-commerce stores) found that the month over month increase in online sales for food and beverage is 18.8%.

Getting to grips with Covid-19

The impact from Covid-19 will continue for the foreseeable future. It’s important to stay up to date with the changes and impacts this can have on your portfolio. Knowing when to stay out of the market and manage your risk, or buy in times of uncertainty is what will distinguish those that are able to achieve long term results, even during turmoil.

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