The year is a long way from being over, but many lessons are likely to have already been learned from investing in 2020.
Notably, the stock market crash has shown that unforeseen events can have a major and sudden impact on stock prices. Alongside this, volatility can persist over a period of many months and this can allow investors to take advantage of the stock market’s cyclicality.
As such, through buying high-quality businesses at fair prices for the long term, you could improve your financial prospects even in the most difficult of investing conditions.
An unforeseen stock market crash
The stock market crash has dominated the views of most individuals when investing in 2020. As with many previous market downturns, it was unforeseen by most investors at the start of the year. However, it caused one of the sharpest and fastest falls in the stock market’s price level in history.
A key lesson that all investors can take away from the market crash is that unforeseen bear markets can occur at any time. There is often little or no warning that they will take place, since any number of potential risks can grow in size to negatively impact on stock prices.
Therefore, buying high-quality businesses when investing in 2020 and in the coming years could be of great importance. They may be better able to survive a period of weak economic performance that causes their sales figures to fall. Through identifying the best businesses in a sector and holding them in your portfolio, it may be possible to reduce risks and improve your overall returns.
High volatility has seemingly been a constant when investing in 2020. As per previous stock market downturns, uncertainty and risks can remain elevated for many months, and even years, following the initial decline. As such, with the prospect of a second wave of coronavirus and geopolitical risks in Europe and North America, investing conditions could continue to be unpredictable for the remainder of the year.
Therefore, investors may wish to take a long-term view of their holdings. This may enable them to look beyond the short-term volatility that could cause paper losses in the near term, with the stock market’s long-term track record highlighting its potential to deliver relatively high returns over a sustained period.
Value investing in 2020
Seeking undervalued stocks when investing in 2020 could lead to high returns in the coming years. Although growth stocks have become increasingly popular over recent years, valuations may now be more relevant in a world economy that is struggling to grow.
Through buying high-quality companies when they are trading at low prices, it is possible to obtain a wide margin of safety that could boost your returns. This may improve your financial prospects and allow you to benefit from the lessons learned from the stock market crash in 2020.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020
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