“This is the 5th black swan event I am experiencing, though the causes are different.”
Q1. What are your thoughts on the current uncertainty due to COVID-19?
“The main challenge here is unpredictability.” Once black swans events like COVID-19 take place, the effect they have on markets are unpredictable. They threaten lives and livelihoods, both of which are equally important.
FYI with DR: A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. E.g. SARS.
Q2. Are you in a better position to predict the market now as compared to December 2019 when the first case of COVID-19 was detected?
Definitely because in mid-January, the world assumed it’s safe, as the cases were limited to China. It’s only during the end of February that a high number of cases were reported from Italy and panic struck. The cases peaked on April 3rd. Due to this, the markets bottomed-out, but have since come up. This has given investors the sense that money will flow into the market.
Q3. Should we invest during COVID-19?
When the markets go down, the investments will go down (obviously). And when the markets come up, so will investments (obvious, yet again).
“The risk of being in the market is there, but it’s still lower than being out of the market.” If you are out of the market, you are scared to enter it. Due to this, the recovery with the market is lost.
Q4. What is a Multi-Factor Model?
In Multi-Factor Model, we measure which way the economy is growing and which way the earning cycle is expected to grow. It is a forward-looking model based on the latest data available. The allocations are so compressed that it makes sense to go overweight with your equity allocation at this point.
Q5. What are the factors that are affecting the market growth?
- All the governments in the world together are contributing money to boost their economy. The Indian government has taken the right decisions in terms of timing to help the market.
- Vaccination: With each passing day, we are closer to the COVID-19 vaccines, and this should be kept in mind when looking into investing again.
DR Pro Tip: You would want to be in the market before the vaccination comes out because the minute it launches, the markets will flood.
Q6. What is the difference between SARS and COVID-19?
SARS lasted for about six months, starting from late 2002 till the second quarter of 2003. Then, India’s GDP halved from 5.34% to almost 2.5%. However, in the last quarter of 2003, the GDP of India had risen to 8.1%. A similar pattern was observed across the USA, Europe and Japan. The recovery of economies was V-shaped.
SARS was not spreading too fast, but the mortality rate was high, approximately 9.6%. Whereas, in the case of COVID-19, it spreads very fast; however, the mortality rate is much lower. Due to this, the recovery of economies due to COVID-19 will take longer.
DR Pro Tip: This time, the recovery may not be V-shaped, but could be W.
Have questions? Register for the webinar on wealth management during COVID-19 with Rohit Sarin here!