Investing During a Crisis: Be Wary of the Bubble
There are two important things to remember when trying to navigate investments during a pandemic: first, an economy and stock market impacted by a health crisis like COVID-19 will only recover when that crisis abates. Secondly, don’t be lured in by the promise of what is potentially just a short-term success story when choosing where to invest your money during times like these.
Right now, social distancing has required all of us to change how we communicate with friends, family members, clients and co-workers, and technology is playing a very important role in our day-to-day lives because of that need to stay connected in new and innovative ways. Tech companies that facilitate remote collaboration are seeing a large influx of new users, and are finding that existing users are using them on a wider scale than ever before too.
For instance, video conferencing company Zoom saw its stock value rise 101% in March, while at the same time the S&P 500 lost around 30% of its value. Zoom’s share price has readjusted somewhat since that initial boom, but it is clearly reaping the benefits of allowing businesses, universities and even families to keep functioning while physically apart.
It can be tempting to put all your investment eggs into the baskets of companies like Zoom, because when the market is volatile, we sometimes want to look for stocks that might provide a kind of “port in the storm.”
But experts at Harvest Portfolios Group maintain that instead, it’s important to look for companies that have the potential to grow and generate steady income over the long term, not just during times of crisis. The Harvest investment team certainly recognizes the potential for companies that enable workplace efficiencies to deliver long-term, but they also know that circumstances can create bubbles.
“Harvest’s investment philosophy is centred around finding opportunities in areas that are poised to benefit from strong long-term dynamics,” says Harvest CEO Michael Kovacs. “Focusing on the dominant companies in these areas, with strong fundamentals and trading at reasonable valuations, helps to avoid the temptation of chasing short-term ‘story stocks.’’’
That’s why Harvest has invested in historically strong companies that focus on software-as-a-service models such as Microsoft, Adobe and Salesforce, as well as companies like Intel and Cisco that will benefit from increased spending on data centre. They’re also currently looking at hidden gems like Akamai Technologies, which provides solutions to streamline high-quantity and -quality data transfers.
By focusing on what they consider best-in-class, high-quality companies rather than what may simply be “any port in the storm” businesses that aren’t likely to sustain those impressive numbers beyond the current crisis, Harvest is confident that they are positioned to benefit as the markets stabilize, and can continue building wealth for their clients once this healthcare crisis has passed.
The moral of the story is that if it looks to good to be true, there’s a strong possibility that it is. And when it comes to your wealth and investment goals, it’s always important to know the whole story.
Talk to your financial advisor for more information and visit HarvestETFs.
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