Sound coronavirus investment strategies should focus on diversification with high-quality stocks that have a history of weathering market downturns

Recently, I was in a meeting with a group of investors, and we of course spent a lot of time talking about the pandemic. Some members were wary about plans in the U.S. to begin lifting the pandemic lockdown. Others were not so much wary as resigned to the idea that easing the lockdown, much less lifting it, could bring a new bulge in deaths and another stock market plunge.

Many people felt unsure about the immediate future. There was discussion about ways of earning coronavirus investment income beyond the meagre interest rates available from bonds.

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As the lifting of the lockdown creeps forward, the market is likely to be highly sensitive to statistics on new Covid-19 cases and deaths. But, with or without a lockdown, the incidence of the virus has varied wildly from place to place. Nobody knows why. In fact, if you Google “The Covid-19 Riddle,” you’ll come to a recent New York Times story entitled “Why does the Virus Wallop Some Places and Spare Others?”

The story goes through just about every rule anybody has come up with to answer the question, and finds holes in every one.

In mid-March, I said the bear market had probably done as much damage as it was likely to do. That’s still my view. At my meeting last week, that view made me the most bullish person in the room. I don’t have any special medical knowledge. That’s how I see things because people seem to be looking at a variety of facts and opinions, and assuming the worst.

The best coronavirus investment strategy is still a balanced portfolio

It’s generally better to take a middle-of-the road approach, between the best and worst outcomes you can foresee, based on available facts. Don’t assume anything about the future, or act on knowledge you don’t have. Instead, build and hang on to a diversified portfolio of high-quality stocks that you can comfortably hold for two to five years.

Do that and you will still go through some worrisome moments. But you’re likely to make a good return on your investment, and it may come sooner than you expect.

Recognize that many coronavirus investment outlooks are purely guesses

Everybody knew the virus would hurt, but nobody knew how much. In a situation like that, people often lean toward the worst-case scenario. When you assume the worst, you improve your chances of pleasant surprises. That’s why I felt the bulk of the damage to the stock market might be behind us. In fact, a week later I repeated that view and added that it seems a little more likely now than it did a week earlier.”

The most common reaction to this rise has been, “I can’t understand why the stock market is going up so much when the outlook is so terrible.” The answer is that “outlook” is just another word for opinion. When opinions are mistaken, they can change in a heartbeat. When things turn out to be better than people figured, prices tend to go up.

As governments around the world continue lifting their stay-at-home and business-shutdown orders, the next big move in the market will depend on the outcome of lifting these orders. A big rise in COVID-19 cases or deaths would probably push the market down. However, Dr. Ioannidis seems to think that people generally are in for a pleasant surprise—a smaller-than-expected rise in COVID-19 cases and deaths. His view seems objective and well-reasoned.

If his view turns out right, I’d say it virtually guarantees that the bulk of the damage to the stock market is behind us, and further gains lie ahead.

Use our three-part Successful Investor approach to make the most of your coronavirus investment strategy

When it comes to building an investment strategy, don’t let sound bites and vague predictions warp your stock-trading decisions. Instead, minimize your portfolio risk by following our three-part Successful Investor approach.

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

How have you responded to the markets during the coronavirus outbreak?

Have you changed your investing strategy at all during the coronavirus pandemic or are you staying committed to your portfolio?