Economic activity has slowed down, and we still have several unanswered questions:

• How many people will become infected with this virus?
• How many fatalities will there be?
• How long will it take us to get back to normal economic activity?

We do not have definite answers to these questions, and this uncertainty fuels fear. This fear in turn has driven investors to sell large amounts of shares and shift their portfolios to investments which are less volatile. When the market becomes flooded with a supply of shares, and very little demand to purchase, prices tumble.

Does this fall in prices signal a good time to buy shares?  The short answer is yes!

Does this mean you should pour all your hard-earned money into any diminished value shares you can get your hands on? Not so fast, a few things must be considered first…

This should be the first question you ask before deciding to invest in any market conditions. There are a few things you must consider before you arrive at an answer to this question:

• After investing, do you have enough accessible cash to fall back on during times of uncertainty? You should have enough money left over after you invest in an easily accessible account in the event of an emergency or (temporary) loss of income.
• What is your personal risk tolerance? How comfortable are you with the value of your investment decline from its initial value? Factors to consider when assessing your risk tolerance include age, investment experience, percentage of your wealth invested and the length of time you can leave it invested. Ultimately risk tolerance has a lot to do with comfort level, asking yourself, “If I see a portion of my money dip in value what will my gut reaction be?”
• Investment time horizon. Sound investment decisions are not made with the intention of getting rich quickly. Some investments take time before they rise in value. As an economy goes through cycles there is no hard and fast timeline of when a recovery will emerge.  Investment timelines should be set in line with financial goals, such as marriage, home purchase, a child’s university expense and retirement.
• Portfolio Construction is key. Based on the previously covered areas, constructing an appropriate portfolio to optimise the use of invested dollars (against risk tolerance and return objectives within a specific time horizon) is crucial for the success of any investment. Part of portfolio construction will involve looking at existing savings and investments and current exposure to individual sectors or types of investments.

The stock market is where we have seen the most drastic decline and therefore presents the most opportunity.  You can choose to invest in the stock market using stock mutual funds which allow you to purchase small pieces of many different stocks (shares) in a single transaction, or you can choose individual stock.

Most believe that opportunities lie largely with foreign markets. While there are more options abroad and historically the local market has been slow to respond to changes in the global economy, there has been a substantive fall in the value of local equity prices. While the drop in share prices was initially due to uncertainty surrounding COVID-19, the decline in economic activity following social distancing measures is likely to impact local businesses and their ability to recover.  However, some companies are expected to be more resilient than others. To determine which companies may be more resilient, we examine some key aspects such as:

-A sound Management team which has historically exhibited precise and strategic decision making.

-Strong Financials which show steady revenue, healthy profits, cash flows etc.

-Ability to Adapt

-Capital Structure, such as the debt to equity ratio.