During the economic downturn of COVID-19, investing in the stock market can be a particularly risky business.
Andy Song ’22 and Serina Lee ’20 have actively been investing from an early age, but during the current crisis, Lee’s portfolio plummeted while Song’s came out unscathed. What was the key factor playing into each of these outcomes? Song said it may have been pure luck.
Song first discovered his passion for finance early. With some guidance from his father and the freedom to conduct his own research, Song borrowed money for his first stock in sixth grade.
“My research was pretty low quality, but I had a good feeling, and it ended up doing really well. I was lucky,” he said.
While luck was essential to Song’s early success, he began formulating a goal-specific strategy as he learned more, picking the best stock options after evaluating places in the market where he could find value.
Like Song, other millennials have now started to take the first steps toward personal investing, sensing an opportunity in the market during the pandemic. New investors are taking advantage of the recession to start creating their first portfolios due to the fact that previously unattainable and coveted stocks in the tech industry are now selling for much cheaper.
Whether it’s opportunism, or “a pretty good feeling,” the fresh investor’s first stock is typically informed by less sophisticated and more familiar or intuitive methods.
Lee adopted a similar strategy, looking into companies she was familiar with when she first started investing. Her first U.S. stock investments were in large companies like Microsoft and Amazon. Lee also typically holds onto her stocks for longer periods of time. Some professionals recommend that younger people should implement this strategy more regularly because of the long years they have ahead of them.
“Before this whole coronavirus thing hit the fan, I’d had Amazon since 2016. It was successful because of how long I’ve had it,” Lee said.
After the market took a nosedive, Lee hurriedly started selling her stocks to mirror the downward trend. This strategy points to what some market enthusiasts call momentum investing — investing with the assumption that existing trends will continue.
“My personal portfolio is currently all cash, so at this moment I’m not investing in anything,” he said.
While conventional wisdom suggests that younger investors with higher risk tolerance should take advantage of the market’s volatility, Song took a more conservative approach.
“With the current situation, markets are absolutely crazy,” he said.
However, Song uses a value investment mindset and recognizes that there’s opportunity for other student investors.
“From a value investing, contrarian standpoint, there is so much fear around investing that it could be an effective opportunity to invest,” he said.
Value investing — the opposite of momentum investing — is an investment strategy popularized by famous value investors like Warren Buffet, which involves identifying lower valuations for stocks relative to competitor stocks and investing in those companies.
When will the state of the market improve? Nobody knows for certain, but Song believes that investors might see a turnaround once a cure for COVID-19 is developed.
“When I jump back in, I’d like to take advantage of the upswing [and] opportunity in the near future,” he said.