In the wake of the global pandemic and economic uncertainty, many people are turning to the markets to make money, earn additional income and improve their lifestyles. The investment experts at CM Trading reflect on the year that was and lessons that can be applied to trading and investing in 2021.
Stay calm, even when markets panic
In March 2020, markets went into a free fall, causing clients, investors and stakeholders to sell off stocks. One of the biggest market crashes was experienced by the oil industry, which tumbled from a high of $64/barrel to a near-overnight low of less than $20.
A few months after the initial crash, global markets began to recover. Those unphased by the initial panic were able to capitalise on market volatility, proving that if you stay calm, watch trends and implement strategies to manage “emotional trading” you can make a p-profit, even in adverse conditions.
Diversify your portfolio
Investors are always warned against putting all their eggs in one basket and no year proved the validity of that advice more than 2020. In March, the S&P 500 tumbled by more than 12% and crude oil dropped by 55%. Gold, however, skyrocketed above $2000. It’s easy to be caught up in one specific market and tailor your strategy accordingly. From equities to Index/Bond Funds, a simple diversified portfolio minimises risks and reduces panic selling.
Markets are unpredictable – especially in the short-term
The 2020 US presidential election highlights how volatile big events can be in the short-term. The markets rallied within days following the election results. Many market observers expected to capitalise on a bearish sentiment during the elections, though those predicting long-term stability by trading in a post-election environment achieved great success.
It’s better to focus on developing a trading strategy that you can stick with over the long-term than trying to predict markets daily and react accordingly.
Volatility equals opportunity
As the markets crashed in 2020, some savvy investors and companies not only managed to shirk off the worst of the financial collapse, but ultimately thrive. A good example of this is the eCommerce boom and office-communication app Zoom. In a year marked by lockdowns, home deliveries and shipping skyrocketed. Amazon has reported record earnings throughout 2020, Zoom surpassed the $100-billion market capitalisation. So, when some see only doom and gloom, others see opportunity amidst the volatility.
Timing is everything
While gold skyrocketed in 2020, anyone who traded it towards the end of the year was not so lucky. Investors predicted that the commodity could reach $3000/ounce. And even major investors like Warren Buffet (an anti-gold trader) snapped up the precious metal. Unfortunately, those that purchased gold earlier in 2020 were looking to make a profit and as a result, sold their stock. This created a selling frenzy, causing the price to plunge.
There is no guarantee an investment will bounce back, and portfolio diversification is key to minimising your risk, especially when it comes to long-term investments. Recognising when to stay the course or jump ship is imperative to staying profitable.
For more information on CM Trading, visit their official website at www.cmtrading.com or call +27105008026, and one of their friendly staff will assist you.
CM Trading is the brand name of Global Capital Markets Trading Ltd (A Seychelles company, company no. 104785)