Crisis investing

Business

Crisis investing

The Sterling Report

BY YANIQUE LEIBA-EBANKS

Sunday, January 12, 2020

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Let me start by saying that if you weren't nervous about the events that transpired in the last week, then you truly have nerves of steel.

As for me, I spent many nights reading about General Soleimani and his life and impact in the Middle East. I then read copious articles about the possible repercussions and reprisals that could take place and honestly, became quite anxious.

The plane crash did not help matters.

I say this to say, that if you were panicking, then it is completely understandable. However, the focus of this article is not on how you felt but, on your actions (if any).

Emotional investing is the most dangerous strategy of them all.

Invariably, the investor will sell when prices are low and buy when prices are high. So, it must be avoided at all costs. While it may be difficult to keep a cool head— it is a good idea to keep your fingers off the trigger to protect yourself from doing anything rash.

Unfortunately, we only know the start date of a crisis, we can't know when it will end. The situation in the Middle East was “fixed” almost unnaturally quickly. Not everyone feels that it is really resolved, but only time will tell.

In contrast, the Brexit situation has been highly protracted and filled with uncertainty that even in the aftermath of their general election, is still raising a lot of questions.

CRISIS STRATEGIES

We don't know when or where a crisis will hit, but there are some basic things that investors can do when there is little clarity around investing options. The first principle is to keep some liquidity. If there is a prolonged crisis, you may risk locking in large losses if you have to sell. It is better to keep adequate liquidity so that you don't need to touch your portfolio for basic needs.

Secondly, if you wanted to buy a certain bond, stock, or other asset, and the price becomes attractive as a result of investor panic, that would be a good time to buy some.

If you have concerns that the price will be further depressed, you can buy just a portion of your target amount and then buy more at a later date.

Finally, avoid holding too large a percentage of speculative buys in your portfolio. In any type of crisis, those questionable holdings will be the first to nosedive. This is where investing for the long term comes in handy. Invest in assets that have good fundamentals that you are comfortable holding for the long term. And definitely-do not panic! Happy investing!

Yanique Leiba-Ebanks, CFA, FRM, BSBA, is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at info@sterlingasset.net.jm.


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