Just six months into my investing journey, the Covid stock market crash occurred. Seeing a sea of red was undoubtedly a huge baptism of fire for me. But when I reflect five years on, these are some of my most important takeaways.
When to pull the trigger
One of the biggest mistakes I made was to start deploying capital into the market way too early. In late February 2020, as an unknown virus started spreading across the globe, the FTSE 100 started selling off.
Unlike money managers, individual investors don’t generally have huge sums of cash on the sidelines ready to deploy. As a result of my impetuosity, when the big bargains came, I had run out of dry powder.
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Time in the market beats timing the market they say. But that shouldn’t be taken absolutely literally.
What is important for any investor to do is to assess a new event before rushing to buy. I have deployed that lesson ever since.
In the recent sell-off of Nvidia, private investors ran headlong into buying the dip immediately after is began to fall. I didn’t. For me, it’s simply way too early to assess what impact DeepSeek could have on its future revenues.
Never fish for the bottom
The FTSE 100 bottomed in late March 2020 and slowly started climbing after that. But there were still huge bargains to be had for a long while. Yet I made the classic mistake of beginning to accumulate cash and didn’t invest any of it.
But then how did I know that March was the bottom? The answer is simple. I didn’t. But this is when psychology comes in.
For example, Aviva bottomed out along with the index in late March at 205p. I had months to buy for less than 300p, and didn’t move. Why? Because having seen that bottom, I thought I’d wait for it to fall again. But it never happened.
Not all stocks bottom in tandem
Individual stock pickers don’t care what the index is doing. Although most of the FTSE 100 constituents hit their lows around the same time, there were a number of outliers. Four huge ones in particular: BP, Shell, HSBC and Rolls-Royce (LSE: RR.)
Each one had their own particular unique reason for not mirroring the index. But my biggest mistake and biggest regret was missing the opportunity of a lifetime presented by Rolls-Royce.
When a stock is falling off a cliff like Rolls Royce did way after the index had bottomed, I dithered. I researched the stock to the nth degree. But each time I made the decision to buy, it would fall another 10% in a day.
I saw the bottom at 100p (33p after the rights issue) and said to myself I will wait for 80p. One week later the stock had doubled in price. The bottom was in. But just like Aviva, I made the same mistake.
The lesson I learnt? If you have researched a stock and have made the decision to buy, then don’t hesitate. Its much easier to add to a stock you have bought into, than to make the initial leap.
I have applied this methodology countless time since. The most recent example was following the huge sell-off in Burberry last year.
