Covid Management using Investment Philosophy

The second Covid wave has engulfed some major parts of the country and there is a general feeling of despair. The initial wave highlighted some significant investment lessons which we discussed in “Financial Lessons from the COVID Crisis”. Maybe it is time when we can reverse apply many of these lessons to preserve ourselves and our dear ones during the ongoing crisis. It is worth understanding covid management using investment philosophy.

Discipline – Both in Investment and COVID Management

A sound investment philosophy involves discipline. One must have a plan and strictly adhere to the Do’s and Don’ts. This involves regular saving, systematic investment, and periodic rebalancing. Those who follow this can preserve their capital and optimise growth. Similarly, COVID discipline involves minimising exposure by restricting movement out of our safe zones, using masks and sanitizers, maintaining the minimum distance and other such directions. But just like investment discipline, it is easier said than done. The evolving situation can best be attributed to the total lack of covid discipline which was visible everywhere. We all know several friends and family members who would preach invincibility and play down the threats. The 2^nd wave has however reiterated that just as discipline is important to preserve capital in investment, following covid protocols is important to preserve health and life.

Risk Profiling for Investment and COVID Management

Risk and Return have a direct correlation. The risk element is related to the chosen financial instrument as well as the individual investor’s risk appetite and aptitude. Same investment may be good for some and not so good for others. The risk from COVID is also different to different people. Each one of us needs to identify own risks. Anyone who is having co-morbidities must acknowledge that and take the required extra precautions. He/she need not to prove good health by following the footsteps of those who are physically/health wise better off. There is no weakness in acknowledging poor financial risk appetite/aptitude, or a vulnerable health state.

Just as preservation of capital is more important than growth in investment, safety of life is more important now than the seemingly important other issues. We need to act in moderation according to our individual risks. Risk profiling is apparently the most important investment philosophy which we can apply to covid management.

Past Performance is Not indicative of Future Returns

All risk bearing investments come with a caveat that past performance does not indicate future returns. We should not get carried away by recent success and continue to tread the same path. Every financial decision must be based on the evolving dynamics and context. We managed the first covid wave effectively and started to believe that it is under control. Consequently we started taking the issue of vaccination lightly. However, we failed to keep eye on the changed dynamics with more infectious covid variants. The impact and ways to deal are still under evaluation. We need to remain alive to the evolving situation and moderate our decisions/activities accordingly.

Diversification for Investment and Isolation for COVID Management

Diversification is a time-tested method to minimise risk in investment. By having a suitable asset mix we separate our investments into different categories. The purpose is to prevent one factor from impacting the entire portfolio simultaneously. Gains in one category will generally offset the losses from other categories. Further we support the underperforming category by culling out funds from the performing category through rebalancing.

One of the concerning features of the current crisis is that the family members are not able to help the affected persons. In most cases all adults are getting infected together. If larger families spread out and stay at different locations, they might have a better chance of reaching out to one another when needed. It may be prudent for family members to spread out where feasible. Strict isolation of dear ones at home is also psychologically difficult and the possibility of infecting others is very high. It is therefore advisable to quarantine at some distant place if feasible. 

Overcome Fear- both as Investment Philosophy and for COVID Management

Greed and Fear are two most powerful emotions which drive the Financial Markets. Both these emotions encourage irrational decision making. There is a tendency to follow the crowd and buy when everyone is buying or sell when many are selling. While any major development may require some buy/sell decisions, these should be based on considered evaluation.

Similarly, we see a panic driven hoarding of life saving essentials by people who are either not affected, or mildly infected. The scenario has given space to a thriving black market which is exploiting the fear to unimaginable levels. The need of the hour is to overcome fear and evaluate the requirements pragmatically based on individual context, situation, and risk profile. Seeking help when in need through regulated channels may be preferred to avoid falling prey to illegal black marketers.  

Conclusion

Discipline, diversification, and risk profiling are key elements of a sound investment philosophy. Managing human emotions is necessary to avoid irrational decision making. This investment philosophy can be related to the understanding of covid management. We can use the same principles to manage/preserve ourselves and our dear ones during the ongoing covid crisis. The magnitude of present threat is huge, and therefore the best contribution we all can make is to preserve ourself and not add to the problem.  

Download – Complete Guide in Recovering from COVID issued by Medanta

Suggested Readings

 Financial Lessons from the COVID Crisis

Asset Diversification- The Key to Balancing Risk and Return

Greed/Fear and the Urge to Time the Market