Second Wave of Covid-19 and The Crisis Investing Opportunity Within
More Shocks From the Covid-19 Crisis
I Sense Darkness on The Horizon
Just finished watching Prime Minster Ardern’s press conference about informing the nation of the steps government is going to take in the event of new community transmission of Covid-19.
I felt it is important for me to extrapolate my take on the content of the PM’s message today and what it means for investors and even general members of the public.
First off, having seen Ardern’s press briefings at length on almost all major occasions, I could tell that she was not her usual self.
Something in her body language today made me feel that she made this announcement today knowing something she’d rather not have known. Its the burden of information that was clearly visible in her words as well as body language.
Being election year and how governments are the masters of ass-covering operations, I would say that it is highly likely that what was mentioned in the press briefing today will actually come to pass in some way, shape or form in the near future.
You can read the media’s take on this press briefing here.
The key areas of risk:
- In the event of a community outbreak, she said, the lockdown measures will be more localised by suburb, town or region as opposed to a blanket lockdown throughout the nation. This is similar to what has been done overseas in many countries where there has been a resurgence of the virus.
- She also endorsed that door to door testing is also part of the process of bringing the virus under control if needs be. This is not cool. Do you consent?
- There was talk of a Covid Card – this is the first time I had heard of it and I was simply surprised that that was the case. Normally I am a much bigger consumer of news in general so I was quite surprised having not known about it. So I went on to my usual research and deciphering campaign. Here’s what I found.
Its a bluetooth based card. A nice solution, however, its origins remain a bit of a mystery – and I’m not a big fan of mystery when it comes to anything to do with products or services that are state-implemented. Apparently designed by a Former Apple product designer, base out of Australia, owned by a company that was registered on the 16th of April. However, the presentation made to the government was made public on the 12th of April.
Anyway, maybe I’m just being paranoid. Or maybe I know too much. Or I think I do and I don’t. Or a combination of all of the above.
Needless to say that even a localised lockdown will cause severe economic disruption for multiple businesses, especially malls, given their propensity for being such an easy breeding ground for community transmission.
When I say, malls are at risk, you should read Retail REITs are at risk. Risk in this context means two things. Expect dividend cuts. In fact, KPG already announced back in April that they will be skipping the next dividend payout. So for most of you who might be considering REITs, the natural question will be, “Oh well, there goes the opportunity” – not quite.
Real Estate Investment Trusts
A few days ago, I produced a simple but fairly detailed handbook that explains how REITs work. If you haven’t already downloaded it, perhaps now’s a good time to take a look. It’s FREE.
You still have a way of shorting those retail REITs. Shorting, if you’re wondering, means selling, expecting for them to go down in value.
But as I mentioned to one of our new students, it is natural for most people to say “well how can you sell something you don’t own” – Enter CFDs or Contract for Difference.
You see, mainstream has done a fabulous job of keeping you grounded in conventional thinking. Yes, conventionally, you’re told that you can only sell that which you own. Conventionally, your mind is conditioned to think that anything to do with the stock market is anything to do with buying shares.
Conventionally, you might also be fixated on the fact that the only time you will make money from the share market is when the market is going up.
If you know me even a bit, you will know that I am dead against conventional wisdom and its precisely for these ridiculous, uneducated myths that have been embedded into people’s thinking for decades.
Firstly, it is not true that the only time you can make money from the share market is when it is going up. You can make money from the market if you learn how the market works and become a direction agnostic trader/investor.
Secondly, you don’t need to own something to sell it. That’s a myth that was designed to keep people out of the biggest money making aspect of the market. Prior to the online trading systems that are now the only logical way to trade, there were book traders or manual traders. Back then, if you wanted to sell stock you didn’t own, you were given 3 days to borrow and fulfill the trade.
Now, with everything being online, and with the advent of CFD trading, you can sell shares in a company without owning or having to borrow them. Why? Well, this is covered in great details in one of the lessons in the REIT Masters Course.
Right now, with what is happening in the marketplace, looking to lock up your investment capital into a property is likely to be the biggest mistake most novice investors will make.
Property prices are not falling yet. They won’t for another few months. At the very least, you have to allow for the following 4 key events to come to pass before you will see meaningful declines in property:
- End of Wage Subsidy/Job Keeper/Job Seeker programs (Aug/Sep/Oct)
- Let the elections pass (September, New Zealand)
- Let the Mortgage Relief period end (Sep/Oct/Nov for NZ and AU)
- Let the US elections pass (November)
Once these 4 key events have gone past, you will have a much better view of what’s happening with the fundamentals behind the price.
If you go by just price, you’ll be making the classic mistake that only amateur investors make.
Institutional investors do not make those mistakes.
So what do you do during this time?
Well, I am not in a position to give any financial advice, but speaking hypothetically, and purely from an illustration perspective, the following 3 steps might be a rather sensible approach.
- Maintain agility – don’t lock yourself into illiquid investments. You need to be able to get out of a trade (be it a trade on the stock market, a property transaction, a development deal or a renovation project) rapidly and without suffering too much of a loss.
- Maintain liquidity – don’t put all your eggs in one basket. This is the time to think like a hedge fund manager, not a mom-n-pop operator. You need to keep your exit in mind at all times before you make an entry and always keep liquidity at hand. By liquidity, I mean liquid cash ready to deploy or assets that can be quickly liquidated to turn into cash.
- Invest in short bursts – Split your available capital into small tranches. Deploy that capital across multiple strategies over a short term and focus on small wins and quick exits. For instance, shorting REITs for quick capital gains or engaging in property option deals for either quick renovations or subdivisions, but with the idea of transferring the option to a third party. Turnaround for all of these can be 1-3 months. And with the economic calendar of events being as heavy as I’ve outlined above, you’re likely to see far more credible and meaningful opportunities emerging for these type of “short burst” deals now, than ever before or possibly ever again.
At any rate, the PM’s announcement this morning about a possible second wave of covid-19 in New Zealand, while aren’t comforting at all on one hand, are quite interesting (from an investment perspective) on another hand.
Remember, if you wait for the perfect moment to learn or to invest, then that moment may never come, because “perfect” is not the new norm.
In fact, perfection wasn’t the old norm either, but at least in the pre-covid world, you had time. Now, you don’t. You either get in, make it work, or accept that none of this investment schminvestment stuff is for you and just grab a seat on the bench and be done with it.
Time…. is of the essence.
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