What I Learned From Selling My Stocks When COVID Hit 💡

It was March 2020 and things were getting interesting very fast. Talks about the Coronavirus hitting the U.S. and people already getting sick became prevalent just a few weeks prior. Now the country was talking about shutting down and issuing stay at home orders. It seemed that no one knew what to expect. Already on my journey towards multifamily investing, I was further incentivized to dump my stocks, which I feared were at great risk of total loss. I had reasonable gains and was willing to lock them in. So I sold and did reasonably well. However, I would have done better if I held. Recognizing this truth, I spent some time reflecting to understand what I had missed so that I can avoid this mistake in the future. So this is what I learned…

1️⃣ Markets Are Emotional

Even a few years ago, I knew better than to be emotional when it comes to investing. I recognized the importance of thinking objectively and using data to make decisions. However, when the pandemic hit, it seems I through much of that discipline out the window. In general, the financial markets are emotional. Those same emotional habits happen to drive a lot of the activity and volatility in the stock market. Near term, there are ups and downs. Long term, fundamentals win. I had reasonable margin in my shares of stock (for example, I had Amazon at $1,500ish) and should have realized that this basis was safe enough to hold long term. Having a long term mindset is very important when it comes to investing.

2️⃣ When Central Banks Print New Money…

When Central Banks (in our case, the Federal Reserve) print new money, more dollars are in circulation. This drives up asset prices as investors seek to beat inflation by putting their cash to work for higher returns. Also, as a result of more capital, more dollars are brought into the stock market, driving up demand for stocks. This is what happened in 2020. Whereas I bought into the fear (reasonably so) that asset prices would crash as a result of the pandemic, I could have recognized that relief that the Government was bringing in the form of trillions of dollars. This money printing has driven up both stocks and real estate values.

3️⃣ History Is A Great Reference Point

This is not the first time central banks have printed money to avert a crisis. In fact, this has happened many times in many countries all throughout history. Having recognized the history of financial systems and monetary policy, I could have possibly predicted this near term inflation and rise in asset prices. A good book of reference for those who want to understand the history of money is “The Ascent of Money” by Niall Ferguson.

Learn, Learn, Learn 💡

Value education as one of your most prized assets. There is great value in understanding the history of finance and governments as well as the macroeconomic environment. My goal through the Learn to Invest blog is to share my journey and education with you so that we can make informed decisions that help produce great investment results!