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The best investing lessons of 2020

December 21, 2020


Kristen Lunman

Written by Kristen Lunman

Kristen is General Manager of Hatch - a digital investment platform that gives New Zealanders access to the US share markets. Powered by Kiwi Wealth, Hatch provides easy, affordable, and reliable access into the largest, most liquid share markets in the world.


You don't get through a year like 2020 without learning some lessons along the way. Here's our top 3 investing lessons from 2020.

Giant 2020 letters with investing images inside smaller

It is hard to believe just how unusual 2020 has been for both investing and our lives in general. Who knew that between the blur of lockdowns, job worries, virtual meetings and the endless stream of terrible news from around the world, that the markets would crash, make a comeback and then, except for the occasional dip, go from strength to strength? Just look at the S&P 500 index, often used as a gauge of the overall US share markets - it’s up around 15% on the same time last year, beating the index's average annual return of roughly 9.8% since its inception in 1926. It makes little sense, and yet it’s one of the things we’ll remember most when we reflect on the markets in this extraordinary year.

Starting from the bottom, now we’re here

Remember that time in late February when the share markets started to tumble? You can thank a certain virus for that. The move to close borders around the world to keep the COVID-19 pandemic at bay was unprecedented, and the markets reacted accordingly. By the time the S&P 500 index hit rock bottom on 23 March, it had dropped more than 33%, along with our stomachs.

But that wasn’t the end of the doom and gloom, or so it seemed. Then came the oil price crash. Demand for oil plunged as global travel dried up and the space to store oil started to run out. For the first time in history, the price of crude oil futures contracts went negative. Desperate traders were paying people to take it off their hands. But while oil and our overseas holiday plans were the biggest losers, tech companies that kept us working from home were winning big. Zoom and Microsoft's Teams quickly became a lifeline for many businesses and workers allowing a lot of us to work our regular hours from the comfort of our homes in our leisurewear without anyone being the wiser. Zoom quickly became a household name sending the share price zooming up more than 490% in the 12 months to December 2020. Microsoft shares also rose a healthy 39% over the same period.

Speaking of zooming up. Electric car producer, Tesla’s share price skyrocketed this year, rising 623% since 2 Jan 2020 and the company will join the illustrious S&P 500 index on 21 December.

2020 might just be remembered by some as the Year of the Pooch as our four-legged besties warmly welcomed us home for walks and cuddles (not our cats though – many hated us being home all the time). We spoiled them in return. Online pet retailer Chewy’s revenue jumped a huge 47% in the six months to 2 August 2020 over the same period in 2019.

Finishing 2020 with a bang

After all the uncertainty that came with markets falling then rapidly climbing, the rising global deaths due to COVID, and the intense November US election; once Joe Biden was confirmed as President-elect, the markets edged ever higher. Then it was announced that not one, but three clinical vaccines had delivered highly successful results in combating the virus. Weirdly, vaccine-making companies Pfizer and Moderna haven’t skyrocketed like some investors may have speculated they would. Maybe because Wall Street is gushing over hot new share market listings?

Recent IPOs DoorDash and Airbnb jumped 86% and 115% respectively on their opening days after listing. But let’s not forget the lessons of UBER and Lyft. They too opened high and plunged within three months. While it’s exciting to see companies IPO at the end of a rough year, it’s always worth being cautious.

Top 3 investing lessons from 2020

You don't get through a year like 2020 without learning some lessons along the way. Here’s our top three:

1. The share market is not the economy

As the COVID-19 crisis deepened in April and May, it was baffling to see share markets rebound sharply. How was it possible that share markets were steaming back to life when tens of millions of people were losing their jobs, and the US economy was headed for a recession? Well, it turns out that it was more than possible – it was totally normal because, as Bloomberg's Nir Kaissar explains, there’s actually very little correlation between returns of the US share market, in this case, the S&P 500 index, and the US economy, which is measured in Gross Domestic Product (GDP). Ironically, while the economy was slipping backwards and people were experiencing hardships, many of the big tech companies that dominate the S&P 500 index were actually able to benefit from the pandemic.

2. You can't predict, but you can prepare

How could any of us have predicted a year like this 12 months ago? No, not even a little bit. Predicting the future is complicated. But if this year has taught us anything it’s this:  if we’re to keep a cool head and take advantage of opportunities, we need to prepare for the ups and downs of the share markets. The idea of preparing for a market crash and a roaring recovery within a few months sounds crazy, but 2020 has shown us that crazy can happen.

One strategy to help you prepare as an investor in 2021 is to invest regularly and consistently with automatic-investing. Not only does this let you take advantage of dollar-cost-averaging, but it helps to calm the emotions that go hand in hand with volatile markets.

3. Keep betting on human potential

You won't find a better example of what we can achieve as humans than the successful roll-out of a vaccine for COVID-19 in just 11 months. Historically, vaccines have taken around 10 years to produce, so while it’s early days, it’s still a truly remarkable feat.

Speaking of remarkable, Elon Musk's commercial space company SpaceX helped to blast two crews of NASA astronauts into space in May and November. While it might have taken billions of dollars and thousands of laser-focused human minds to achieve these feats, they’re incredible reminders that every day, around the world, humans are hard at work making the world a better place even during one of the more testing years in the history of humankind.

This blog is of a general nature and is not personalised financial advice. This blog is not a recommendation to invest in any of the companies or funds listed in it. With investing, your money isn’t guaranteed to grow and there’s a risk you might lose money.

Tags: Investing

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