Reports emerged this week of a failed Gilead coronavirus treatment, which sent the market haywire and highlighted the dangerous habits of investors today
The last thing you want to see first thing on a Friday morning is yet another gloomy story of failure. Unfortunately, when I woke up and checked my phone, the first notification on my screen from The Economist read: “The pandemic will leave the rich world deep in debt and force some hard choices.”
Wonderful… *scrolls some more*
“Gilead (NASDAQ: GILD) vaccine proves inconclusive, sending the stock market plummeting.” Well, that’s not a great headline either.
It seems that despite the fact there are more than 100 labs worldwide working on a vaccine right now, many with promising results, investors are latching on to the negatives, and it’s affecting the overall market.
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It does make sense, but…
Don’t get me wrong, I understand why investors are behaving this way. People are worried, we see no end in sight to this pandemic, and with trial vaccines offering a glimpse of hope, it’s disappointing when they don’t work.
This strategy will see you through market crises’ such as this, and even recessions. What does not help, however, is a mass sell-off of shares based on one trial vaccine’s potential failure. No vaccine was ever going to be rushed to market anyway, whether it came from Gilead, Amgen (NASDAQ: AMGN), Pfizer (NYSE: PFE), or whoever.
Why is this dangerous behavior?
This is dangerous investment behavior because it is investing with a short-term mindset. And the truth is, we have no idea what is in store for the future as this situation is completely unprecedented in modern human history.
Just think about how much our lives have been changed already. In January, many people would never even have heard of Slack (NYSE: WORK), Microsoft Teams (NASDAQ: MSFT), or Zoom (NASDAQ: ZM), but now they are all that stand in the way between us and total isolation. It looked like Disney (NYSE: DIS) would overtake Netflix (NASDAQ: NFLX) as the king of streaming, but suddenly Netflix is the more valuable company.
Hell, even Boeing (NYSE: BA), America’s largest exporter, has a very uncertain-looking future right now. Though not all of that can be attributed to COVID-19.
The point is, none of us could have predicted current market behavior, and that sentiment is not exclusive to a pandemic breaking out. Before the 2009 Market Crash, banks and energy ruled the roost, with everyone investing in the likes of JP Morgan (NYSE: JPM) or General Electric (NYSE: GE). Since then, Big Tech reigned supreme with Apple (NASDAQ: AAPL), Facebook (NASDAQ: FB) and Co. taking the lead in the longest bull market in history.
Nobody could have guessed that any of this would happen, and as we all know, there are no winners when you try to predict market behavior.
Focus on company behavior
There’s no denying that the market makes little sense right now. Just yesterday, Tesla (NASDAQ: TSLA) and NIO (NYSE: NIO) stock plummeted on reports that the Chinese government would reduce subsidies for electric-vehicles by 10%. What investors ignored here is the fact that China was extending these subsidies until 2022, resulting in more money overall, whereas before the pandemic, the subsidies were to end in 2020.
Meanwhile, Amazon (NASDAQ: AMZN) was accused of some pretty serious antitrust breaches yesterday, and on the same day hit a new all-time high.
How should investors react to the current market?
The best thing investors can do right now is stick to a tried-and-tested long-term strategy. With the stock market historically rising an average of 9.8% over a ten-year period, it is important to be patient, as well as keep a diversified portfolio. That way, you can protect your portfolio against downturns, and even get your favorite stocks at bargain prices when they fall.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.