We are currently living in a time period of upmost significance, a historical event that will forever change humanity. COVID-19 has already taken so much from our global communities. So in response, we want to give our readers a complete guide that will give you the insight and tools needed to develop your own investment strategy. Market opportunities like this are very rare and amidst global panic and fear, there is a silver lining.
” This is the time to be casting your net wide looking for investment opportunities that might not present themselves again until the next bear market rolls around. You will only get a few bear markets in your investing lifetime so make the most of them in terms of learning, experience and investments.” – Mark Tobin, Coffee Microcaps
Long Term Blue-Chip Strategy
A Blue-Chip stock is a high market cap company – the name was first introduced from Poker origins, the Blue coloured chip was the highest valued Chip in the game therefore giving the highest valued companies the name “Blue-Chip” Stock. Buying Blue-Chip stocks in times of crisis can generate long term capital gains IF timed effectively. The biggest lesson I’ve learnt from investing so far, is that a well timed entry price may just be the difference between a 20% and a 30% gain. Blue-Chips offer more security for an investor as they are driven by quality management and offer dividends which can help cover short term losses. A current example of a Blue-Chip stock I’m currently watching is Macquarie Bank (ASX:MQG). The company was trading above $150 during February and is now bouncing around $90-$95. Three weeks ago, I wanted to pick up MQG shares at $65 as markets tumbled. However after this weeks surge, I have adapted my entry price to $82 (value from research and market prediction). With a Long Term Blue-Chip strategy you MUST constantly be able to adapt what you see as good value otherwise you may get seriously burnt by the Bearish Market Trends. Read more on my Blue-Chip Strategy Here.
Dynamic Short Term Strategy
Generally, I try to avoid Short Term Investments as they hold a lot of risk you cannot mitigate. However, a Dynamic Short Term strategy has the ability to be “opted out” to a long term investment if necessary. I will start with an example to explain. Over the past two months, I have been keeping a close eye on Imugene (ASX:IMU) currently priced at $0.026. The Aussie Bio-tech firm only yields a Market cap of $115 million. However, IMU has made very interesting progress regarding Cancer treatments with a Phase 2 trial for HER-Vaxx (HER-2). I’m currently considering investing a small amount of capital at an entry of $0.0185 if the markets reversal is false (opinion not advice). Now the beauty of a Dynamic Short Term Strategy is that I can either choose to reap the short term benefits of a recovery and pull out OR I can choose to hold and see how the trials perform, knowing well that I have leverage (gains) if the company is exposed to more Systematic dips in the future. This generally works with companies with strong potential for growth, such as Bio-techs or innovative start-ups that are underpriced due to current market conditions. However, if the markets continue on a bearish decline past my entry value, I must yet again adapt to a new evaluation. Short term gain chasing can be like playing Russian Roulette – however at least having a dynamic strategy can improve your chances of survival.
Everyone is talking about investing in Qantas, the Big Four Banks, or the Travel agencies. What if I told you that investing in lower-priced stocks, with tremendous upside potential, could make you more money than investing in blue-chips. The stock market gems I am alluding to are micro caps. Micro-caps are reasonably priced, can grow into market leaders and unlike Blue-chips do not have “every man and his dog” investing in the company
My strategy involves investing in micro-caps which satisfy the following criteria.
1) Pre-COVID-19 momentum
- The stock experienced a bullish trend six-months to years before the virus.
- These stocks were outperforming the market before the virus. Once their momentum kicks back in, we should see the outperformance return.
- The coronavirus fear likely dragged the stock into the undervalued zone.
- If you are unsure, research what position reputable brokers like Goldman Sachs, UBS, Citi, or Morgan Stanley have on the stock.
3) Forecasted or historical earnings growth
- If the stock reported year on year earnings growth before COVID-19, and their product can withstand the virus, then growth is inevitable (Historical)
- If the stock forecasted earnings growth during this time but did not achieve it and and their product is likely to withstand the virus, then there is a high chance the company will achieve its earnings growth but at a later date in the future (Forecasted)
Here is a list of promising micro-caps that are on my investment radar. Your own research is required before investing in the micro-caps below.
- Paradigm Biopharmaceuticals (ASX:PAR)
- Opthea Limited (ASX:OPT)
- Australian Ethical Fund (ASX:AEF)
- Zip Co (ASX:Z1P)
- PointsBetHoldings (ASX:PBH)
- Cann Group (ASX:CAN)
- Medical Developments (ASX:MVP)
- Pwr Holdings (ASX:PWR)
- Ecofibre (ASX:EOF)
- EML payments (ASX:EML)
NOTE: The stock must tick all three requirements. Read more about the Micro-cap strategy HERE.
Exchange-Traded Funds (ETFs) and Inverse ETFs strategy
Now you are probably wondering what on God’s green earth is an ETF? In a nutshell, an ETF is a group of securities, usually stocks, bundled together to mirror the performance of an index. ETFs are diversified. Meaning, ETFs are low risk in comparison to taking a punt on a single blue-chip like Qantas.
For example, if the ASX 200 surges by 10%, then the ETF mirroring the ASX 200 also jumps up 10%. So, think of ETFs as the rope that allows you to ride on top of a charging bull.
When is the best time to invest in ETFs?
Personally, I would invest in an ETF and hop onto the bull once there is enough evidence that the market is recovering. Because let us think about it. The markets will inevitably recover. When they do, they will make up for the horrific losses caused by the grizzly bears. Allowing us to use ETFs as an investment vehicle to capitalise on a 30%+ market recovery. Some solid ETFs include:
- BetaShares Australia 200 (ASX: A200)
- Vanguard (ASX: VAS)
- SPDR S&P/ASX 200 (ASX: STW) ‘Nickname Spider’
- BetaShares Global Agriculture ETF (ASX: FOOD)
- Betshares Global Cybersecurity ETF (ASX: HACK)
However, we are not in a recovery. The bears still have their claws entrenched in the market.Meaning, the time to use ETFs to ride the bullish trend is still in the future. So, what can you use? An inverse ETF. Essentially, an inverse ETF is a bundle of securities that performs equal to an index but in the opposite direction.
For example, if the ASX 200 plunged by 10% in a day then, the inverse ETF mirroring the ASX 200 would skyrocket 10%. The diversification of inverse ETFs takes out the headache of trying to find a single stock to short during a bearish market.
Think of inverse ETFs as a defensive shield against the bears. Thus, when strong bears come out of the woods and pull the market down with their claws,your inverse ETF will surge.
Some substantial Inverse ETFs include:
- Australian Equities Bear Hedge Fund (ASX: BEAR)
- Australian Equities Strong Bear Hedge Fund (ASX: BBOZ)
- US Equities Strong Bear Hedge Fund (ASX: BBUS) – I currently own shares in BBUS
If you want to learn more about the inverse ETF strategy, click HERE.
Here is our free, uncomplicated, and extensive ASX portfolio
Written by Tyger Fitzpatrick and Patrick McLoughlin, Founder, and Senior Manager of YIG.