I think that 2020 has taught us some very interesting investing lessons so far.
The S&P/ASX 200 Index (ASX: XJO) has been on an incredible journey this year. Between the start of the year and the February 2020 peak the ASX 200 rose 7%. From that peak the ASX then dropped 36.5% to 23 March 2020. From that low it's risen 35.2%. What a ride.
I believe there are a number investing lessons already this year:
Volatility can strike at any time
At the start of the year it seemed as though everything was lining up for a great year. Brexit uncertainty was passing. The trade war between the US and China seemed to be settling down. Australia's property market seemed to be in a good position.
Who would have thought that the market would have dropped 35% by March 2020?
Sometimes there are uncertain events in investing that can suddenly pop up out of nowhere. That's why I think it's a good idea to always have a bit of cash on the side to take advantage of those opportunities.
Be greedy when others are fearful
This is certainly not a new lesson for some people, investing legend Warren Buffett has been telling us that for a long time.
But for many Australian investors, this is the first time that they're seeing Australia in a recession. Plenty of people are fearful about what the economic effects of the coronavirus will be.
Share prices don't magically drop on their own. There has to be genuine fear for a particular reason, such as a global pandemic. When you look at the share price graphs, it's these selloffs that present the lowest share prices. So, you just have to be brave and greedy at times like this (or to be more precise, in March). You don't know whether the market will drop 10%, 20%, 30% or more.
Investing is for the long-term
What's happening in 2020 is some of the most challenging global circumstances in a century.
But it will pass. And governments and central banks have provided enormous support.
The world moved on from the GFC. It recovered from the Spanish Flu. The earnings in FY20 and probably FY21 will be affected. But by FY22 things could be back to normal.
We need to be investing for the long-term with our hard-earned money. There will be future bumps along the way, we just need to be brave, stay invested and keep investing.
