People keep asking me about how to invest based on Covid. Covid investing would be the idea of investing in the potential vaccine manufacturers, distributors, the company that makes glass vials, and things like that. Those company’s stocks are already up on the hope that they’ll benefit. It’s unlikely they are underpriced relative to risk at this point. However, there is an easier way to make a Covid investment.
To update the original post I must point out that the potential Covid vaccine has arrived faster than I thought it would. The economy is still on the bring thanks to Congress’ inaction on a stimulus package, but in the short-term, expect investors to focus on the vaccine and what might mean for companies, with or without a stimulus.
Watch for a lot of over-optimism in the vaccine manufacturers such as Pfizer. If one of them comes out as the dominant winner, then that could really move the needle for them, but present a lot of risk for the others. In my opinion being the main vaccine provider is now priced into all three stocks with vaccines pending before the FDA. Unless they all get something like a third of the market, that pricing will need to be stripped out of the stock resulting in lower stock prices for the losers.
See my December stock market update for more information.
Covid Stimulus or Recession
The real opportunity Covid investing wise is watching the stimulus package that comes out of Congress. Inevitably, the politicians will pick winners and losers. Look for the airlines to make out pretty well. Look for small business to get small stimulus, just like last time.
However, the biggest investment play of all is that there will be no stimulus. Everyone with two brain cells to rub together knows that the US economy is teetering on the verge, and a new resurgence in Covid likely to tip it the wrong way. The Fed is in the news practically begging for a big stimulus package out of Congress. A big stimulus package that includes big stimulus for state and local economies is the rescue that secures a solid recovery. Anything else means a very weak recovery, or a new recession.
Bet Against a Stimulus
I, for one, have lost all faith in Congress to do anything other than try and beat the other side. With all the politicians looking at beating the Democrats or the Republicans instead of doing what is right for American and the economy, the natural outcome is that in order to prevent the other side from getting any credit, any stimulus will fail.
The way to invest Covid?
First, remember the rules:
- For long-term investing like retirement, the best strategy is a well-diversified portfolio based on your time horizon and risk tolerance.
- If you don’t have $100,000 in an investment account you have no business trading or investing in individual stocks. Build your six month emergency fund in cash, and then start building up an investment portfolio in index ETFs before you try short-term trading or investing in individual stocks.
- If you aren’t maxing out your 401k, increase your contributions before trying to buy and sell individual stocks or bonds, or executing any short-term trading strategies.
If you meet the criteria above then it’s time for the disclaimer.
This article is for informational purposes only. It is not investment advice or a recommendation to buy or sell securities. For specific investment advice consult your financial professionals.
Covid Investing Strategy
If there is no stimulus, the economy is headed for a difficult recession, or worse. The stock market knows this, that’s why every time it looks like there might be some good stimulus news, the markets go up. Every time, a politician shoots off their mouth in a way that suggests there will be no stimulus the market goes down.
Do not try and play this game. Computer programs, and guys with tenth-second access terminals drive the markets in reaction to this kind of news before you can get in with a reasonable trade.
The game you can play is this one: If you think the stimulus won’t happen, then it’s time to short the weakest stocks you have your eyes on, or just grab some in the money puts on market index ETFs. Go ahead and get in on some extra bets against the travel industry while you’re at it. Laddering out the time from now to January would be a smart bet.
If you think the stimulus will go through and be big enough to boost the economy then you reverse the strategy above.
How To Invest In the Election
Investing in the outcome of the election is the same as investing in Covid. It is all about the stimulus. If there is an outcome that puts one party in control of all three parts, House, Senate, and President, then you can all but count on a solid stimulus because now a good economy is good for their party since they’ll get all the credit. Invest for things to improve, and watch which sectors win. Either party is likely to boost the airlines so lean in on that sector.
If there is a mixed government bet against a large enough stimulus in a short enough time to rescue the economy. Now, you can go out on the time of those options. A slow motion recession and stock market correction is very likely. See how cheap you can get in the money June or July. Those should be a good bet.
This is not investment advice. This is an informational article. Do your own research and do not trade beyond your knowledge or means. — For the love of everything, do not go “investing” your kid’s college fund in short-term trades. A lot of unforeseen things can happen. Smart investing is about managing risk; that starts with only investing funds you can afford to lose.