Most good investors tend to revisit and revise their portfolios at the end of the year. However, some don’t, and they continue to leverage the performance of their existing portfolios as they wade into the new year. However, 2020 was an unusual year in more than one way. We will talk about that shortly – but if you are already considering closing this page, the short answer to the question you came here for, is a resounding yes. Yes, you do need a new portfolio strategy for 2021.
Just think about how many people were displaced from their normal lives, and imagine how the pandemic gave a new shape to their lives. Another exercise that you can do, is to think about how your life is looking different as compared to last year at the same time. What has changed? Remember that markets and businesses usually reflect the everyday lives of people including ourselves in many ways. Let’s see how.
Did you spend money on travelling in the summer of 2020? How about your friends? Did they travel this year? Now look at the stock prices of travel and hospitality companies – did their prices go down? If you are actively listening to news about how travel is resuming in different arts of the world, you can understand how and why some travel, aviation and hospitality companies’ stocks are showing signs of recovery.
This is just one example. But this example, in the light of the activity we did in the second paragraph should already have convinced you as to why your portfolio needs a new strategy going forward. Now that you have decided to revisit and build a killer financial portfolio strategy for 2021, here are three things you should keep in mind.
Think about how the #vaccine will affect the markets
Global news companies started reporting on the vaccine almost two months after the pandemic hit. Sooner or later, the vaccine will come – in fact, some attempts are in trials and others are already being distributed. Over the last year, the pandemic has enforced a number of trends in our lifestyles that may or may not stick beyond the pandemic. But when the vaccine is distributed globally, some of these trends will start falling apart.
For example, those who love travelling will start as soon as they get their hands on the very first shots, and as a result, the travel industry will flourish again. Think about remote work, and how it has fuelled demand for information and communication technologies, infrastructure needs, and other paradigm shifts in the average households. Research, understand and forecast the trajectories of various industries for various scenarios – vaccine distribution itself is an ongoing challenge, so there are a lot of moving variables in consideration as you answer this question to formulate your portfolio strategy.
Examine the pandemic trends in detail
While we already discussed as to how the pandemic has ushered new trends that may or may not last, there is a lot to be studied across each shift. For example, consider that your portfolio shows significant allocation to healthcare and technology industries. This might be a move that you made to rebalance your portfolio during the pandemic, but will these sectors contribute enough to deserve the same allocation in the next year?
Well, that question itself should give you enough work to do. For instance, how is the correlation between healthcare, pharma and tech stocks changing after the pandemic? A number of healthcare components are now seeing greater tech and digital interventions – at the same time, a number of tech companies are investing heavily in healthcare solutions to protect their workplaces from the virus. Will pharmaceutical companies continue to deliver the same growth to their shareholders, or will the demand subside after the pandemic subsides?
Remember, that there might be a number of micro-trends within each industry that you will need to unpack and think about. THis will help you draw a complete picture of the risks involved and the potential returns that each sector will have to offer in 2021 and beyond.
Don’t lose sight of the basics
Yes, a lot has changed since the pandemic hit – such events are called balck swan events, because of the scale and scope of change and disruptions they bring across continents. And yet, there is one thing that doesn’t change – the very basics, the foundations. As you sit to formulate a smart strategy for your portfolio, remember these very first principles:
- Balance risk with reward
- Don’t get carried away in the bull market,
- Buy value stocks at a discount rate in bear markets
- Focus on long-term returns
Also think about the foundational principles of macro and micro-economics that drive the markets everyday. While the pandemic might have given new insights into our economic behavior and our relationship with money in general, thinking about these first principles can help you answer new problems too. Think about how the first principles of supply and demand apply to a new digitizing global economy, and this might help you identify which companies are set to win in the next year. Stay ahead of the trends, and don’t lose sight of valuable opportunities that might come by this new year.
Also remember the power of information – today, you can access and process quality information about markets on your own, rather than having to rely on speculations and hearsay. Going forward into this new year, give a new direction to your financial portfolio by formulating a refreshed strategy that will work for tomorrow’s markets, not yesterday’s. Angel Broking wishes you the best on this new journey!