5 lessons from 5 years of COVID

Dating the start of the COVID pandemic is imprecise, but we are at the five-year anniversary of the World Health Organisation’s confirmation of human-to-human transmission of the virus. In a perfect illustration of the stock market’s ability to get there first, it was also a low point for shares. The MSCI World index had fallen by a third since the middle of January. 

We didn’t know it, but the ‘stay at home’ order was a historic buy signal for investors.

Things look a lot neater with the benefit of hindsight than they did at the time. It was not until December 2020 that the UK became the first country in the West to give temporary regulatory approval to a COVID vaccine. 

From the publication of the first genetic sequence of the virus in January, it had taken only 11 months to develop and approve the first jab. That may be a short period of time in pharmaceutical terms, but it felt like an eternity for investors attempting to judge where next for the global economy.

Looking back at the early days of the pandemic and the five years since, there are a few things we can learn from an investment perspective. Here are five:

The first is the scale of opportunity that Mr Market periodically offers up to contrarian investors. If you had invested five years ago, as we started to become aware of the virus, you would have quickly lost 33% of the value of a global stock market investment by the low point. 

But anyone who sensed correctly in March that the market had over-reacted to COVID had the chance to more than double their money in less than five years.

$100 invested in the global stock market index in late March 2020 is worth more than double today. To achieve this, however, would have required perfect timing. The opportunity did not last long. It took only until the middle of August for the MSCI World index to regain its January level. The hardest thing about market timing is less knowing when to get out and more having the courage to get back in again before the moment has passed.

The second lesson is that time is a great healer for investors. If you had invested in that global stock market benchmark five years ago and then slept through the pandemic and its aftermath you would wake up today with an investment worth 54% more than you started with. Since January 2020, only China and government bonds have lost you money.

An investment in the US stock market has doubled even if you had the misfortune to have put all your money to work just as news was emerging of the first infections in China and Italy. The S&P 500 index is 92% up over five years, Nasdaq is 106% higher and Japan’s Nikkei has risen by 81%.

Third, the pandemic shows just how difficult it is to pick sustainable stock market winners. Looking back at the performance of a selection of individual shares, it is obvious how easy it would have been to get it wrong. Either to pick the wrong shares or to pick the right ones at the wrong time.

As we went into lockdown, the share prices of apparent stay at home beneficiaries soared. Exercise bike maker Peloton (NASDAQ: PTON) rose five-fold in 2020, but it was back where it started by the end of 2021 and is today worth a third of what it was five years ago. In share price terms, Zoom (NASDAQ: ZM) has made its shareholders precisely nothing since January 2020. Moderna (NASDAQ: MRNA)’s shares are up 73% over five years. But at their peak, they had risen more than 20-fold.

These stocks were flashes in the pan. Others went the other way in the early stages of the pandemic and, while some have recovered from their lows, others have not. British Airways owner International Consolidated Airlines Group (LON: IAG) lost 80% of its value while its planes sat idly in the desert. It has since trebled in value as tourism has recovered. But British Land (LON: BLND), which owns the Broadgate office estate in the City of London, is still worth 40% less than it was five years ago as workers have stubbornly ignored their employers’ encouragement to come back to the office.

The fourth lesson from COVID is that diversification can help - a bit. The traditional way of balancing a portfolio - with a mixture of shares and bonds - has not worked well. In the four of the past five years in which shares have performed strongly, bonds have simply watered down your equity returns. In the one year - 2022 - when they were really needed to offset a falling stock market, bonds followed shares lower. However, geographic diversification has been helpful at times. When the market corrected in 2022, the FTSE 100’s high single-digit gain partially offset Wall Street’s double-digit tumble.

Finally, the last five years have shown how, in volatile markets, investing steadily can significantly enhance your returns. Had you invested $1,200 in one lump sum five years ago you would have had $1,376 12 months later, or a 15% return. 

If, however, you had dripped that money into the market in 12 equal monthly instalments over the first year of the pandemic, you would instead have ended up with $1,452, a 21% gain. 

Regular investing doesn’t pay off in a steadily rising market but when things go awry it can improve your performance and, perhaps most importantly, keep you in the game for when better times return.

Tom Stevenson is an investment director at Fidelity International. The views are his own.