The COVID-19 pandemic had a mixed impact on investors’ portfolios. Some companies prospered while some suffered from the pandemic situation. Your investment gains and losses during the pandemic depends on the kind of stocks sitting in your portfolio. It is always a good practice to diversify your portfolio. You can diversify by owning shares of different sectors, some large-cap stocks, some mid-cap stocks, some dividend stocks, and some growth stocks.
Even a well-diversified portfolio can report losses in a market sell-off. For instance, Berkshire Hathaway’s investment portfolio lost US$54.5 billion in value in the first quarter because of the March stock market sell-off. Around US$5 billion of this loss came from the four U.S. airline stocks, which it later sold in April. The company must have probably recovered from most of this loss as the stock market has rallied since April. This shows that investors should not panic and let the market take its time to recover.
Shopify and Air Canada: The two extremes of the pandemic
The pandemic had opposite impacts on Shopify (TSX:SHOP)(NYSE:SHOP) and Air Canada (TSX:AC). The e-commerce platform Shopify gained, as the pandemic-driven lockdown shifted most people to online shopping. It saw a significant surge in demand for its services, which encouraged it to invest heavily in its ecosystem. The reverse was true for AC. The lockdown and travel ban reduced AC’s revenue by 85-90% and forced it to cut costs and reduce fleet size.
If you had invested $10,000 each in Shopify and AC at the start of the year, you would have lost around $8,500 on March 19. Instead of panicking and selling the stocks when the market was in a sell mode, had you held on to them, you would have earned $9,600 by now. The 150% gain from Shopify would have more than offset the 66% loss from AC.
The AC loss is unlikely to recover anytime soon, as its situation is not in its control. AC is banned from flying, which is equivalent to being prohibited from earning revenue. Until the government lifts the travel restrictions and travel demand returns, all it can do is cut costs to survive. While diversification can help you reduce the risk of decline, it is crucial to choose the right stock to build a robust portfolio.
How to build a robust portfolio this pandemic
The first step of investing is to buy stocks of companies that are around you, whose products you use. During the pandemic, shares of companies whose products/services you used rose the most. For instance, many people used Zoom Video Communications to talk to friends and colleagues, which drove its stock up 260% year to date (YTD). When building an investment portfolio, think of goods and services you would use for a very long time and invest in those stocks. For instance, buy Shopify if you will continue buying online, even when the pandemic cools.
Another good stock is Canadian Apartment Properties REIT (TSX:CAR.UN), as you’ll likely continue to live in an apartment and pay rent. The REIT has significant exposure to residential real estate in high-quality markets like Ontario. As people were locked in their homes, the REIT was unaffected by the pandemic. It collected 98% of rents in April and May.
However, the REIT might see a decline in demand soon, as the number of immigrants coming to Canada slows amid the travel restrictions. Canada’s residential rental market depends heavily on immigrants. The REIT has sufficient liquidity to withstand the crisis. However, as the travel situation normalizes and immigrants start coming to Canada once again, the REIT will return to revenue growth. Its stock has declined 7% YTD, and it is trading at its 2019 levels. The stock will recover with the economy. Until then, you can enjoy 2.86% in dividend yield.
What should investors do?
The pandemic has changed the economy. It is the right time to build a portfolio of quality stocks that have less leverage and robust revenue streams. Diversify your portfolio to mitigate the risk of decline. There is a possibility of another stock market crash due to the rising threat of the second wave of coronavirus and the looming recession. In the next market crash, buy Shopify and Canadian Apartment Properties REIT, as they have long-term growth potential.