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March 20, 2020 at 09:09 AM
Investors should remember that despite the turmoil in the markets, “we will get past this,” says David Kelly, the chief global strategist at J.P. Morgan Asset Management.
He’s referring, of course, to the roughly 30% decline in U.S. stock prices over the past three years. “2020 is the year of the virus; 2021 will be the year of recovery,” said Kelly during a recent webinar, noting that investors should prepare to weather the storm and take advantage of the rebound.
With that approach in mind, Kelly offered five key investing principles that stock investors should consider now:
1. Recognize that stocks are long-term investments. They may not have fully priced how low they will go yet, but they tend to overprice at the top and the bottom. “There’s no reason they can’t recover once we get past COVID-19,” said Kelly.
2. Recognize that the market has already derisked investors. A 60/40 portfolio going into the current downturn is now close to 53/47.
3. Look at valuation gaps. Valuation abnormalities that existed before the selloff still exist today. Value stocks are cheap relative to growth and cheaper at any time since 2001, and international stocks are still cheap relative to U.S. stocks.
