Investment results of 2020: new companies on the stock market, unpredictability, and records
Vadym Antsyferov, investor, co-founder & CEO of international companies GoMage and Sellbery
2020 was unique and unpredictable from different points of view, including in the context of the investment market. It was impossible to foresee the March collapse of the shares of so many companies. Sales, incredibly high risks - no one was able to understand what would happen next. Those who risked in time were mostly in a winning position because they "found the bottom." All they had to do was wait for fear and panic to turn into huge profits.
General market realities
The market rally (steady rise in prices) in 2020 happened in the midst of a disastrous pandemic. It has claimed more than 1.8 million lives in the past year, shut down many businesses, completely destroyed some, canceled mass travel, and damaged economies. At the same time, trillions of dollars were spent on saving the global economy (especially in the United States). This, along with ultra-low rates, fueled the insatiable appetites of greedy investors.
2020 has been a stellar year for the American stock market. But the opportunities that it opened were not applicable to everyone. To use them, one had to have more than just experience in investing. An important role was played by endurance and belief that the market would not only recover but also fix new highs.
Demonstrating market jumps is very simple. The Dow Jones Industrial Average stock index in March 2020 fell to 18,213.65 points, and the S&P 500 index to 2,191.86. The former closed the year with an indicator of 30.421.14 points, and the latter - of 3.756.07, respectively.
In 2020, there was a real boom in the IPO (initial public offering) market. According to Stock Analysis, as of December 30, 480 companies entered the US exchanges - last year there were only 233 of them, that is, half as many.
According to Bloomberg estimates, companies that have carried out IPOs raised nearly $ 180 billion in the US market. Here are some of the most successful examples:
- Snowflake, a cloud storage company, went public on September 15. The price for December 31 is $ 281.4, with an increase of 134.5%.
- Palantir, a data analytics software company for organizations, went public on September 30, priced at $ 23.55 as of December 31, with an increase of 214%.
- Airbnb (an online marketplace for renting private housing around the world), went public on December 9, the price on December 31 was $ 146.8, with an increase of 116%.
- DoorDash (an American food delivery service), went public on December 8, the price on December 31 - $ 142.75, with an increase of 40%.
- The stock market doesn't always reflect the economy
When the stock bottomed on March 23rd and began to rally, many investors were at a loss. The number of COVID-19 cases has skyrocketed. Restaurants, shops, and theaters have closed, and millions of Americans have lined up to apply for unemployment benefits. How could the market work so well when the world was crumbling?
The fact is that the stock market often begins to recover much earlier than the economy. During the financial crisis, American stocks fell on March 9, 2009. But, while the stock market began to go up after some time, seven years have passed for the unemployment rate to fall below the pre-crisis level.
In 2020, the situation is similar. The stocks have managed to rise to unprecedented records throughout the year. However, many American economists say they do not expect a full recovery of jobs lost during the COVID-19 pandemic until 2023.
- Forecasts are just forecasts and nothing more
For the past year, leading Wall Street strategists have forecast and identified the biggest risk in the markets - deteriorating trade relations between the US and China. But trading almost completely disappeared from the radars of many money management experts in early 2020. This topic quickly gave way to concerns about a pandemic and economic downturn.
According to The Wall Street Journal, experts also predicted modest earnings for the S&P 500. By March 2020, analysts at leading wealth management companies BMO Capital Markets and Oppenheimer Asset Management said they were revising their forecasts by the end of the year due to the current market situation. Others cut their targets after the spring sale, only to pick them up again after the summer rally. Investment Bank Goldman Sachs Group Inc. lowered its year-end numbers to 3,000 in March, then raised them to 3,600 in August and 3,700 in November. The index closed the year at 3756.07.
During a pandemic, no one can know how events will develop, so forecasts simply do not work.
- A year of tech giants and incredible discoveries
This is what The Wall Street Journal quite rightly calls this year.
In 2020 Tesla Inc. became the most valuable car manufacturer in the world. And Airbnb debuted on the public market with a score higher than Marriott International Inc., Hilton Worldwide Holdings Inc., and Hyatt Hotels Corp. put together.
Many tech companies have benefited disproportionately from the pandemic, which has forced people to spend more time at home and online. Just a couple of examples: Zoom Video Communications Inc. grew 396% in a year, which is about 24 times the profit of the S&P 500. And online retailer Etsy Inc. added 302%.
- Patience, patience again
Sometimes the best reaction to events is no reaction. Often new introductory, unforeseen realities, which this year were many times more than stability, make investors panic, go the wrong way and lose a lot. For example, starting in February, the shares of many companies could fall by 10-20% in a few days. Needless to say, if one of the most stable - the S&P 500 - in mid-March showed such a downward flight, which has not happened since October 1987 - the so-called "Black Monday". Having succumbed to panic that things will only get worse, investors began to sell shares much cheaper than they bought, thus going into a significant negative. But then these same stocks began to rise, sometimes even more rapidly than they fell.
2020 showed that in any situation it is important to be guided, on the one hand, by experience and knowledge, and, on the other, by flexibility and intuition. An experienced investor always has a plan, assesses risks, can stop on time, and react quickly. He can reasonably assess his portfolio - how many risks he currently bears and how to diversify them.
After such experiences and conclusions from last year, 2021 will push many to wake up and see things differently. And this applies to both the stock market and many other economic processes.