The COVID-19 crisis has been devastating in many ways. In addition to the human toll, there is of course a big economic impact from having everyone stuck at home for months at a time. We will leave the science, vaccine and health debate to the experts. After all, this is a financial column. So, let’s see what investors can learn from the current stock market, economic and financial fallout from the crisis.

You can’t time the market

Really. You can’t. If investors take away anything from the crisis, it should be this: You can’t time the market. Now, most market experts have been telling you this for years, but if you don’t believe it now, you never will. In March, as the severity of the crisis became clear, markets plunged. Everyone — and we mean everyone — expected a very weak stock market, as businesses closed and consumers stayed home in droves. Entire industries such as travel were decimated. How could the market do well in such a time? Investors en masse “went to cash” and prepared for a long market disaster and weak investment returns. Then … there was a giant rally. The market is pretty good at making all the “experts” look like fools. Don’t try to pre-guess what it might do.

Greed will exist, always, in any market

A lot of discussion has occurred recently around market FOMO, the fear of missing out. Stocks like Nikola Corp. (NKLA on Nasdaq) have soared; Nikola hit US$26 billion in market value, even though it has no sales and no electric trucks on the road. Tiny vaccine companies of course have also soared, as investors threw money at anything that might do well in a COVID world. Then, when the lockdown started to ease, airline and cruise company stocks took up the slack, with many doubling in a couple of weeks, even though most are highly leveraged and might not even survive a second wave or lockdown. Despite the market, greed always raises its ugly head. Be careful out there; don’t forget your due diligence.

Any stock, even a ‘blue chip’ can go down

Whenever we hear an investor say something like, “That stock is very safe,” we like to remind them of our rule: any stock, any time, can decline, a lot. Even the largest, bluest of blue chips can go down. As an investor, you should never, ever expect a stock to be immune to decline. When an investor has a big position in a company, we ask them how they would feel if the stock quickly dropped 50 per cent. ‘Ah, it could never do that, they say’. But it can. And they do. Things happen, companies can experience problems, and yes, even fraud. Pity the poor investors in Wirecard in Germany. Two months ago, Wirecard was a US$30 billion, fast-growing company, a model of high-tech growth in the country. Shares were the equivalent of US$152. Today, they are US$3, and the company has filed for insolvency, after two billion euros went missing. Not so “blue chip” anymore.

Investors still don’t think

This can be tied in a bit to the greed comment above, but in some areas of the market it is very clear that investors are not putting much thought into things, either. The absolute best example in the crisis is Hertz Global Holdings (HTZ on NYSE). Hertz is bankrupt. It has filed the regulatory papers as such. Everyone knows this. But then, due to somehow overwhelming investor demand for its stock, it decided to sell new shares, up to US$1 billion worth. The deal looked like it would be an easy sell. It didn’t matter that the company warned more than 12 times in the prospectus that, “the shares are likely worthless.” It mattered not. Investors wanted in on the action. The SEC, knowing that sometimes investors are their own worst enemy, had to put a stop to the share sale. This one just makes me shake my head. The whole idea of investment should be to make money, not buy securities that are already labelled “worthless.”

Stocks can keep going up, even when you think they are expensive

If we go back to March, investors were looking around for stocks that might actually do well in a COVID world. E-commerce companies, stay-at-home tech stocks, and tele-medicine were big themes as investors looked for something — anything — that might go up to offset the giant losses they were experiencing in the market. Many of these traded in March at ridiculous valuations. And guess what? They just kept going higher. Companies such as Shopify, Zoom, Docusign, Teledoc and Spotify surged as investors looked for some “at home” plays, and then more or less just kept on going. Frustrated investors have sold a stock such as Zoom at US$150 a share, considering it overpriced at the time, to only then see it go to US$258 just a few weeks later. The lesson here: In a slow growth world, investors will pay up — and keep paying up — for those companies that can achieve outsized growth while everyone else is faltering.

Peter Hodson, CFA, is Founder and Head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals.