Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 408

Six lessons for investors in a crisis

Market uncertainty is not new. In fact, there have been 12 bear markets in the past 25 years. However, 2020 was a year when investors experienced almost the full range of market behaviour, from the fastest fall in recent history to the sharpest recovery on record.

S&P 500 and S&P/ASX200 Total Returns in 2020



Source: Morningstar Direct

With a bit of certainty now creeping back in, it’s a good time to review what lessons we can take out of the last 12 or so months to navigate future crises.

Here are my top six lessons for investors:

1. Averages don’t count

There’s a joke about averages, where a statistician has his head in the oven and his feet in the freezer and says, “On average, I feel fine.”

For investors, the average may feel fine, but the reality is pretty dire.

During times of extreme market stress, it’s easy to fall victim to behavioural biases such as loss aversion, anchoring or herd mentality. But this type of behaviour is almost always detrimental to long-term superior returns.

It’s one of the hardest parts of investing — especially at the extremes — but I believe investors need to find a way to play devil’s advocate with themselves. This means asking tough questions about why they are making certain investment decisions, and properly analysing both the opportunities and risks that the current market presents.

2. Balance discipline and flexibility

There is a fine line between being disciplined and being dogmatic. One of the keys to successful investing is reacting to changes faster than others in the market and not being static or inflexible. Unfortunately, it often seems that the more discipline people find, the more rigid they become.

It is critical to understand the data points that may appear to be conflicting during the most severe part of a market correction. As an active manager, I believe this is the most important period for adding value for our clients.

3. Cheap doesn’t mean safe

Valuations are always important but investors should not fall into the trap of thinking that 'cheap' means 'safe' during a crisis.

During a financial crisis, the lines between growth, value and other factors blur. What was once growth is now value and what was once cheap may now be heading for bankruptcy. As a quality investor, I certainly appreciate the fundamental argument of not overpaying for a future earnings stream, especially in a crisis. But it’s about quality for me, not cost. I focus on certainty of earnings and strong balance sheets.

4. Use the 'sleeping' test

A good rule of thumb for investors is that if a stock is keeping you awake at night, sell it — or at least sell it down to a level where you can sleep.

One of the best ways to ensure a good night’s sleep during a crisis is to invest in companies with quality and experienced management teams. This experience will stand them in good stead during the crisis, and management teams that know how to compound capital in tough times are more likely to prosper.

5. Start with 'what could go wrong'

The first step in investing is to avoid mistakes. That may sound pretty obvious, but it’s actually more complicated — and harder — than one might think. Before making any investment decisions, investors need to think carefully about what could go wrong with a company and then go from there.

If you don’t own it, you can’t lose money on it. As another favourite saying goes: 'I don’t have to fish in every pond, just the ones that have fish in them.'

6. It’s the things we love that ruin us

Investors often find that buying stocks is easy. It’s selling them when the trouble starts. Investors that focus almost entirely on the purchase price and then base their investment decisions on trying to sell at a higher price, are falling prey to 'anchoring' and are failing to assess a stock on its true merits in the current market, which is constantly changing. Price matters, but it’s not the only thing that matters.

Alignment of interest

I think that 2020 was the ultimate test for many investors. Volatile markets and an uncertain economic outlook in the wake of Covid-19 led to a lot of investor angst. But overarching these top six lessons is one source of truth for all investors: only invest with a manager that eats their own cooking.

A fund manager’s job is to compound each investor’s money, and it is important that the manager and the investor have aligned interests. For more certain investment outcomes, I believe it’s crucial to invest with fund managers who have a majority of their net worth invested into the same investment options that they offer for their clients.

Why? I find this focus automatically changes investment management behaviour. It changes from simply beating a benchmark to producing real returns. It ensures the investment manager is serious about adapting and evolving to different market conditions.

A focus on quality, combined with an adaptive process that avoids being too dogmatic about what has worked in the past, is the key to compounding capital over the long run. In my view, a focus on the forward nature of quality, purchased at suitable prices, is the best defence over time.

No one wants to overpay for assets, so in that sense, we are all value investors. It is just that some of us are more dogmatic about it than others.

Rather than simply asking 'what is the price?', the real question should be 'what am I getting for the price I’m paying?'. On this basis, I believe there are still good opportunities for investors in the current market.

 

Rajiv Jain is Chairman and Chief Investment Officer of GQG Partners. This article contains general information only, does not contain any personal advice and does not consider any prospective investor’s objectives, financial situation or needs.

 

RELATED ARTICLES

Crisis, contagion or QE? The bigger picture

If you are new to investing, avoid these 10 common mistakes

13 of the best: reflections from an investor

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Investment strategies

Finding income in an income-starved world

With term deposit rates falling, bonds holding up but with risks attached, and stocks yielding comparatively paltry sums, finding decent income is becoming harder. Here’s a guide to the best places to hunt for yield.

Economy

Fearful politicians put finances at risk

A tearful Treasury chief, a backbench rebellion, and crashing bonds. What just happened in the UK and why could Australia’s NDIS be headed for the same brutal fiscal reality?

Shares

Investing at market peaks: The surprising truth

Many investors are hesitant to buy into a market that feels like it’s already climbed too far, too fast. But what does nearly a century of market history suggest about investing at peaks?

Shares

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Investment strategies

Will stablecoins change the way we pay for things?

Stablecoins have been hyped as a gamechanger for the payments industry. But while they could find success in certain niches, a broader upheaval of Visa and Mastercard's payments dominance looks unlikely.

Infrastructure

An investing theme you can bet on for the next 30 years

Investors view infrastructure as a defensive asset class rather than one with compelling growth prospects. These five tailwinds for demand over the coming decades suggest that such a stance could be mistaken.

Investment strategies

A letter to my younger self: investing through today's chaos

We are trading through one of history's most confounding market environments. One day, financial headlines warn of doomsday scenarios. The next, they celebrate a new golden age. How can investors keep a clear head?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.