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.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

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. 

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.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

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.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

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.