Rule #1 Finance Blog

With Investor Phil Town

How to Invest During a Pandemic: COVID-19 and the Stock Market

The world has never before seen a pandemic like the one we are experiencing right now. During this time there is extreme uncertainty around both the future of the economy as a whole and personal financial situations, but what if I told you that you could learn how to invest during a pandemic—or any market condition—and thrive?

I know you all have a lot of questions about how this Coronavirus is going to impact the market. If you aren’t sure what to make of the ups and downs of the stock market, and you’re even more unsure of where the economy is headed, listen up. I want to help you understand what this event means for the market and how to take advantage of it.

From an investing perspective, it’s good news!

A stock market crash is an opportunity for Rule #1 investors to make incredible investment decisions. If you learn the basic Rule #1 strategies, you’ll know what to do when the stock market dips or dives and, ultimately, be able to come out on top.

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It’s worth saying, before we dive in, that you should always apply Rule #1 principles in investing, even with options – because if you wouldn’t want to own a company for 10 years, you shouldn’t own it for 10 minutes.

This blog is meant only for education and entertainment purposes. Nothing I discuss here is my advice or recommendation.

With that out of the way, let’s get started.

How COVID-19 is Impacting the Market

There’s no doubt about it, COVID-19 has already wreaked havoc on the world and will continue to do so for a while. It not only affects our health and way of life, but also the economy and the stock market.

Experts in investing, like myself, business analysts, and everyday investors like you have been talking about a potential stock market crash for a while. The market is cyclical, riding ups and downs, and after years of experiencing growth, a crash seemed imminent.

Well, it’s here. While we certainly couldn’t predict this Coronavirus, after a record 10-year high, we knew that a stock market crash was inevitable. In fact, at the beginning of the year, I share my thoughts about the probability of a recession in 2020.



The market dropped around 30% initially and has been pretty volatile ever since. What does this mean?

As the pandemic hit, businesses closed and unemployment soared causing fear, which in turn caused a major exit. People sold stock and prices fell across the board. Then, as the government made decisions to help stimulate and bolster the economy, the market rebounded.

So, where are we now?

We are already in a global recession and are headed for a deeper recession or even depression. As the massive impact of the pandemic plays out, we will likely experience another big drop in the stock market.

While I don’t know when the next drop will be or how long it will last, I do know that it will correct itself in the long run. Historically, it always does.

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The question is: do you know what to do with your money in the meantime?

The time to learn is now. Here’s how to invest during a pandemic like the one we’re experiencing right now so you can thank yourself later.

Step 1: Get into Cash

When the next drop happens, you need to be ready to buy.

If you are invested in the market now, it could be a good idea to sell before prices drop, so you can:

  1. Have cash on hand
  2. Get the best price

If you aren’t invested in the market yet, collect cash from your savings account or other liquid assets.

If you get into cash now, you’ll be ready when the stock market goes down again. After the next big dip, prices won’t stay low forever, so it’s important to act quickly. This is the best opportunity to invest in the past 10 years, so you don’t want to miss it, and if you don’t have funds available to invest, you will.

Step 2: Educate Yourself on How COVID-19 will Impact Industries

The pandemic is a Rule #1 Event – meaning it will impact every corner of the stock market.

Some companies that go down in price will drop by no fault of their own, but rather because fear has driven people out of the market and sent prices plummeting.

It’s important to understand that the event will affect industries differently. Some companies are actually seeing a bounty of business, such as businesses that sell food, medical equipment, and cleaning supplies. While other companies will experience deep ongoing losses that, in worst-case scenarios, will be terminal.

Consider the travel and grocery industries, for example. Demand in one has ceased completely while demand in the other has soared.



When I look at companies to potentially invest in, I am looking for companies that won’t be affected in a terminal way. Even more importantly, I am looking for companies in industries I understand.

You need to think about how COVID-19 will impact the global economy as a whole, but also how it will impact the businesses you’re eyeing. In order to do that, you need to understand the potential impact on the business’s industry.

I call this the “circle of competence”. Only invest in companies and industries that fall within your circle of competence. In order for a company to be in your circle of competence, you should be able to understand the business well enough that you could confidently serve as its CEO.

Step 3: Get Your Watchlist of Companies Ready

Once you’ve narrowed down the industries that fall within your circle of competence, it’s time to hone in on specific companies within those industries that you want to invest in. Keep in mind, you should want to own this company for a minimum of 10 years.

When making your watchlist, make sure the company meets the 4M’s of Rule #1 investing:

  1. Meaning: The business has meaning to you and you understand the value it offers.
  2. Moat: The business has an impenetrable advantage over the competition.
  3. Management: The business is led by people with competence and integrity.
  4. Margin of Safety: You can buy the business at a price that all but guarantees a 15% annual return over the next ten year period.

If a company meets these criteria, it is a wonderful business and worthy of being on your watchlist. For more tips on how to pick companies for your watchlist, check out this complete guide for finding stocks in 2020.

Once you have your list ready, its time to keep a careful eye on your chosen companies and wait for the right time to buy.

With the current state of the stock market, a lot of stocks will be essentially “on-sale”, making it a great time to buy.

Think about it like this: if a pair of shoes you were eyeing dropped in price by 20, 30, or even 40%, you would be ecstatic.

Similarly, a great company you want to own may have been priced higher than what you were willing to pay for it before, but now may be priced at 20, 30, or even 40% below its market value. It’s on sale!

If you were waiting to own it, you’ll soon get your chance, so be ready!

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Step 4: Buy Wonderful Companies That Will Overcome the Crash

You don’t want to buy just any company because it’s “on-sale”. Rule #1 Investors know to only invest in wonderful companies, which is more important now than ever.

Will the business you are buying overcome the crash?

There are a lot of industries that won’t recover from this pandemic and companies that can’t come back because of it. For example, some clothing retailers may never reopen, and even though the airline industry will carry on, it may be impacted in a permanent way; people may choose to meet over video conferencing rather than travel for work, or opt for domestic trips over international ones.

However, there are also plenty of businesses that will not only survive, but thrive. Here are a few key indicators that signal whether or not a business will overcome the crash:

  • High Demand: Grocery stores, delivery companies, postal services, and cleaning supply companies are not only essential, but experiencing high demand and will likely be positively impacted by the pandemic.
  • Price Control: Big name Retailers like Amazon, Costco, and Walmart have enormous edges in the market because they are not only in high demand, but also can raise prices with inflation.
  • Tangible Necessities: Consider the things we will always need that will remain valuable like energy, solar power, food, etc.
  • Small Luxuries: Back in the 1920s, movie theater business soared as folks wanted to maintain a semblance of normalcy. Similarly, inexpensive or “small” luxuries could benefit from this crisis.

Learn More About How to Invest During a Pandemic

We are living in an unprecedented and uncertain time. As we look into the fog of the future, the best thing you can do as an investor is to follow these steps and be prepared to buy when the time is right.

If you’re curious about Rule #1 Investing and want to deep dive into these principles, join me for a Live Virtual Workshop.

I’ll focus especially on how to invest during a pandemic and help you learn how to master the market from your home. Hope to see you there!

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Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.