Battle of the bounce back: Coronavirus investment recovery
What we could have done in March — and what it means for next steps.
It’s easy for any investor to get caught off guard during unprecedented times, but how you recover from downturns – and maybe even buy the dips – can affect you long term. When it comes to financial turbulence, investing cash on hand when the markets tank is a strategy older than Warren Buffet, though he arguably made the idea famous.
Hindsight is 20/20, so let’s dig into the largest five cryptocurrencies and blue chip stocks to see how bullish their recoveries were from the lows of last March to today. (Spoiler alert: Tesla’s massive 1,085% return isn’t the highest.)
Cash is king — and here’s where you could have spent it
Using market cap as the common thread among cryptocurrencies and blue chip stocks, we pull the top five from each respective category for an apples-to-apples-esque comparison. It’s not perfect; rather think of it as information you can use with discretion to move forward.
Top 5 blue chip stocks by market cap
- Apple: $2.19 trillion market cap
- Microsoft; $1.65 trillion market cap
- Amazon: $1.56 trillion market cap
- Alphabet: $1.2 trillion market cap
- Tesla: $769 billion market cap
Top 5 cryptocurrencies by market cap
- Bitcoin: $653 billion market cap
- Ethereum: $126 billion market cap
- XRP: $13 billion market cap
- Litecoin: $9 billion market cap
- Cardano: $9 billion market cap
Excludes Tether (USDT)
While Warren Buffet claimed in 2011 that his company keeps more than $20 billion in cash for financial turmoil, according to a letter to investors, it’s safe to say the rest of us don’t have that liquidity. For the sake of appealing to both small and large investors, let’s use $1,200 and $20,000 as our cash on hand, respectively.
The clear winning investment of the bunch would have been cryptocurrency, according to data from CoinMarketCap and Finviz.
- Cardano (ADA) comes in first with a massive 1,481% return
- Tesla pulls a close second with an ROI of 1,085%
- Microsoft comes in dead last with a still impressive 63% ROI
Your $1,200 investment could have netted you $1,960 with Microsoft or $18,971 with Cardano. Based on the same ROI, that $20,000 you invested could have returned $32,674 with Microsoft and a whopping $316,184 with Cardano.
The unprecedented times of 2020 were just that: unprecedented. But what you can do with this going forward depends on your ability to evaluate the risks and potential rewards. Stocks in this period were coming off a market-wide pullback, of which the major indexes have now recovered. The stocks mentioned in this article may well outperform the market again in 2021, but the huge gains posted from the pandemic low are highly unlikely.
Still, with blue chip stocks you own a piece of an established business with a track record of sales and growth, which can’t necessarily be said for cryptocurrencies. Digital, decentralized cryptocurrencies are harder to predict and to value because they are based on more abstract concepts. Cardano, only five years old and with a $9 billion market cap, might be viewed more like a small cap stock than a blue chip. This means higher risks and often more volatility — but potentially higher rewards. But keep in mind that Tesla’s stock price, or any stock, doesn’t have a guarantee tied to it and could crash just as fast as a cryptocurrency.
There’s a place for riskier assets in everyone’s investment portfolio; how big a place is an individual decision. How much you put into crypto depends on whether you think prices will keep rising — and how certain you are that you are correct. We’ve written a guide on blue chip stocks to help you learn about traditional stocks and a guide on cryptocurrencies to help you learn enough to understand the risk. Educating yourself now could help you be in a better position if, or when, the next unprecedented market event occurs.
Photo: Getty Images