As we enter the third year of the pandemic, it might be just long enough to do a little reflection. In the spirit of seeking wisdom and reinforcing investing lessons, let’s do a quick retrospective of a few of the pandemic’s most-famous stocks.
One thing that became clear during the initial months of the 2020 lockdown was the appearance of truly novice investors. Some were very young and very green. But, plenty of them were middle-aged people in their pajamas with far too much time on their hands who should have known better. These so-called investors acted like moths to a flickering flame, seeking out one “meme” or “theme” stock after another.
The common thread in the infatuation with these types of stocks was the disregard for any semblance of value and investment analysis. While this type of investor behavior happens from time to time, the obvious reality of the stay-at-home trend exacerbated the sillines to a headline-grabbing level. It’s been so egregious it’ll no doubt present a library of lessons for future investors to reference for decades to come.
Among dozens of other stocks, important lessons can be learned from the stock price crashes felt by investors in companies such as Zoom, Peloton, Roku, Teladoc and the mutual fund most associated with the pandemic-fueled trade, ARK Innovation.
Zoom is arguably the poster child stock of the pandemic. Many millions downloaded it within a week or so of the lockdown. Almost two years later, I still use it incessantly in my business. It’s literally become an essential tool.
However, what was lost on novice investors was that holding video meetings was not something that only Zoom could do. The list of well-established competitors is a mile long. This business landscape was as obvious in the first days of the pandemic as it is now almost two years later. Still, Zoom’s stock price skyrocketed from about $60 per share before Covid to almost $600 per share just before the vaccine’s were made available. The stock became the proverbial ten-bagger in less than one year! Since then, plenty of wild-eyed investors have been left holding the bag. The stock has now plummeted about 75% from its peak a little over a year ago.
Teladoc Health is another example of allowing an industry-bending trend to lead you off the cliff as an investor. Telemedicine was on its way prior to the pandemic. During the pandemic, it became an unstoppable trend and life-changer for millions.
Investors noticed the obvious and drove the stock from about $80 per share at the start of the pandemic to around $300 per share within a year’s time. Nothing short of a lucky run in Las Vegas is quite as intoxicating as quadrupling your money in such quick fashion. Equally, having it round-trip back down to $80 only one year later is nauseating.
Having been in the business of investing for over two decades certainly gives me perspective along with increasingly large doses of humility. On both social and business grounds, what we’ve all witnessed over the past two years is as unprecedented as it is enlightening. But, perhaps most importantly, as living through the tech bubble in the late ‘90s did before it, this pandemic has once again reinforced in me the importance of fighting the allure of easy money and wild-eyed speculation. I suspect many new investors will reflect similarly. One can only hope.
Jason P. Tank, CFA, CFP® is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com