Most college students may not have any interest in the stock market, but the coronavirus presents a rare opportunity to start learning about how stocks can play a role in post-grad life. By understanding the stock market, you can evaluate companies’ viability for work, which will help you to avoid choosing a career in a renowned company that has the potential to go bankrupt six months after you get hired. Better yet, the stock market itself gives you opportunities to get partial ownership of your favorite companies with the benefit of extra income. But to understand how to participate in the stock market, you need to understand what the stock market is.
A stock market is a public market where people can buy and sell shares on the stock exchange. The price of a stock is determined between the suppliers’ and buyers’ willingness to pay for partial ownership of a business or company, otherwise known as a share. Many factors can affect traders’ decisions in whether they want to sell or buy their stocks, including interest rates, inflation, unemployment, economic growth, politics and natural or man-made disasters. One such example is how the coronavirus has been impacting the stock market enormously by disrupting supply chains among globally connected companies combined with a decrease in consumer spending. Specifically, Chinese companies have shut down factories, which means they will have trouble fulfilling the promise of importing U.S. goods.
A current market price analysis shows how severely the global financial markets are responding to the spread of the coronavirus. Since fear of the disease took over the market on Feb. 20, the S&P 500 dropped about 13 percent by market close on Feb. 28. The index had lost all its gains of 2020. Major indexes from the last week of February show that the S&P in the United States decreased by 11 percent, the Dow Jones Industrial Average in the United States decreased by 12 percent, the KOSPI in South Korea decreased by 8 percent, the Hang Seng Index in Hong Kong by 4 percent and Nikkei 225 in Japan decreased by 10 percent, showing how widespread the coronavirus’ effects have been on global markets.
How should college students respond to a volatile stock market like this? Well, unless you own stocks, you likely won’t see stock market changes affect you. If you’re looking to invest, however, you should think before acting. Stock beginners usually react too sensitively by making their decisions based on the newspaper headlines, which results in bad trades and lost money. Instead, like a smart investor, you shouldn’t react too much to the headlines. If you have trust in your company, and if you know the core value of that firm, keep your stock.
Statistics from past epidemics also suggest holding onto shares because of the positive stock market prospect in the near future. According to the Dow Jones Industrial Average, the S&P index rose 14.59 percent six months after SARS and 20.76 percent after 12 months. After six months of the MERS outbreak, the index rose 10.74 percent and after 12 months, it rose by 17.96 percent. When similar viruses broke out, such as Ebola and Zika, the market also fluctuated at first but then rose again as time went by. Because of this, it’s difficult to conclude that the current situation will affect the stock market negatively in the long run.
A smart investor might also have an interest in sectors that have continued to grow despite the slump, like the semiconductor sector. In the KOSPI, stock prices in travel, duty-free shops, airlines and cosmetics have plummeted, but despite the slowdown in these sectors, stock prices in the semiconductor industry continue to grow because the factories remain open.
Lastly, diversifying in stock sectors is another good response to this kind of financial event. Investing all of your cash into one company can be a risky choice to make. Despite the high-risk-for-high-return rule, investors are likely to get anxious as their stock values rapidly drop — especially with the coronavirus scare. Therefore, a mix of business sectors that are not affected will give investors some security against the market’s ups and downs since it’s less likely that all of your investments will go down.
However, before purchasing or selling shares, you need to fully consider the value and price of the firm itself. If the company’s earnings are steadily growing but the stock price went down just because of the coronavirus, it’s good timing to buy additional stocks for that firm. On the other hand, it’s not recommended that you make a decision to buy any stocks just because they are cheaper than their usual prices, coronavirus or not.
Epidemics are inevitable, especially as people live more closely together in modern society. Special circumstances come and go in the market, and you ought not to be too afraid about what’s happening right now — especially if you are planning for long-term investment. From this event, we once again can realize the importance of being aware of a wider context in the stock market. With this knowledge, new college-aged investors may have a chance to get higher yields on their investments — and a better appreciation for how the stock market responds to real-world events.
Yeryeong Kim is a junior majoring in business administration.