Posted on facebook and Linked – 3/12/2020
If you have any interest/concern about your investments or the markets, I strongly urge you to allocate JUST 5-6 minutes to read this. Feel free to share, if so inclined, you may help someone. ￼
This is not a commercial, and my goal is simple: to create at least a slight peace of mind.
I am quite reluctant to offer unsolicited financial advice, especially on an open forum such as this. After what I saw this week in the financial media, I am making this one-time exception.
In 24 years as a wealth manager, and through numerous recessions, crashes, “Black-Swan” events, never have I witnessed the intensity of the news cycle and velocity of information and abject fear – created by the media and exacerbated on social media – that has pummeled us during the last several weeks.
I am afraid that the lasting effect of the Corona virus will be NOT necessarily those who suffered and died, but the catastrophic damage to numerous industries, including millions of small business, and the colossal loss of capital, much of it due to panic selling of stock, and which will not be repurchased until the market has moved way up again.
It has been said that history never repeats itself, man (woman) does. However, it is amazing how predictably irrational we humans are and there are certain things we cannot predict, but there are others that we are spot on, near 100% of the time.
As reliable as gravity, one of those is that when times are bad, “experts” start downgrading and cutting estimates.
My clients know that I believe market forecasts are nothing more than entertainment and heeding such advice can do more harm than good.
Yesterday was no exception to that truth.
Yesterday, the “smart money” Goldman Sachs came out with a negative outlook, expecting the market to drop even more. This type of announcement, especially after high volatility and market losses, can influence investors to run to the sideline for safety (aka raise cash, lighten up on stocks).
But we just don’t know what will happen. At times like these, putting things in perspective is essential.
Do you know what Goldman said just two months ago? They were “moderately pro-risk…with an overweight in equities and an underweight in bonds.” They also said “sharp increases in oil prices might weigh on risk appetite.”
In much of 2019 they were upgrading their forecasts on the percentage chance of recession.
It’s all nonsense!
HERE ARE FACTS:
On March 3, 2020 billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world – and the cash flows it will produce in the future – is worth 13% less today than it was on February 19.”
How much more true this observation must be a week later, when it is down over 20%.
As of this morning’s current level of 2,600, the S&P 500 is down over 20% from its all-time high, recorded on February 19, 2020. Declines of that magnitude are fairly common–in fact, the average annual drawdown from a peak to a trough since 1980 is close to 14%.* But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.
As we all know by now, the precipitants of this:
(a) the outbreak of a new strain of virus, Coronavirus (Covid19), the extent of which can’t be predicted,
(b) the economic impact of that outbreak, which is similarly unknown, and
(c) most recently, the onset of a price war in oil between the Russians and Saudis. Interestingly, this is a problem for everyone involved in the production of oil, but good news to us, who consume it.
The common denominator: unknowability.
We have no control over the uncertainty, BUT we can and should have perfect control over how we respond to it. Or, ideally, how we don’t respond. We remember that the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is – you guessed it again – sell.
Give some thought to beginning to put cash to work in solid investments
Now, we breathe, stay calm, focus on what we have within our control, and this too shall pass.