Broker Check

Is The Sky Really Falling or What Do I Do Now

February 29, 2020

Obviously, this is the type of week and global market action that the media loves (if it bleeds it leads) and tends to bring the pundits out of the woodwork as various talking heads and the public look for some sort of explanation and forecast of the future. If you are breathing and have an I.Q. above room temperature you already know the media is going to sensationalize this. You also know that Wall Street is going to present themselves as all knowing and the ones who can provide the nostrums for what ails us financially. Such is life.

The reality is the future is unknown and not predictable. If it were, life would be boring and I'd be among the super wealthy. Could anyone have predicted the coronavirus? Of course not, despite the chorus from the other side of the aisle (no question if it were someone from the current opposition party in the White House we'd hear the same thing from their opponents. So what else is new?). The fact remains, as I have oft repeated ad nauseum that the only thing that moves markets -- dramatically --  is what is not known or expected. If it were, it would already be incorporated into today's price. And, as FDR told the country soon after his election, "the only thing we have to fear is fear itself." Good advice that still holds.

While the upward trend of the markets has been going on for around ten years with nary a substantial correction, much less the occurrence of a bear market (defined as a decline of 20% or more), at some point in time some reality was long overdue to set in. The coronavirus was merely the spark that lit the fuse. The markets have been waiting for something like this to occur for quite awhile and so here we are.

It's not like we haven't been here before -- for those with a long enough history of investing and memories to match. The bear market and housing bubble of 2008 was no pleasure cruise and yet, here we are ten years later with our portfolios worth considerably more. The bubble, bear market of 2000 - 2002 was somewhat less than a pleasurable experience and yet shortly thereafter the markets took off to higher levels. Market volatility (fluctuations -- including downside fluctuations) is the price to be paid for the long-term substantial returns that equities (stocks) deliver. So, if you want those returns in your portfolios and 401K's, you'll have to live with the angst that downside volatility brings. This is the nature of the beast.

Now for the reality: as I have provided before at other bad times in the markets, useful advice from some of the most successful investors in history is worth remembering:

"If you like to eat steak you live for those times when meat goes on sale!" -- Warren Buffet

"I like to buy 'sheep' (cheap) and sell 'deer' (dear)." Baron Rothschild

"Buy when there's blood running in the street."  J Paul Getty

"Sometimes you have to look really dumb in the short term (by buying when others are selling) to look brilliant in the long term"  Sir John Templeton

So what should investors be doing:

1. Turn off the media. No useful information for investing will be provided and all it will do is drive up your stress

2. Ignore the pundits. How many were telling you just before this last Monday to sell or get out of the market? If they
    really knew, why would they be giving away this information for free? If you knew, would you? They don't know
    any more than you do!

3. Enjoy life. The sun still comes up every morning in the east and sets each night in the west. Have a sense of
    proportion about what is really important in life and to you.

4. THIS IS MOST IMPORTANT: If you've properly diversified and rebalanced systematically what is going on now
    and perhaps for who knows how long or how deep, in the long-term (as can be seen on any historical chart of
    the equity markets) is merely a bump in the road for long-term/lifelong investors. In other words, do nothing
    differently than you've been doing up till now.

    If you have not done the foregoing, then I'd suggest you treat this occurrence as part of your masters degree in
    investment finance and learn from it so you do not repeat the same mistake(s) in the future. There is nothing
    wrong or immoral about making a mistake. It is criminal to repeat it!

OK, if I'm so smart, what am I doing with my own money (actually, more importantly it's my wife's money - I just get an allowance)? I plan to use this as an opportunity to buy in at lower prices than I could before, so I'll be sending in our retirement plan contributions plus some other cash for our trust account. The decline continues and I'll be putting more of our funds to work. Why?

1. Because it has always worked to my benefit before and I've been investing for decades and experienced
    multiple declining and even bear markets. This is nothing new or unusual.

2. I heed the advice of those who have been successful in all types of markets. See above from Buffet, Rothschild,
    Getty and Templeton.

What about the coronavirus? As someone who never got to know his maternal grandmother and aunt who died in the 1918 pandemic, I don't take or say this lightly, it is a tragedy for those who have contacted it and died from it, but it is not something we haven't seen and successfully treated in recent times. This too shall pass and life will go on and in terms of investing, it is of no long term, serious import.

Stay disciplined and stay the course!

Copyright (c) 2020
Frederick C Taylor
All Rights Reserved

Permission granted to share or distribute -- with attribution.