Panic is not an investment strategy that works. The nice part about the market is that we have an incredible amount of data on historical events and how the markets have responded. Our current situation is no different. Since February, the markets have dropped around 30%. A bear market is when the markets are down 20% from their highs. Normally it takes a great deal of time to get to a bear market. This one is different in that it has happened with great speed – less than a month.
The last bear market that we went through also happened quite quickly, the financial crisis of 2008. During that time, we saw a 70% decline in new housing starts; a 50% decline in auto sales, and corporate profits falling almost 50%. It was a pretty grim time. Fast forward some 36 months from the decline and we saw a 100% increase in stock market values. While it seemed like the end was near and company after company was going under, patient investors eventually came out ahead.
In 1957-58 there was an “Asian Flu” epidemic that took the market down 20% in just four months; fast, but not as fast as what we are currently seeing. Twelve months after that, the market went up 36% and 21 months later it was up 65%.
The news throughout this COVID-19 crisis is not good. Keep in mind it is also being magnified by our ever-present news sources and echo chambers. We see the same story repeated day after day, with commentators trying to make it interesting with more and more colorful language. How could this not induce a panic?
Our country is working very hard every day to manage this crisis to ultimately create a solution. These efforts are very fluid and are changing day to day. Some will be successful, some will not. Ultimately, we are all looking to bring this country back and it will happen.
As horrible as this market looks, there are always opportunities that show up in a volatile market like this one. Clearly timing the market from day to day is quite foolhardy, as any comment from an official or country leader can impact the market direction. Yet, rebalancing portfolios back to base risk levels will position portfolios to take advantage of the recovery, when that happens.
For the next week or so, there will be an immense desire to interpret small data points that are put out to help predict the short-term movements of the market. The government is putting together a package to infuse liquidity into the system. All of this is to calm fears and restore equilibrium back to the economy.
Panic never lasts forever and as this virus runs its course through time, we will start to see a recovery taking hold. The market will be in a much better place 12 months, 24 month, and 36 months from now. Your portfolios should be well positioned for that eventuality.
Our offices are open and will continue to be open. If you have questions or concerns, don’t hesitate to reach out, or even stop by. We will welcome you with open arms, but with social distancing. 😊