This crisis is more emotionally unsettling than most if not all I have ever experienced because it is the first time we have had to confront two concurrent fears, each of which causes wide spread panic on their own:
- The partial or complete loss of our income;
- The existential threat of having to face our mortality or that of our loved ones.
Anxiety is running at among the highest levels I have ever seen in my 35 years counseling investors on making rational money decisions under conditions of uncertainty — meaning ALWAYS making such decisions, since certainty, as a condition does not exist anywhere in nature.
From a human suffering perspective — both physical in terms of illness itself, lost jobs, lost or diminished incomes, diminished living standards, etc… and emotional — it would be abnormal for any of us to not be concerned, even extremely so. From the perspective of the security of our wealth, it would also be unnatural to not be concerned.
Fusion’s role is not to counsel the suppression of emotions/fears during challenging times, but rather to counsel strongly against acting on such fears so as to alter the investment plan in reaction to news and current events in a way that would surely inflict PERMANENT harm on their wealth and even on their retirement. A plan should ONLY change if goals have changed and should NEVER change in reaction to actual or perceived crises.
Current Market Environment - A Contextual Framework
The stock market (S & P 500) declines about 15% per year, on average and about twice that amount (30%) one year in five or six. Wild speculation and investor extrapolation aside ( and both have been among the wildest I have ever seen), the fact is that all we have experienced to date is a 27% decline, which translates to a less-than-average, run-of-the-mill bear market. This is after not having one happen in close to 12 years. The S & P stands today almost exactly where it stood on January 2, 2019 (just over a year ago, following an uninterrupted run that began in March, 2009).
Prior to the recent panic-driven decline, the value of the S & P 500 companies (what it would cost to buy the businesses) was over $30 trillion or about 1.5 times the size of the $21 trillion US GDP (value of all goods and services produced in a year).
The 500 best managed, best financed and most profitable companies in the world are not — because they cannot be — inherently unstable. What is unstable is the market place and its participants who trade in it. As a result, prices of these companies decline irrationally in spite of the fact that their long-term enduring values will only continue to increase.
Contrary to what our investment culture believes, TEMPORARY price declines do not portend a clear and present danger to an investor’s portfolio. Rather, they represent a rare opportunity to buy these great companies at bargain basement prices. In fact, I have seen four major buying opportunities in my academic and professional life:
- 1973-1974 in the aftermath the “Nifty Fifty” bubble;
- 1982 following the deep recession caused by the Fed raising interest rates to quell the runaway inflation created in the 70s
- 1987 largest single day decline.
- 2008-2009 “great recession.”
Today’s opportunity represents the fifth best I have ever seen! Most will miss it as they sing the four word death song of the American investor, “ this time is different.”
The cynic knows the price of everything and the value of nothingOscar Wilde
We were likely in the fourth inning of this most powerful bull market just prior to this panic. I now believe that this bear market has set us up for the next major leg higher which will likely take us perhaps thousands of S & P points higher through the better part of this new decade.
Investors have been net sellers of stocks for the MAJORITY of the 11 years of this bull market. That selling hit record levels in 2019 which was the second best returning year in the greatest bull market in our lifetimes. In other words, when the economy and markets only gave investors something to cheer about, their presenting sentiment was abject terror. Now that we have a new crisis their fears grew exponentially greater!
While every crisis is in some way different than all others, every single one of them has something in common with all of the others — they have all passed away and THIS ONE WILL AS WELL!!!
As we self quarantine this weekend, may I suggest spending quality time with family having fun with board games, karaoke, card games and any of the great lost entertainment forms that we normally do not have time for.
Finally, remember that all successful investments are goal focused and planning driven, while all failed investments are market focused and performance driven. Successful investors are continuously ACTING on a plan while failed investors are continually REACTING to news, the markets and current events.
Have a wonderful weekend and remember that this too shall pass!
Bull markets are born on pessimism, they grow on skepticism, they mature on optimism and they die on euphoria.Sir John Templeton
This great bull market is still relatively young as we are not even close to optimism, never mind euphoria.