Coronavirus Volatility – Our Process
A Message from Allie & Steve
We are certainly in un-charted territory with the Coronavirus, but not un-charted when it comes to market declines. To give you some perspective, markets have moved into Bear Market territory (defined as greater than 20% down) 33 times since 1900. Through this we remain poised and focused on our investment process. As a part of that process, we have been purchasing a small amount of stocks as the market has moved down to take advantage of cheaper prices.
This doesn’t change the fact that this market has moved historically fast to the downside and has created some fear and increased emotion along the way. A couple of things to remember: the velocity of the current decline is unsustainable. The major indexes are down approximately 25% as of today. We are confident that markets will eventually settle down as the market looks past the virus and anticipates the eventual recovery.
At this point, we look to precedent, and when we look back to the worst financial decline in modern history (2008) we learned a couple things. First, 50% declines happen, but more importantly is that markets will recover. It will take time, but we will recover. There has never been a point in history where selling into this type of market has been the right thing to do over the long run. We talk a lot about future cash needs, having things available when you need liquidity, and diversification for exactly these types of moments. We’re not sure what will happen over the short-term but over the long-run we are confident we will get through this market environment and go on to set new highs. It’s just a matter of how long.
Your portfolio and our process is not built to avoid these situations, but rather to navigate them and we are doing just that. Additionally, as we mentioned, we are taking advantage of these moves and finding opportunities to purchase stocks on the way down and recognizing losses in non-retirement accounts to offset future gains that most certainly will re-emerge with time.
Remember when markets turn up, they tend to move at astonishing speeds. The concern with moving out of the market to avoid the next leg down is trying to get back in before it reverses course; even the best money managers aren’t able to do this consistently. Markets generally create bottoms when it feels the absolute worst and it doesn’t look like there is any way the market will move higher. These moments are difficult to navigate but we encourage you to use history as a guide and stay invested.
We have added a chart below that looks at market returns over time and the significant change when an investor misses just the best 5 days in a 20 year period. (to view a larger image of the chart, please right click the image and select ‘view in browser’)
We are certainly engaged right now and have had very meaningful conversations with clients. While we understand the emotions that can be stoked during volatile events like this, we are proud to serve our clients meaningfully.
Keep an eye out for our latest video: Perspective, Process, and Poise.
Sincerely,
Allie & Steve
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through HD Wealth Strategies, a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
