I hope you and your loved ones are well and safe. As I sit here, self-quarantined and social distancing, I have been reflecting, reading and processing all the things that are going on around us. A lot of “noise” in the news leads to overload and confusion. I thought it beneficial to share my perspective as a long-term investor and give the guidance I am providing for my clients.
“In the business world, the rearview mirror is always clearer than the windshield.” - Warren Buffet.
The U.S. stock market recently experienced the fastest correction of its 52-week high, and the Dow Jones Industrial Average just dipped below 20,000 – a level not seen since early 2017. While most every asset class rose over the last few years, in recent days, most every asset class fell. People are getting sick, lives are being disrupted, corporate earnings are suffering, and uncertainty hangs over us like a dark cloud.
However, there are 3 things we need to ask ourselves:
If your perspective is like mine, the answers probably look something like this:
Here are the key takeaways that I am imploring you to consider for your long-term investing strategy
2008 was a different story. We had structural issues in our banking systems and the underlying economy. Individuals were over leveraged, banks were over leveraged, and the economy imploded. The rebound took about 18 months.
The Covid-19 pandemic is more event and fear driven, like 9/11, with potential future long-term economic consequences, like 2008, if this continues into a multiple month’s shutdown. Like those two events, there will be a rebound. Some business will be impacted greatly, some may go out of business. However, if we can identify businesses with good balance sheets, cashflow, and business models that will persevere after this is over, that is where we want to be.
So, if we believe that this is a major short-term blip, than as long-term investors, what companies and investments do we want to own coming out of this pandemic? What do we feel we can capitalize on in the long term that will help us feel that we have made secure financial decisions (and a plan) to succeed? This is where people who are chasing Regeneron, Zoom, and Gilead may be missing the big picture.
For one, over a 20-year period ending in 2017, an investor would have had a 9.85% annualized return from being invested in the stock market. Simply missing the 10 best trading days over this period of time would have reduced your return by 50%! In addition, six of the 10 best trading days occurred within two weeks of the 10 worst days of panic. Trying to perfectly time the markets is just about impossible.
Congress will be coming to a deal. We are in an election year and the following comments are meant to be factual and not political. Democrats want to win and they feel they have President Trump in a corner. They want to come out of this looking like the victor, drum up their base, and win over the middle. The government has the tools to jumpstart the economy. President Trump and the republicans want the White House and his approval ratings are down. Something will seemingly get done.
The Federal Reserve has been using its powers to create stimulus. Fed Chairman Jerome Powell has reacted faster than the Fed of 2008 to keep the stimulus going by dropping rates and injecting cash into the economy by buying bonds (aka quantitative easing). That hasn’t worked…..yet. Our markets do not like uncertainty. We still have uncertainty as we wait for Congressional action and for insight on how long the virus will keep us shut down. Once we have a better idea of both, you will see the positive reaction of the Fed’s measures.
Additionally, a small study from France shows promise with the mix of two already approved drugs: hydroxychloroquine and azithromycin (Z-Pack). Looking from a perspective of being hopeful, this testing will start in New York on Tuesday the 24th. As you can see in the chart below, although a small study, the recuperation time is affected dramatically with this cocktail. We need more data, but this could provide us with the promise of coming out of quarantine.
What if the narrative was different? What if our political leaders acknowledged that this pandemic was real, testing was made readily available, and people felt more confident of what the contagion rate is? What if the stimulus bill is passed, helping small businesses stay in business and workers keep their homes and put food on their table? What if the promise of the economy coming back was the headline? Where would the mindset of the nation, the news, and the narrative be? How would the markets react to that?
If you are looking for your gut check, please consider booking a call: grwealthplan.com/contact.
If we all had a way-back machine, or a crystal ball, all of this would be easy. We don’t. For those who are quarantined and have the opportunity, use it wisely. Spend time with the ones you love. Enrich yourselves by learning something new or reading. Take a walk, go on a bike ride, manage your diet. Binge watch something you have been hearing about for weeks, months, years that you haven’t had the time to enjoy. We as a society adapt quickly. Here are some virtual offerings you can enjoy in addition to the above prescribed:
We often are faced with times of challenge and sacrifice. Life seems to be but a series of tests and challenges. It is how we act during these times that show our true character. We as a nation have always persevered, and we will again. I thank you for your trust and friendship in these trying times and always know that I am here taking your best interests into consideration every step of the way!
Robert J. Mascia, CFBS, CEO