Weathering Impossible to Predict – But Inevitable – Market Shock
March 6, 2020
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett
Let’s not mince words. The coronavirus is real. It’s not social-media hype. It’s not a media overreaction. It’s a real problem, a real threat.
And as today’s always-in-your-face, 24-hour news cycle keeps reminding us, so much is still unknown. About the real rates of affliction. The actual means of transmission. And how big a health, economic and financial problem it might become.
But that – right there – is the key point to remember. So much is unknown. And when it comes to your investments, the biggest risk is making important decisions when you don’t have the needed information. After all, we’re not high-stakes traders. We’re not speculators. We’re investors. With real goals. And with carefully developed, personally tailored plans to help you achieve them.
Maybe it’s a fully funded education for your kids. Or a comfortable retirement for you and your spouse (with those special plans to make those “Golden Years” truly golden). Maybe you have a sister or brother or niece or nephew that has special needs. Or plans for your grandkids. Or perhaps there’s a philanthropic group that’s made a difference in your life – and you’re planning to “give back” in a meaningful way.
Whatever your goal, know this: Your advisor at SC&H Financial Advisors has worked to help you develop those plans. We understand what it is you want to achieve – as well as the timeframe you have in mind.
And you don’t want anything to impact those goals. So we understand the worries – even the fear – that results from unsettling events like this “coronavirus correction.” But as you are blasted by the cacophony of headlines – some right, some wrong, some intended to inflame – here’s the key takeaway: The odds favor the investors who keep their heads, who stick with their long-term plans, and who avoid panicky moves that diverge from those pathways.
There’s no way of knowing when the stock market will bottom out – meaning there’s no financial advisor or software-based robo-advisor able to predict the intermediate volatility or the interim outcomes. At the same time – through its advising, and as part of our development of your specific plan – SC&H has taken these unknowns into consideration.
And it has crafted these plans to manage risk – in a way that focuses on the long-term goals. And in that long-term time frame, probability is with the investors who adhere to those plans.
Let’s look at a few important examples.
- Take 9/11, one of the darkest periods in history – for this country, and for the financial markets. The stock exchanges closed for almost a week. In 10 days, the benchmark Standard & Poor’s 500 plunged 11.6%. Within a month, all those losses were recouped.
- Then there was the Swine Flu pandemic of 2009-10. It started in Mexico in March 2009, with the United States working its way back from the 2008 financial crisis. As a recent Forbes report tells us, from inception virus to its finish in August 2010, the Dow Jones Industrial Average had risen more than 40%.
- In the 2014 Ebola outbreak, stocks rose 4.37%.
Three daunting situations. Three periods of uncertainty. In each, the markets eventually worked themselves out – and resumed their upward trend after 12 months.
For investors with a long-term focus, the numbers truly line up on your side. After the Dow and the S&P 500 each plummeted 4.4% on Thursday, Feb. 27, Jeffrey DeMaso, director of research for the newsletter Independent Advisor for Vanguard Investors, shared this bit of data with Barron’s. Over the past 33 years, the S&P 500 has dropped by 3.5% or more on 55 separate days. Following 45 of those plunges, Vanguard’s S&P Index Fund was up an average of 20% a year later.
There’s one other story – a favorite of ours here at SC&H – that thoroughly captures the value of maintaining focus in the face of adversity. It’s the story of the late Sir John Templeton, founder of the mutual fund family that carries his name and a pioneer of the fund industry. In September 1939, with the malaise of the Great Depression still hanging on, Germany invaded Poland and started World War II. Stocks plunged and rumors swirled that trading would be halted for the duration.
Instead of panicking, Templeton scraped together $10,000 ($184,000 in today’s money) to buy 100 shares of all 104 New York Stock Exchange companies that were trading for less than $1 a share. That included some that were bankrupt.
From its bear market bottom of 92, the Dow slowly bounced back. It reached 119 by the end of 1942 and 142 by D-Day in June 1944. Over the next 24 years, the Dow rocketed six-fold – or nearly 900 points.
That’s the value of long-term focus. And that’s what we here at SC&H want you to keep in mind. Client portfolios at SC&H are constructed for the long haul and are designed to weather these impossible-to-predict – but inevitable – market shocks. Misguided overreactions to these near-term events – as deviations from those plans – can reduce the calculated potential and squeeze the long-term growth. In fact, the real question to ask yourself in a destabilized market like this one is “how can I best take advantage of what other panicky investors are handing us?”
Remember the Warren Buffett maxim we shared with you at the start of this market note – the part where the billionaire investor says to “be greedy when others are fearful?” Well, the fact is that fear-induced market sell-offs can temporarily “deflate” asset prices – creating near-term bargains. And those near-term bargains can actually enhance long-term returns.
If you feel the need to do something besides “standing pat” in the face of this coronavirus correction, contact your SC&H advisor to see where the best opportunities might be for you. There’s no shame in feeling fear – especially when something so unexpected threatens carefully made plans that directly affect your future. In these situations, it would be abnormal to not feel fear.
But feeling fear – and giving into fear – are two very different things. If you need reassurance, or just want to check in, give us a ring. We’re here for you. That’s the role that we play – and it’s a role we enjoy. But better still, call us and see what kinds of opportunities we see for you.
Acting courageously while others succumb to fear will do more than just bolster your confidence. It will actually enhance the goals that you’ve so carefully pursued.
We’re here to serve you. And we thank you. Please contact us with any questions.
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