We Will Get Through This Market Pandemic

We Will Get Through This Market Pandemic | Paul Fain

Well, this seems crazy, almost surreal like one of the (always popular) Armageddon movies. My sister, who lives in Los Angeles, said people are lined up down the street to get in gun stores (presumably to take up arms to guard their toilet paper).

But seriously, the coronavirus has caused global economic disruption, from the corner restaurant to sporting events to all forms of travel. Global commerce is grinding to a halt as we all hunker down in self-sequestration.

I’m struck by two convictions: 1) everyone needs to take the pandemic seriously (read college kids on spring break); and 2) we will get through this!

In reality, we are weeks or months away from getting on top of the contagion curve. In the meantime, fueled by some fearmongering media outlets, many people will continue to run around as if their hair was on fire.

“Panic suggests irrationality,” says Howard Marks, a popular investment writer and co-chairman of Oaktree Capital Management. Marks describes the current market decline as an extreme reaction to an extreme event compressed into a short period of time.As I write this column, the U.S. stock market has dropped 13% in one day. It is the worst point drop in history and the worst day for the market since Black Monday in 1987. All business sectors of the economy have dropped double digits. (Note: Only one week ago the market experienced its best point gain in history.) Most investors have already forgotten that the economy and investment markets were humming along at all-time highs in February. Now, in total, the market has declined about 30% from its high point — a painful bear market.

Is this downturn different than others? Yes. The tech crash (2000) and financial crisis (2008) were structural problems. The COVID-19 downturn is event-driven. During the event, there is much uncertainty and challenges for people sequestered from work or seeking medical attention.

For investors, what now? What should we do? For most investors the honest answer is, “Do nothing.” If you have an investment game plan, that dictates your portfolio strategy, that supports your personal financial plan, do nothing differently. You have accounted for the realities of market corrections and periodic bear market downturns. You have reserved cash for the coming year’s spending needs, and you have reserved fixed income (example: bonds) for the spending needs of multiple years ahead.

From a longer-term investment perspective, investing now is not irrational. We have not seen a buying opportunity like this since 2008. Since we can’t know when the market downturn will stabilize, consider dollar-cost-averaging new deposits into your stock market-based assets. Maybe some portfolio cleanup is advisable, in other words, where will your stock investments be most productive in the coming recovery? Before year-end, there will be some tax-loss harvesting opportunities.

People are resilient, making companies resilient, making economies resilient. Financial peace of mind, through market highs and lows, is an attainable goal. The secret sauce is a mixture of strategy, discipline and patience. Stay tough, be safe, have hope.