The stock market has experienced a tumultuous selloff, declining by more than 25% from the high reached on February 19, less than a month ago.
If you’re feeling shell-shocked, you have plenty of company.
It’s fair to say the United States has declared war on the novel coronavirus. But even in an optimistic scenario, the fallout from the virus will be considerable. The U.S. economy will be hit very hard for at least three months – possibly longer. Hospitality and travel companies will likely require targeted relief measures from governments to overcome the existential threat to their businesses.
Panic compresses time horizons, which can lead to people operating with sense of emergency amid escalating concern about a worst-case scenario. Shoppers hoard toilet paper, bread and soap, while investors check values throughout the day. These behaviors can create a perverse feedback loop, accentuating a crisis. When it comes to investments, setbacks and dismal headlines can make market timing especially seductive.
However, periods of crisis and turmoil demonstrate the importance of disciplined investment policy and careful financial planning, which are the foundation for successful financial results. Good risk management measures include safeguards related to asset allocation, diversification, durable and varied sources of investment income, and careful planning for withdrawal requirements. These protections should be in place at all times, and carefully updated as an investor’s life circumstances evolve. These measures won’t make a portfolio shockproof, but should minimize the costly behavioral penalty that results if an investor finds she must sell stocks during market declines.
For the prepared investor, periods of turmoil can be times of opportunity rather than peril. Bartlett Wealth Management is evaluating opportunities now, as stocks we thought were overvalued have been marked down to more attractive levels.
Bartlett has no special advantage in estimating the duration and severity of this pandemic. We take comfort – albeit tentatively – in statistics that indicate aggressive containment measures have brought some stability in China, where the coronavirus originated in late 2019. Business production and consumer spending, effectively shut down in January, is now resuming, based on comments from leading global companies that operate in China. Based on this experience, assertive mitigation efforts underway in the U.S. and elsewhere could bear fruit in 2-3 months.
It’s important to look beyond the awful day-to-day (or even minute-to-minute) market fluctuations and focus on the long-term. A year from now, In March 2021, we expect to reflect on mitigation and containment efforts that worked, a vaccine that was developed, economies that recovered and grew again, and stock prices well above the panic-induced levels of today.
We are “all in” on American resilience, perseverance and ingenuity. Warren Buffett put it well during a previous crisis, reminding us that “betting against the United States hasn’t worked since 1776.”