By: Andrew T. Gardener, CFP®
We recognize that many of our friends and family are understandably nervous and we empathize. We won’t pretend to be able to predict how effective the new Covid-19 containment efforts will be, where the price of oil is going or the impact each will have on the economy. What we can tell you is that we have a plan and a refined process to help our TLA families work through whatever is ahead.
Covid-19 virus
For the safety of our team members, and the families we serve, we have limited physical access to our office. This is not our first rodeo – we were forced to work remotely when Hurricane Harvey hit in 2017. That worked well and we’ve since invested in technology to ensure if we were ever in a similar circumstance, we would be even more prepared- and we are. Internally, we have established a “split shift” schedule so there will always be a few of us here during regular business hours while some of us will work from home. In the office, we are keeping our distance and wash our hands a lot. Regardless of where we are, physically, on any particular day, we are here for you!
The Economy and Markets
It’s been said that stock markets ride up escalators and ride down elevators. That’s never been more real than in the last 11 years. The bull market, which began on March 9, 2009, was perhaps the most unloved bull market of all time, seemingly scratching out every point up against a backdrop of negative or disbelieving headlines. Most people didn’t believe we were even in a bull market until this past year. Just in time for it to end.
Bull markets typically top out with complacency, whereby investors just believe that the markets will keep going up and they ignore any bad news. Then one day, an additional piece of bad news is no longer ignored and the selling begins. Sometimes a second piece of bad news is piled-on and the elevator heads south. That’s where we’ve been lately.
So, when do bear markets bottom out? Typically, at a point of capitulation. Capitulation is when enough market participants have thrown up their hands, said “enough’, and sell at any price. Clearly, we’ve seen a lot of that already. The opposite of complacency, when investors can’t think of any good reason why the market should go down, is capitulation, when investors are scared the market will do nothing but go down. As if we needed any proof of the current negative sentiment, the recent American Association of Individual Investors survey was its most pessimistic in 7 years.
Historical Perspective
Market fluctuation is normal and should be expected. Since 1945, the U. S. stock market has experienced 12 bear markets of 20% or more. That’s about one every 6.25 years. If history repeats itself, you can calculate how many more times this will likely happen in your lifetime. Should that be depressing? Hardly! In between these bear markets has been an amazing wealth building machine called the American economy.
If we go back 75 years, the Dow Jones Industrial Average index started 1945 at about 150. That’s not a typo. It’s now over 10,000% higher. Those 75 years saw lots of scary headlines – wars, one presidential assassination, another president shot, one president (and his vice-president) resign in disgrace, 2 presidential impeachments, riots in the streets, Kent State, periods of hyper-inflation, oil embargoes, periods of high unemployment, U.S. embassy take-overs, 9-11, and the down-grading of U.S. debt below triple-A. And still, trillions of dollars of wealth were created due to our system, hard work and innovation.
2020
Today, the complacency we saw just weeks ago, is gone. It’s been replaced by fear. Primarily fear of the unknown.
What we do know, which is the bad news, is that the number of Covid-19 cases and even deaths, will rise. And our healthcare capacity will be challenged. That’s why it’s so important to flatten the curve of those transmissions. Washing our hands, caring for the elderly and accepting social separations, are important to this end. The good news is that Americans seem to finally recognize the reality of how important all this is.
Policymakers and leaders also seem to recognize the importance of working together. Winston Churchill famously said that you can “count on the Americans to do the right thing, after they have exhausted all other alternatives.” Exhausted seems to be the perfect word. Who isn’t exhausted by all this? Which makes us all the more heartened by the generosity of dollars and spirit that we see daily. Millions of dollars and supplies donated by businesses, foundations and individuals to help those who may not be able to help themselves. Athletes and team owners guaranteeing incomes of stadium personnel. Healthcare professionals, first responders, key government employees showing up for work every day to prepare for the upcoming battle. This is the America we know and love!
We know that bear markets turn into bull markets, but slowly and quietly. We generally don’t know we’re back in a bull market until long after it’s begun. That’s why at TLA we remain vigilant, with discipline and patience. That’s why we trust the process TLA developed and refined that has sustained us and protected and nurtured our families all these years.
Our process establishes an investment allocation based on your risk-tolerance and needs. It then instructs us to re-allocate assets to balance your portfolio when markets zig or zag.
We appreciate your confidence in us and work hard every day to earn your trust.
If you have any questions about your investment, wealth planning or business strategy, please feel free to call us.
Written by: Andrew T. Gardener, CFP®
