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Strategic Insights

Volume 9, Edition 11 | March 17 - March 21, 2020

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Don’t Fear What Comes Next

Doug_Walters Doug Walters | Articles

Read Time: 3:00 min


Fear and panic are natural human responses to the crisis investors face today. The remedy is an evidence-based process that ensures emotions do not keep you from enjoying what comes next.

Contributed by Doug Walters , Max Berkovich , ,

There are times that test the mettle of the long-term investor, and this is one. Since 1926 the U.S. stock market has provided investors a total return of 9.6% per year. This return comes despite the recent declines, and not to mention the Great Depression, WWI, WWII, the Flash Crash of 1962, Black Monday, the Tech Bubble bursting, and the 2008 Financial Crisis. In other words, it has not been easy; and nor should it be. The price one pays for that attractive long-term return is near-term volatility. And while we may currently be short of face masks and hand sanitizer, one thing we have plenty of today is volatility.

As a financial professional during both the Dot Com bubble and Financial Crisis, I saw firsthand how wealth can be destroyed in trying times, and it always came down to “doubt.” Doubt in the markets, doubt in your process or even doubt in yourself. There is a tendency to begin to question everything and then to start making changes; changes to your investments, changes to your process, and changes to your plan. With change comes mistakes and often failure to participate in the inevitable rally.

These experiences reinforced in me the importance of not just having a process, but a process in which you genuinely believe. That is precisely what we have created at Strategic. A process should be designed to get you through both the good and bad times. We are often asked, “what are you doing differently to address the Covid-19 risk?” Nothing. Our process is designed for this.

  • We build well-diversified portfolios with persistent factors at the core
  • We regularly rebalance to trim our winners and add where there may be better value
  • We harvest tax losses where it makes sense to offset future gains
  • We reallocate assets towards bargains as they emerge

The biggest mistake an investor can make is to abandon their plan just as things are at their worst. Why? The best market returns often come on the heels of crisis (see chart below). This, too, shall pass, and when it does, you want to make sure you are ready and waiting to enjoy the rally. Strategic is here to help you on this journey!

A History of Rebounds

While stocks have returned over 9% per year over the last century, some years are better than others. We looked back at our data and found that some of the best performance has come in the wake of steep declines. These are rebounds you would not want to have missed!

Five Year Returns

Headlines This Week

An Eye on the Market

  • Stocks fell another 15% this week as the market grappled with pandemic uncertainty.
  • 12% of this week’s decline came on Monday.
  • The rest of the week was less volatile by recent standards, perhaps a good sign.

A Massive Stimulus Plan

  • The Senate’s $1T+ economic stimulus bill began negotiations on Friday.
  • The Senate Majority Leader McConnell is hoping to pass the bill on Monday.
  • The centerpiece involves checks of $1,200 per adult and $500 per child.
  • The tax filing deadline is officially delayed until 15-Jul.

Keep Calm and Stay Healthy

  • New York State Governor Andrew Cuomo ordered all non-essential businesses and their employees to stay home.
  • New York, along with California, is hoping that containment will reduce the rate of infections.
  • A countrywide quarantine helped China to defeat the spread of the virus. As of Thursday, China reported zero new local infections.

The Week Ahead

Unsurprisingly, most significant developments ahead center around combating the coronavirus.

Perhaps the most anticipated report next week will be the Initial Jobless Claims on Thursday.

  • The report is expected to show the highest level ever on record.
  • Some forecasts place the number as high as 2.25 million.
  • Due to many states enforcing restrictions on some businesses remaining open, high unemployment numbers could be sustained for quite some time.

The U.S. Congress could be in a position to vote on the “Phase 3” portion of the coronavirus stimulus bill next week.

  • The current iteration of the bill, proposed in the Senate, has caused bipartisan disagreement over whether the measures ultimately benefit the employees or the businesses, both of which have had their livelihoods come to a halt.
  • A successful vote will require agreement on these matters.

Across the Pond, the United Kingdom is taking action to combat its deteriorating economy.

  • The Bank of England is set to inject over 645 billion GBP through quantitative easing measures.

Some significant economic reports slated for next week may not hold their usual weight given the focus on the current state of the economy.

  • Annualized GDP for the fourth quarter will be reported on Thursday.
  • The Nondefense Capital Goods Orders (ex Aircraft) for February will be released on Wednesday.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.