“Anyone can steer the ship when the sea is calm.” – Publilius Syrus
Humanity is being tested – as citizens, investors, and members of our respective communities. People are worried, and rightfully so. How we respond in these trying times will be recorded in history books. We’re facing an uphill battle against a deadly foe that doesn’t play by the rules. This virus has the ability to claim untold lives in the days and months ahead – forever impacting families across the world.
By now you know we loathe to predict anything, but there’s a good chance we’re heading for a global recession. As the economy grinds to a halt just in time for March (Madness) Sadness, fear and uncertainty have invaded our collective consciousness. Markets are in decline, supply chains have been disrupted, travel plans are being cancelled, and social distancing is the new norm. In short, things will almost certainly get worse before they get better.
But they will get better.
Right now, the known unknown is just how long this virus will subsist and wreak havoc on our daily lives. The world’s best doctors and scientists are tirelessly working toward a vaccine, and it’s largely in our hands to quell the number of infections here at home until the disease is defeated. We’re not medical experts, but our view is that the Coronavirus pandemic is a temporary event – not a financial crisis of the same magnitude as 2008/2009. We feel that is an important distinction, as banks aren’t failing, and the economy had been humming along prior to the pandemic. While it’s true that some companies might go under in a recession (that’s capitalism!), we have a hard time believing the narrative that the biggest, strongest companies in the world will cease to exist tomorrow because of this virus. This is why we don’t place concentrated bets on individual companies, and choose to own diversified baskets of equities. We’ll take our medicine, become stronger, and then watch in awe as human ingenuity rears its head again. Yes, things will eventually get better.
Based on conversations we’re having with clients, several things to keep in mind during these uncertain times:
- Because of our detailed cash flow planning work, we can build portfolios that are positioned to provide years of liquidity needs without being forced to sell equities in a down market. By setting aside planned withdrawals in bonds and cash, we allow equities time to recover through a bear market – no matter how nasty things might get in the short term. While we believe that “this too shall pass” is an appropriate response to this crisis, we humbly admit we have no idea how much worse things will get from here. This is precisely why we place such an importance on our long term cash flow projections, as it provides a roadmap for understanding your liquidity needs. We’ve constructed portfolios that should withstand these types of events, even though we can’t see them coming in advance.
- One of the common refrains we hear when talking to clients during scary markets is, “let’s get out now and buy stocks at the bottom.” Getting back in when the smoke clears sounds great in theory, but it’s not a plan. It’s impossible to consistently time the market, and by the time you finally see signs of improvement, you’ve likely missed face-ripping up days that are essential to long term returns. Rather than attempt market timing, we’d rather systematically rebalance accounts via our rules-based process, even if that means buying into the teeth of a bear market. The well regarded investor Jeremy Grantham put it this way, “Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”
I’ll admit, my personal ethos is skewed heavily towards eternal optimism. My stance is being challenged by this virus, as my wife is a Nurse Practitioner interacting with sick patients on a daily basis, and my father is in his 70’s with a long history of cancer and diabetes. I’d be lying if I said I was sleeping like a baby these days. So before I wrap this up, I’d like to leave you with someone else’s words more eloquent than mine. Here is a quote from Morgan Housel, one of my favorite writers/investors around today:
It’s OK to admit that we’ll get through this and that this is a big deal. Those are not mutually exclusive. It’s tempting to want to put yourself in one of two camps: pure panic, or pure optimism. The grey area feels uncommitted, which is hard to distinguish from unaware. But it’s probably the most reasonable position. A barbell personality of optimistic on one side and paranoid on the other is helpful in a world where long-term growth punctuated by moments of panic is the norm.
We’ll get through this together! As always, please don’t hesitate to reach out with any questions. If you think any of your friends, family, or colleagues would benefit from reading this, feel free to pass along or have them get in touch. We appreciate the opportunity to be of service!