NAVIGATING A PANDEMIC
April 4th, 2020
So what is going to happen? Let’s get that out of the way right now. No one knows. Yes, there are those that say 100 million Americans will get the coronavirus and hundreds of thousands will die. There are those who think a few thousand people will die and this will all be a distant memory in just a few months. And, of course, there are the hundreds of scenarios in between.
But here’s the thing when it comes to investing. If you know for certain things will get much worse, and that you can tell ahead of time when things will get better, then you should go to cash and reinvest at that point. Now, I’ve been at this for 20 years now, and I have never – not once – seen that happen. Apparently, neither has Warren Buffet or the late, great John Bogle, both of whom repeatedly mentioned they have never met anyone that successfully timed the market.
So, when it comes to investing and you don’t know with certainty what is going to happen, you stay invested. There are two ultimate outcomes (it really is this simple):
1 The world ends as we know it, in which case nothing works, or
2 The world recovers just fine and gets about its business, in which case you financially come out smelling like roses.
So what is an investor to do? This may be the first COVID-19 crisis filled with uncertainty, but it is not the first market downturn created by uncertainty. In fact, there is only one thing all bear markets have in common: they come with a large dose of uncertainty. With 9/11, many feared the economy would take years to recover. With the Greek Debt Crisis, many feared it would lead to debt defaults all over the world resulting in a global recession. When United States treasury bonds were downgraded, many feared it would result in a lack of confidence in the United States and plummet us back into recession. With Brexit, many feared Great Britain would collapse as a global financial center, driving Europe, and with it the world, into recession. In all cases, we got through it. Someone who went to cash to “wait things out” got burned, missing the time to get back in (which is nearly impossible to do). Wise investors collected their dividends and waited things out. Brilliant investors continued to rebalance through the pullback, shifting from bonds to stocks, and also took advantage of tax loss trading. These investors generally recover faster than the market and are far better off after accounting for tax savings.
If you believe this will eventually, somehow, someday pass, whether it is in a few months or even a year, you stay invested, collect dividends, opportunistically rebalance and take advantage of tax trading opportunities. And while you are at it, take a look at all your debts and refinance to the lowest rates possible.
We will not all die. There will be a recovery. When the recovery comes, pent up demand will return, and there will be businesses eager to meet that demand. And the economy, and markets, will do what they always do: march onward. And if you can stay engaged, you are far more likely to march on towards your goals than if you try to time your way through this.
It’s been said that there are 2 types of soldiers in the Army:
1. those who can shoot at the range
2. those who can shoot when being shot at.
I am the latter.
I am prepared for markets like this and so are you.
This is why I have a plan.
This is why I have a strategy.
Not for the easy up markets, but for markets like this one.
Now is the time to push through it, however long and painful it may be, and come out on the other side, better off than had the market done nothing at all.