Today’s email to our clients, the fifth in two weeks

Capitulation???

Dear        ,

I want to convey how serious we are taking the Coronavirus pandemic and the current health care crisis, it’s completely different and full of uncertainties which is why so many are fearful. After seeing the impact this virus has caused to economies, both globally and now domestically, I personally believe that this healthcare crisis could lead us into a recession.

The Coronavirus can be referred to as a “Black Swan” event–something out of the blue which has a major economic effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. We were proactive by taking risk off the table a couple weeks ago and raising cash (as well as making adjustments as far back as February 2019) which is why we are doing better than the market and our benchmarks, but it doesn’t mean it feels good to see the loss of principal.

Now let’s talk about the paper losses from this bear market that came fast and furious and are still playing out. My team and I are meeting every day discussing our strategy. This is a complicated time in the markets and can be hard to stomach watching account balances fall like they have. On the flip side, if investors are out of the market because they couldn’t stomach losing any more money, then they usually miss out on a fast and furious recovery as history has shown time and time again. The biggest unknown for every investor is when that bottom will happen. There will be false bottoms at times, and when the markets do eventually recover it typically takes some time to finally feel safe enough to get back in. I don’t want to sound like a broken record, but the stock market has recovered from every correction, bear market, recession and “Black Swan” event that investors have experienced and it will recover from this one as well.

I’ve shared with you how I’ve been managing clients’ wealth since 1987 and have experienced the crash of Black Monday on October 19, 1987 where stocks fell 22.6% in one day and every major event since then. Today’s swings can be compared to the volatility of that day. What we need is capitulation in the markets, when investors feel more pain than not and until then, the markets won’t turn around. Nobody knows when that day comes; it can be tomorrow, next week, next month we just don’t know. What I do know is that when investors feel the absolute worst, history has shown that all of a sudden the markets recover and go on to make all-time highs again.

Sadly, our government has greatly failed us in the past 4-6 weeks, and it’s legit up to us as businesses and citizens to do all we can to minimize spread. The story about the passenger on JetBlue last evening is the perfect case of why we need more controls in place, especially at our airports. This individual was allowed to be screened by TSA agents, walk through the airport, maybe have lunch and then board a plane knowing he was anxiously awaiting test results for the virus, that ironically was texted to him while flying as being positive and having the virus. What we need sooner than later is help from Washington in the form of stricter controls, monetary and fiscal policies such as approving a solid bi-partisan Coronavirus Aid Bill, but unfortunately as we’ve seen with so many bills, politicians use it to add goodies or pork that don’t belong there. This bill needs to focus on this virus and the US needs to step up their game on dealing with this virus as confirmed by the chart below. This is no time for political games.

To sum up my feelings, this is a truly unique time for investors and one where the markets were blindsided and there was no way to plan for it. After 11 years of a phenomenal bull market, we started our plan of reducing exposure to stocks last year when we rebalanced to our target, moving more towards a value approach in December and then again underweighting stocks a couple weeks ago. In hindsight, we managed our portfolios in a proactive manner to protect our clients from volatile times.

We know this is not the time for investors to have knee jerk reactions and sell out of the markets. If they do they may never bounce back. As I said to one client who called me this week and is a restauranteur, when he said how uncomfortable he was watching the markets fall, I begged him to turn off CNBC and watch the Food Network. The one thing we get paid to do is take the emotion out of investing for our clients and guide them through times like these. He laughed and agreed, otherwise, I would have sent my IT folks over to put parental controls on what shows he could watch.

Let me remind investors who were invested for the Great Recession and how so many looked back after it ended on March 9, 2009 and wished they had more cash to invest, it was one of the best buying opportunities ever. We will invest our cash that we raised when we are comfortable, we may not be lucky enough get back in at the bottom but we know we have missed most of the downfall and that has been comforting. I assume when this ends, investors will have the same feeling. For those that have been wanting to add cash to buy stocks, at some point now or in the near future, it may be time to discuss a strategy with one of our advisors.

In the meantime, stay healthy and positive; this is not the end of the world nor the burst of the stock market.

Regards,

Steve