The Hunt for the Bottom of the Market
Posted on March 20, 2020 by John Posey
I hope this writing finds you well. It has been an alarming and trying time for many as we adjust to new guidelines and information regarding coronavirus. My thoughts are with those significantly disrupted and impacted. Please be safe and find some positives in your new quarantines and social distancing exercises. I’m hopeful that March Madness will actually involve the NCAA basketball tournament next year!
To you investors out there, are you hiding in the bushes ready to pounce on the bottom of the market with cash to invest? I think I felt some of you just roll your eyes at that question! Or are you just nauseous from watching your account values decline and the news in general? Well, those in the first camp may be disappointed because if you happen to see the bottom, you won’t really know it until it’s all over. You’re even less likely to get catch it, but if you can get close it’s definitely good just like in horseshoes and hand grenades. But in either scenario, this video is for you. Brian Wesbury, an economist from First Trust, who I occasionally cite in my writings has provided what I feel is a perspective that is less common to find about now. I think this will prove useful to those considering investing right now in addition to investors watching the current events unfold.
More data in terms of coronavirus testing and economic information in the future will equal some more knowns which will probably take several weeks. Whether or not that increased sense of certainty provides a positive or negative sentiment will push the market in the corresponding direction. I’m definitely not suggesting I have any conviction or knowledge of how long it will take for the market to find the bottom, but I think it can be useful to look at what we know from different perspectives. I think Brian Wesbury makes an interesting point that a lot of assumptions and modeling of the potential coronavirus impact are based on worst case scenarios. Of course, that’s the scenario I’d hope we would start with, which does seem to help explain the depth of the recent market decline.
In summary, as the market finds a bottom I think you’d be wise to play horseshoes and hand grenades with new contributions rather than trying to throw darts at technical points (ie – 15k on the Dow) which may or may not ever come to fruition. Get real with your inability to time the market. Here’s a fact: the US equity market is down nearly 30% from the highs as of 3/18/20 and declines of that magnitude do not happen that often – although it does happen from time to time if you already forgot about the 2008 recession. I fully acknowledge it could decline even further and the length of a subsequent recovery is never really known. With the number of confirmed coronavirus cases expected to increase substantially as testing ramps up, I suspect market volatility to continue over the next several weeks and probably throughout the year, but I don’t know what to expect with any certainty and no one does although some (talking heads on TV) may act like it. But also remember, the market moves in anticipation of things to happen - things that may or may not happen. I think this definitely contributes to why we see the extreme upside and downside of the markets from time to time (right now for instance!). More data provides more of a sense of certainty although there is never certainty. When the market does eventually decide to turn the other direction, it won’t stop to let you know beforehand and it can move fast. If you’re on an opportunistic hunt for the bottom, be mindful not to hide in the bushes for too long and accept you’re not going to know where the bottom is – nobody does. And if you’re nauseous, this message is intended to be a remedy. Successful investors have to put it all in perspective in difficult times and take the long view. In all sincerity, I hope this is helpful in putting things in more perspective.
In a conversation I listened to between Carl Richards (NY Times author and CFP®) and Jerry Colonna (author of Reboot: Leadership and the Art of Growing Up), Jerry shared the following thought provoking quote below from the book, Comfortable with Uncertainty by Pema Chödrön. Jerry went on to say, “When I first read that, I was like, that’s perfect business advice.”
“All around us, the wind, the fire, the earth, the water are always taking on different qualities. We also change like the weather. We ebb and flow, like the tides. We wax and wane like the moon. We fail to see that, like the weather, we are fluid, not solid, and so we suffer… If we learn to sit still like a mountain in a hurricane… Then we are not this separate being who has to have things turn out our way. When we stop resisting and let the weather simply flow through us, we can live our lives completely.”
Be well and stay safe.
Video - Brian Wesbury - Coronavirus Contraction
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