I first would like to remind everyone that the crisis we are facing is real and we all must take it seriously. This is not the time to be stubborn or proud. We must protect ourselves, particularly seniors. There is nothing more important than your health and safety so please take the precautions to protect yourself, and if you need help ask someone.
The Coronavirus is unlike anything we have faced in the past. Unlike the Great Recession back in 2008 where we had a meltdown in the financial sector of the economy, this is not a financial crisis as much as it is a public healthcare crisis. The economy was strong before the virus, and in fact, unemployment was at a 50-year low; and then the virus hit. What was science fiction a little over a month ago is reality today.
We have officially ended the great bull market, which we have been in for the last decade, and entered the 12th bear market since the end of World War II. In the last 11 bear markets, 100% of the time markets recovered and reached record highs. On average, the recovery period from the low point to reaching record highs is two years. I have no doubt that this track record will continue, and we will be 12 for 12 in recovering from a bear market. However, it will take time and as investors we must be patient.
There is a lesson that I have learned in my over 35 years in the business, and that is during bear markets people feel more vulnerable and the scam artists in society take advantage of the opportunity. These people have no shame, and they will take advantage of anyone, no matter how vulnerable they are. During these challenging and uncertain times it is important not to let your guard down. The theme of these crooks is that they either have an investment that will protect your money and that you can’t lose or they push another investment with unreal returns, because you’re buying it at a steep discount. Either way, the game is the same. They are trying to separate you from your money. Be very careful of the sweet-talking salesperson-keep your guard up.
Another lesson I have learned over the years and that is that it is impossible to time the market. You probably have a better chance of winning the lottery than you do of consistently being able to time the market. Remember, when you time the market you have to be right twice, once when you buy and once when you sell, and no one has been able to do that consistently. Timing the market is just like gambling and you shouldn’t be gambling with your investment dollars.
I wish I could tell you when markets will regain their strength. I don’t know. What I do know is generally markets recover faster than the overall economy. I believe that for the short term we are going to see more volatility and uncertainty. I believe we will continue to see crazy days in the market where one day we’re up a thousand points, and the next day we’re down a thousand points. However, I believe brighter days are ahead of us. Whatever course of action you choose, whether it’s staying the course, restructuring your portfolio to reflect your current risk level, or even liquidating your portfolio, don’t assume you can time the market, because you can’t.
To be a successful investor you don’t have to buy at the ultimate low or sell at the ultimate high. As Warren Buffet once said, it’s not timing the market; it’s time in the market that will make you successful. I agree.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org.