PFA Updates

Mar 10, 2020

Yesterday was a day of panic in the markets - the markets closed down about 18% from the market high on February 19. The speed of the drop has been stunning. No one knows how much longer the volatility will remain or what the full impact to our economy will be. A drop like this is not uncommon in the US stock market, and full recoveries to new highs has come 100% of the time in history (JP Morgan Guide to Markets, 13). It does not feel good while its happening - and we understand our clients' concerns.

Remember that our Investment Committee expected a drop in the markets this year and took action in our investment models in late January, setting monies aside in money market for expected client withdrawals plus an extra 5-10% in short term bonds (BIL) to leave us "dry powder" if we saw opportunity. Yesterday, opportunity presented itself and we invested the 5-10% in short term bonds (BIL) into a S&P 500 ETF (SPLG). In some client accounts, we purchased individual stocks and other ETF's that matched with their long term growth investment strategy.

Some would ask, why invest in a falling stock market? I will draw a comparison to shopping. If Target announced that their very best items were on sale today for 18-35% off, wouldn't many people jump in the car and drive to their closest Target and buy, buy, buy? We know the prices will go back to where they were before, so why not buy while the sale prices are hot? We don't know if the prices will discount lower, but even if they do go a little lower, we still bought Target's best items at a wonderful discount. We agree with billionaire investor Howard Marks, who said last week, "It would be a lot to accept that the US business world, and the cash flows it will produce in the future, are worth 13% less today than on February 19th ." We agreed even more yesterday at an 18% discount, so we loaded up our "shopping cart."

Here are a few other sage thoughts from other sources:
- Rick Reider, Chief Investment Officer of Global Fixed income at BlackRock said, "This is a temporary headwind to the US economy," (New York Times 3/10/2020).
- Warren Buffet, "Don't panic about coronavirus," as reported by US News 3/9/20.
- Jim Stack, "We believe this media-driven market reaction is currently overdone and likely to be transient." (Special Investech Financial Update 3/9/20).
- Bespoke Investment Group, "There have been 10 Mondays back to 1952 that had market losses of 5% or more. And on average the S&P 500 returned 12.75% in the six months after the drop." (Market Watch 3/10/2020).

Know that we are following the markets closely and will take appropriate action if needed. If you would like to discuss your portfolio in more detail, please feel free to email or call our team. And I close with a quote from financial commentator Nick Murray: "This too shall pass."

Keep the faith friends, and have a good week.

-Tom