Right now, people are selling stocks based on their predictions that corporate earnings will slow, and the current levels of the equity markets reflect what investors now think those stocks are worth. Yeah, yeah, yeah, I know…oil too, but just stay with me.
At the end of the day, I think this virus thing will be contained, I just don’t know when. It’s changing the economic outlook for sure, but slowdowns are not necessarily recessions…this sell-off is a function of people guessing since there are not a whole lot of real facts out there.
Fine, I get that. Earnings may slow. But slow earnings are not the same thing as bad companies.
That’s important to remember because what happens when this tide changes? Does anyone think there will be an “all clear” sounded that tells people when to get back in? No – there won’t be. Even if a vaccine is discovered tomorrow, an improved earnings outlook won’t materialize in a day…they will still be slow to report.
But think about that for a second…what if…
What if a vaccine were discovered tomorrow? All of those companies that were sold off will rebound even before upcoming earnings estimates are adjusted back up. Because those companies are STILL GOOD COMPANIES. They have only been hammered because people are accounting for an unexpected earnings slowdown.
This is starting to sound cliché, but this correction has great companies on sale whose core earnings, short-term, may be considerably impaired, but whose structural value proposition is largely unchanged. And someday, when this passes, they will recover.
So, who cares? Some people do. In fact, a lot of people do, otherwise we wouldn’t be seeing these volatile swings back and forth. There is no other way to explain the recent market swings as being anything other than financial market panic. Fear that it will get worse, so panic selling sets in…and then greed as people worry they missed a dip and panic buy.
But who are those people?
Guessers. And I don’t think guessers read my stuff. So that leaves the people who DON’T CARE.
Oh, you are still reading? Good.
It’s not that people “don’t care”, of course you “care”, it’s just that your perspective is different. You’ve already answered the most important question that exists relative to being an investor: “Why did you invest in the first place?” Everyone has their own answer, but you…you have one!
This is scary, I know. If I could give you a big, Clorox-wiped-down hug, I would. Consider this my virtual hug. But hugs only go so far…we need to remember a few more important things.
Is your portfolio invested in a way that reflects WHY you invested in the first place?
Yes? Great – that means your portfolio is still aligned with your goals and you probably have a plan. That’s important…and I’ll bet your portfolio is diversified, tax efficient, low cost and allocated correctly between different asset classes, specifically equities.
No? Okay, then assess why not.
Maybe you never figured out WHY you were invested in the first place and you were you simply investing with no real thought about your goals for the money?
That can be fixed.
Or possibly the reason why you were investing changed but your portfolio did not?
That can be fixed.
Maybe you thought you were okay with the amount of risk you could withstand with your equity allocation, only to realize that this has you up at night?
You guessed it: that can be fixed.
Perhaps you got swept up in the bull market and now you are faced with liquidating stocks during this correction because you suddenly need cash?
Okay, okay…I’ll stop.
(It can be fixed.)
But here’s the big point – portfolios only need to change when the “why” changes, not when the market changes. Remember, your goals are YOUR GOALS, not anyone else’s. Your entire portfolio should be built around your Private Wealth Design…your goals…the reason why you are invested.
If you answered “yes” up above, the reason you built your portfolios in the first place hasn’t really changed much over the past two weeks.
Everyone needs to look at the market the way you do a weather report—good to know, but doesn’t have the power to derail your day or undo all your decisions. Don’t let a large storm trick you into believing you’ll never see the sun again.
I had three calls today from brilliant people. They each said something constructive…
“The Coronavirus is such a great example of the power of branding. This thing has been branded as something big and ugly and awful…so imagine if it didn’t have the brand. Imagine if it was just referred to as a strain of the flu that is spreading fast and the latest flu shot is ineffective against it. If you catch it, you could end up really sick for a week or two and miss work. 3% of the people who catch it will die, most likely people with existing medical issues, not unlike the normal flu strain.”
That can be, “yeah but” to death, but still…
The second was relayed to me over a call and it isn’t exact but went something like this: “I heard a great quote the other day reminding people that early TV executives stated, ‘The purpose of TV is to keep people watching TV.’”
You hear that CNBC?
Finally, “Don’t forget the power of lower oil prices when the demand side of this problem is alleviated.”
Keep looking forward…across what looks like a big bad valley is another peak off in the distance.
Reach out with any questions. Again, I know this is hard…but it won’t last forever.
This first appeared here: What if there is an upside to all of this?