This Is What You Pay Us For - Market Update

Brent Woyat - Mar 20, 2020
If you’ve opened a newspaper or kept an eye on the markets lately, you know that the last few weeks have been crazy. Volatility is back, and it’s back with a bang.
Currently, we are experiencing what’s called a bear market—a 20% drop from a recent peak.
 
It’s not fun to watch the markets go on their own personal rollercoaster ride … but it’s not unusual, either. For that reason, I’d like you to remember two things:
 
1. Bear markets are inevitable. Since 1926, there have been eight bear markets. “The average Bull Market period lasted 9.1 years with an average cumulative return of 480%. The average Bear Market period lasted 1.4 years with an average cumulative loss of -41%.1
2. This is what you pay us for—to hold your hand and help you get through times like these. So, with that in mind, I’d like to tell you about a few things my team and I are doing.
 
First, we’ve been studying the markets intensely over the past several weeks. It’s no secret what’s causing this market volatility. Investors are deeply uncertain about the effect the coronavirus pandemic will have – not only on the companies we invest in, but on our friends and loved ones.
 
Second, we’ve reviewed how past epidemics have affected markets.2 Here is the answer:
 
EPIDEMIC
MONTH END
6-MONTH % CHANGE OF S&P
12-MONTH %
CHANGE OF S&P
SARS
April 2003
14.59
20.76
Avian flu
June 2006
11.66
18.36
Swine flu
April 2009
18.72
35.96
Cholera
November 2010
13.95
5.63
MERS
May 2013
10.74
17.96
Ebola
March 2014
5.34
10.44
Measles/Rubeola
December 2014
0.20
-0.73
Zika
January 2016
12.03
17.45
 
Of course, past performance is no guarantee of anything. But let me ask you this.
 
If you were me and you were going to recommend action based on this data, what would you do? Buy gold? Get out of the market? Would you stay put? If I were you, advising me, I would say, “Stay put.”
 
Third, we’ve reviewed your portfolio for any potential problems or signs of weakness. The good news is that we feel your investments remain on solid ground.
 
We have invested in good companies, factored in your goals, risk tolerance, immediate needs, and ensured that you stay properly diversified. While you certainly may see a further decrease in performance in the short term as the markets take time to settle, remember that we are invested for the long term. The day-to-day noise of the markets is just that: Noise. Our job is to filter out that noise and keep you focused on what’s important: Your long-term goals.
 
This is what you pay us for—to keep an eye on your investments in an unemotional, unbiased way. Currently, emotions are running very high with many investors. Soon, they will discover what we already know: That acting out of emotion usually means overreacting, which is never a good thing.
 
So, here’s how we’re going to act: With patience, rationality, and rules. My team and I will continue evaluating both the markets and your portfolio. If we feel the need to recommend any changes, we’ll let you know immediately. Because that’s what you pay us for. It’s in situations like these that we feel we can bring you the most value.
 
One more thing. I mentioned a moment ago that a lot of investors are acting emotionally—and that primary emotion is fear. If you know anyone who needs a financial advisor, or just needs someone to talk to, please send them our way. Feel free to give them this letter, and as you do, remember to say:
 
“This is what I pay them for”
 
In the meantime, we are here for you if you have any questions or concerns. Please feel free to give us a call at 604.699.0869 at any time. I am always happy to talk to you!
 
Sincerely,
 
Brent Woyat
 
 
 
 
 

1 First Trust Advisors L.P., Morningstar. Returns from 1926 - 9/28/18. Quoted in https://www.cascadefs.com/wp-content/uploads/2019/01/Bull-and-Bear-Markets-9-28-18.pdf

2 “How the stock market has performed during past viral outbreaks, as coronavirus spreads to Italy and Iran,” MarketWatch, https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22