When The Markets Go Crazy
Kale Magness shares financial advice with Texarkana Monthly.
Right from the start, 2020 picked up right where 2019 left off. It appeared as if we would see a continuation of this unprecedented bull market. All indications pointed towards another good year for equities, maybe not as robust as 2019, but a good market for equities nonetheless. The economy was booming, record low unemployment, maximum employment with more jobs available than workers, a promising trade deal with China, a presidential election year, along with other very positive economic news and no recession in sight. All good indicators pointing towards continued growth in the markets. We were experiencing record after record in the Dow Jones Industrial Index and even hearing talk of Dow 30,000!
Historically, bull markets don’t run out of time, they run out of legs. The fundamentals change. Although 2020 seemed filled with promise, there were concerns going into the year that price-to-earnings ratios were too high and there was too much volatility. Then February rolled around and with it came news of the spread of an unknown coronavirus called COVID-19. Although there was a concern for health and safety, no one could imagine what was about to happen economically, or in the markets. So, our unprecedented historical bull market ended on March 11, 2020, after dropping some 30% in record time. It seems that this market could not only set records going up but also showed it could do the same going down. In my 26 years in this business, it was something I had never experienced before. I’d seen bear markets, but not one with the speed and ferocity of what was occurring. During times like these, an investor’s emotions can be as volatile as the markets themselves, and the inevitable question, “What should I do?” is the topic most discussed.
We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” —Warren Buffet
Every individual investor is different. Their goals and objectives are typically driven by their time horizon and risk tolerance, but fear can grip even the seasoned investor when they experience the type of market upheaval that we experienced. So, in a matter of a few weeks, we went from the economic conditions described earlier, markets in record territory with no recession in sight, to a bear market, a locked-down economy, and an event-driven recession. “What should I do?” I’ve always considered my role is not so much to manage someone’s money but to manage their emotions. I really try to understand upfront what the objectives and expectations are, and design an allocation that makes sense over time. As I stated earlier, everyone is different, so I don’t take a cookie-cutter approach to portfolio design. I know we’ve been taught not to answer a question with a question, but in this case, I do. My typical answer is, “Notwithstanding the circumstances we are presently experiencing, has anything changed in your long-term objectives and expectations?” If so, we need to visit about what has changed and make the appropriate adjustments to our original plan. If not, then let’s revisit what the original intent was. The worst thing an investor can do to his or her long term success is to be reactionary during times of volatility. I’m a big fan of Warren Buffett, and I love this quote of his; “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” In other words, the lack of discipline generally erodes your investment results. No one knows where the market will top out before a downturn, and no one knows where it will bottom out before rebounding. But we do know, at some point, it will do both. Trying to time either is extremely risky and the mistiming of either has the potential of seriously affecting your overall return. As the old saying goes, it’s time IN the market, not timing the market that helps you achieve your overall goals. History says that over the past twenty years, missing as few as five of the best daily returns in the S&P 500 Index would substantially deteriorate your return relative to if you had stayed invested during the same time period. As I have previously stated, every individual investor is different in their objectives and “pain tolerance.” When you find yourself in a time when the circumstances affecting your portfolio create anxiety and uncertainty, I strongly recommend visiting with your advisor to review where you are and reassess your long-term objectives and expectations. So, “What should I do?” Remain calm, don’t be reactionary in times of volatility, and keep your eyes on your long-term goals. 
Kale Magness Senior Partner, Magness Financial Group
