The End of the Beginning or the Beginning of the End?
Telos Wealth Management Posted on Sunday, March 22, 2020 at 5:01PM Only recently, we were all making summer vacation plans, shaking hands, giving hugs, and even exchanging an affectionate peck on the cheek with those we’re closest to. How quickly and dramatically things change! The coronavirus epidemic has induced panic selling in the markets, untold job layoffs, and will likely lead to a recession as economic activity comes to a grinding halt across our great country.
We are not only concerned about the impact the coronavirus is having your investment portfolios and the economy; we are equally concerned about the practical impact it may be having on you and your families. If you need anything—toilet paper, food, etc.—please let us know! While we may not be able to meet every need, there are certainly others in our network of relationships who we know would be delighted to help.
It's waiting that helps you as an investor, and a lot of people just can't stand to wait. – Charles Munger, Vice Chairman of Berkshire Hathaway and Warren Buffett’s investment partner.
All this chaos has led to intelligent conversations with a few of our clients, who have extra cash to invest, and have asked if this is the time to buy. While panic selling is often a contrary indicator signaling that it’s time to buy, we think this situation is likely to get worse before it gets better. Since our Market Environment Indicator (MEI) turned negative a couple weeks ago, our tactical strategies remain positioned with low allocations to stock instruments and high allocations to cash and ultrashort-term bond instruments, and we will remain so until the MEI reverses to positive. Until then, this is the most important thing to remember: “It’s waiting that helps you as an investor…”
Bull markets are born on pessimism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. – Sir John Templeton, considered by many as the greatest global stock investor of the 20th century.
An evaluation of past infectious outbreaks/epidemics (SARS, MERS, Avian Flu, Ebola, etc.) may give us a clue of what to watch for. In these past outbreaks/epidemics the market did not bottom until sometime after the daily rate of new recoveries of those who were previously infected exceeded the daily rate of new infections. We’re not there yet with this outbreak, so we believe caution is the best approach until the relationship in these trends improves (more here: https://www.worldometers.info/coronavirus/coronavirus-cases/). However, it’s important to note that even when we reach this point, because so many will have already been infected with the coronavirus, the outlook, fear, economic consequences, and dire forecasts are likely to only get worse. It is in this very environment of “maximum pessimism” that next bull market will begin.
When the time comes to buy, you won’t want to – Walter Deemer, legendary technical analyst, author, and 57-year investment industry veteran.
The good news is that we are now moving into a period where smart investors are beginning to evaluate bargains, looking at investments that are likely to do well in a recessionary environment, and even grow exponentially when the economy eventually recovers…which it will. For now, we do not think this downturn has fully run its course and are waiting for the MEI to signal when it’s time to increase risk again. If our past experience is any indication of the future, the MEI reversal will come at time when the news is still very bleak and few believe the market will ever stop going down, let alone ever go up again. Remember these words: “When the time comes to buy, you won’t want to.”
We are overwhelming grateful for your friendship and the privilege of serving your wealth management needs, which we will continue to do with the highest level of devotion, stewardship, and integrity. Please let us know if you have any questions, concerns and/or physical needs we can help with.
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