Stock markets around the world have experienced significant volatility, largely in response to the uncertainty around the coronavirus, or COVID-19, outbreak. If that wasn’t enough, Saudi Arabia and Russia decided a price war on oil would be the cherry to make this a truly unpredictable and unprecedented few weeks. What is unique about this volatility over other pullbacks in the past is that this is not a credit crisis or banking issue - this is fundamentally the inability for business to transact and economies operate at full potential. This has obviously affected investment portfolios, and you may be wondering what you should do next.
During times like this, it’s more important than ever to stick to your long-term investment strategy. As we look back to similar situations in the past, including the SARS virus outbreak of 2002-2004, we can see that the markets have always recovered, and then gone on to set new highs.
I’ve found this to be good advice, not just about investing, but about life in general: you can’t always control events, but you can control how you react to them. So how should we respond to the current events? Here are some things to keep in mind:
- Manage emotion. Stock markets have declined, and it’s understandable to be concerned or even anxious given the situation. But all too often, investors panic as stock markets bottom out and they unfortunately sell high-quality investments, locking in losses that otherwise would have been temporary. Thursday was a classic case where panic gripped the market. Volumes hit all-time highs, correlations were near perfect ( all sectors and areas were down- banks, gold, bond proxies etc. ) Essentially everything was going out with the bathwater.
- Remember that your investment strategy takes adverse events into account. It’s designed to help you achieve your long-term investment goals, based on your comfort level with risk, and with the full expectation that there will be some unforeseen ups and downs along the way. We are in the midst of a storm but we have been storm-ready. Asset allocations are constantly being managed with your risk tolerance and need for liquidity in mind.
- Let history be your guide. We’ve experienced market downturns before, and we know that the best way to get through them is by sticking to your investment strategy. After major declines in 1929, 1973/74, 1987, 2001-2002, and 2008-2009, stock markets recovered and then climbed to new highs.
- Hold onto quality. High-quality companies are often the leaders when the markets rally. In fact, downturns like this can be an excellent buying opportunity. Good companies we want to own are now becoming available at a more reasonable price.
We are keeping a very close watch on how events are unfolding, and receiving regular updates about the evolving situation from various internal and external research.
This is an uncertain time with no immediate clear view. We believe opportunities will arise from this but not without further potential pain. North America is in the midst of trying to get in front of the spread of COVID-19 to ensure a quicker containment. A quicker containment means less impact on the global economy and ideally a quicker global economic recovery. As we seemingly appear to be entering a two week lull period filled with “social isolation” and cautious quarantine we will be watching closely to understand the full impact this slowdown has had on the global economy.
As always we welcome discussion, I can be reached directly here. We continue to diligently monitor the situation and wish you a healthy weekend.