The market has turned south so fast and so violently that it’s almost impossible to comprehend. On Thursday, we saw the worst single-day decline since the crash of 1987. Michael Batnick published a post that showed this is the fastest bear market in history. It took 19 days for the Dow Jones Industrial Average to drop 20%. I can’t even read a 300-page book in 19 days.
Last week I put together a poll thread to get a check on sentiment. As expected, everyone was short-term bearish but long-term bullish. As Helene Meisler has pinned on her Twitter profile: Nothing like price to change sentiment.
So far this week we’ve gone limit down twice, limit up once, hit circuit breakers twice, and entered a bear market (and most likely a recession).
Just in the last 24 hours America has essentially shut down. Here’s a list of major closings:
Kentucky, Maryland, Ohio, New Mexico schools statewide
Disneyland and Walt Disney World
NCAA March Madness
Broadway
NBA, NHL suspend seasons
MLB cancels spring training, delays opening day
MLS suspends games for a month
Cities and states are declaring a state of emergency at rapid rates
So I’m sure the poll results from last week would be even worse if I ran the same polls again tomorrow. But, that’s not the point. The point is figuring out your investment timeline.
For all of the anti-survey people out there (Animal Spirits), take this chart with a grain of salt but use it as a discussion piece. Your investment timeline is critical in determining how you should be allocating capital. Are you planning on retiring in 1, 5, 10, 20, or 40 years? Imagine how your answers would vary based on this question. Do you need to raise cash to make a large purchase such as a vehicle, house, or pay for college? The longer your investment horizon is stretched out, the more bullish you should be about the future and the opportunity staring you in the face.
For argument’s sake, 3 out of 4 people are bullish on a 1-3 year timeline. If you were sitting on the sidelines or contemplating putting money to work and you voted yes to being bullish on this time frame, wouldn’t you be buying? Or are you too focused on the incessant barrage of bad news that is clouding your long-term views?
Many friends and family are asking me if it’s time to sell and if they should sit on the sidelines for a couple of months. Let me be clear: We could go much lower. Taking a 20-30% haircut in three weeks is not easy, believe me. The easiest thing to do is throw in the towel. But if you are investing for the long haul, don’t you want to be buying more at these levels? I have been. It’s been painful. But I’m keeping the end goal in mind.
I know the news seems to continue to get worse every day and it’ll most likely get worse before it gets better, but the market is a discounting mechanism. It’s already starting to discount the fact that the entire world may go into a shutdown for 2-4 weeks—maybe months. If you think it’s bad now, wait until next quarter’s earnings. It’s going to be insane. There are going to be massive misses. I’m talking 50-80% haircuts on profits for some companies. Analysts aren’t going to have a clue how to give earnings estimates. We are going to be relying on the companies to give us guidance on when they will see a pickup and hopefully recovery of normal business activity.
The way I see it, as long as the coronavirus can be contained within a few months it will hopefully only be a temporary setback to the global economy—ignoring bonds and the oil price war and whatever other bad news may pop up in the meantime.
Maybe it lasts months or maybe it lasts years. I don’t know. But what I do believe is that the global economy will recover. Companies that aren’t levered up or need bailouts will come back even stronger. We will learn from this, just like we did from the GFC and be more prepared in the future. It could take a while. For some of us, we’re paying to play and paying to wait. That’s the price of admission.
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." - Peter Lynch
This is post #56. You can follow me on Twitter or Instagram or sign up for my free newsletter here. Also please check out my Amazon page for a full reading list.
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