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Sickness, Selloffs, and Self-Restraint

“It takes a lot of time to be a genius. You have to sit around so much doing nothing, really doing nothing.” – Gertrude Stein

Last week was…not great for global equity markets. If you checked the value of your investment accounts, chances are, you weren’t thrilled with what you saw. If you haven’t checked your accounts, I applaud your restraint.

Headlines were dominated by the spread of the coronavirus and its impact on the global economy, the full effects of which will not be clear for some time. Some have argued that the market’s reaction is justified due to the effect the virus will have on global trade and supply chains. Others have argued that the media has exacerbated the issue and sparked a more dramatic decline than was warranted. Still others have cited algorithmic trading, or the use of margin and derivatives, as ancillary causes for the correction.

I would venture to say that the truest answer is some combination of all of the above, plus a litany of other factors flying under the radar. No matter what school of thought you find the most compelling, here are three things to keep in mind:

  1. Nobody knows the full extent of what’s going on, or what’s going to happen. There are simply too many moving parts at work in this situation for anyone to provide an all-encompassing explanation for the recent selloff. The global stock market is composed of thousands of companies being traded among millions of investors with different outlooks, objectives, concerns, and tactics. It is inherently unpredictable in the short-term. I read a number of market forecasts coming into the new year, but not one of them mentioned the threat of a pandemic because nobody could have seen it coming. That’s true risk for you. If you’re searching for answers, my best advice is to seek out voices of reason and wisdom, which are usually calmer and quieter than the ones you hear on TV.
  2. People tend to point their fingers when things are bad. When things are good, they tend to point at themselves. It’s easy to feel like a genius when your investments do nothing but go up. 2019 was a stellar year for both bonds and stocks, which meant that a lot of people were feeling pretty good about their investing acumen. Then last week happened and people started to search for things to blame because, let’s face it, nobody likes to take credit for being wrong. During times like these, the chorus of postulating pundits reaches a dull roar, and finger pointing becomes common practice.
  3. Patience is a virtue, in life and investing. I borrowed the quote at the top from Gertrude Stein because it applies perfectly to investing. Most of the time, being an intelligent investor means doing nothing. It means sitting tight as your investments go up, and sometimes down, but mostly up over time. My dad once told me that an investment portfolio is like a bar of soap: the more you touch it, the smaller it gets. By contrast, leaving it alone can lead to some impressive results over the long run. If any action is warranted during a correction, it's usually the kind that feels the worst (i.e. buying or holding). Keep in mind that timing the market is nearly impossible, so be wary of your impulse to try it.

Yes, the threat of a global pandemic is alarming. No, it isn’t pleasant to watch your portfolio decline in value. However, volatility is part of the price you pay to invest. The important thing is having a plan in place that accounts for and can withstand that volatility.

As a final remark, I sincerely hope that no one reading this has been personally impacted by the coronavirus (beyond the dip in your portfolio). I wish you all good health, which is, after all, the greatest wealth.

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