Bear Market Quick Thoughts

Bear Market Quick Thoughts

The recent market environment could cause anyone to panic. I think this historical decline should draw attention to the importance of planning for short-term cash needs ahead of time, and for keeping a diversified portfolio. Remember that investing capital is for the long-term and it is a strategic decision to create a diversified portfolio and stick to it throughout market cycles.

Speculating, or tactical investing, however, is typically implemented on a short-term basis. Make sure if you do choose to act in extremely turbulent market environments that you are doing so for the right reasons. A tactical short-term play is fine if you have the capacity and nerve, but don’t lose sight of your long-term goals and strategic game plan.

That being said, and for whatever it is worth, I have not sold anything in my retirement accounts during this decline. Beginning at the end of 2019, I began to increase the cash position in my trading account, and since then have slowly deployed some of that capital back into the equity markets. This year I have bought the following: SCHO, GS, SDC, KMB, VZ, LNVGY, BAC, SLV, GLD, FB, UTX, MOMO, GOOGL, HACK, SCHE and SCHB. I plan to continue buying equities long throughout any downturn.

Regarding the huge spike in volatility and large equity market declines seen, I think a lot of the concern may be around the debt markets, the oil producers are in a particularly unfortunate position due to the substantial spot price decline. So, on top of retailers, restaurants and the like being in a subpar position due to coronavirus concerns and precautions, oil firms are also in a poor position. Since our financial institutions lent those firms capital, it’s a strain on their own position as risk has increased while the risk-free rate has decreased. With rates across the curve at historically low levels, lenders aren’t in a beneficial spot (making loans to riskier debtors and having to do so at a lowered risk-free rate). But I’d assume the banks can handle it all given the stress tests that were Implemented post the financial crisis and the FED standing by to help in any means necessary. I digress, besides direct coronavirus direct fears, I think that the debt concerns have been going on in the background hurting the financial sector specifically.

Unfortunately, the likely outlook is for more bad data as we get more tests and results. I expect both 2020Q1 and 2020Q2 corporate results to be negatively impacted; and I hope business and sentiment rebound from there, but the impact could certainly be more prolonged. Of note, the media coverage on the virus has been excessive and it is clear people are panicking. I am not a medical expert, but I would like to say that this does not seem like a long-term issue for the global economy. Remember to make decisions with your investment time horizon in mind and not to act out of fear.