March 10th, 2020
“Over the short run, however, the fundamentals are often overwhelmed by the deafening noise of speculation.”
Jack Bogle
This past quarter has been a tumultuous one for the domestic and international markets. Currently, on Twitter, there is so much talk about the Coronavirus, as well as its impacts on global markets. With the threat of global pandemics and financial meltdowns, everyone tries to consume as much information as possible to arm themselves with knowledge for safety.
However, emotions take over, and sometimes opinions are regarded as facts. Many people take hard stances on differing views, which has created an environment of contradiction. In this environment, it can be easy to make irrational, short-term decisions. Especially as investors are battered with headlines and opinions like:
- The REPO market is going to implode the US economy.
- The US has been on its biggest bull market ever, and it has to end soon.
- Bitcoin is going to be $xxx,000.
- Bitcoin is going to be worth $x00.
- Treasury yields are lowering at an alarming rate.
- The Chinese supply chain is going to disrupt the entire global economy.
- The Fed cuts 50 basis points in response to Coronavirus.
- The Fed rate cut did not effect the US market.
- Russia dropped the price of oil to squeeze out US producers.
- Bonds are the only safe place to be.
- “This is what 2008 felt like.”
This noise is propagated and repeated by many as they witness their investments take a turn downward. For those who have their assets invested in US and international markets, their portfolios have plunged this quarter. With so much uncertainty across all the markets and various financial sectors, investors might be seeking (maybe desperately so) “safe” places to allocate their funds and investments.
When you don’t know what to do, do nothing.
Mark Cuban
At the time of writing this, I’m down approximately 9% from the end of January. However, from my portfolio’s peak in February – from a combined uptrend in the cryptocurrency and equity markets – I’ve witnessed an 18% loss.
It’s a bit frustrating to look at these paper losses and wish I could’ve danced in an out. However, something that has helped a bit – so far – has been sticking to a plan I formulated years ago.
In 2015 I developed a firm investment philosophy, which dictates contributing as much as possible to tax-advantaged accounts (i.e., 401k, IRA, etc.) and maintaining a 20+ year horizon. I engrained this habit, during a general uptrend in the international and domestic stock markets. It was easy then.
In today’s volatile market, it is this philosophy that is helping to minimize the sting from watching the Total US Stock Market Index dropped 5% in a day and nearly 8% the following day.
Dollar-cost averaging has removed anxiety about investing in these markets. One puts in ‘x’ amount each month, no matter what, then doesn’t think about it anymore.
In 20 years, I’m betting the US will have grown its equities markets, Bitcoin will become a larger asset class than it is today, and the countries from around the world will continue to produce great companies.
It’s this long-term perspective that is helping downturns in the equities market, cryptocurrency bear markets, and general volatility taste less bitter.
I hope it continues to do so if the markets become even more implosive.