• James Tharin, CFA

The Roaring '20's?

I think the last thing anybody needs right now is a recap of the first quarter. Unless you’ve been living under a rock, and I guess that’s what we’re supposed to be doing now, you already know all about the second biggest story to sink the stock market in my nearly thirty year investment career. While the Corona Virus is the second biggest black swan in my opinion, this bear market is only the third worse so far with the peak to valley draw down in the S&P 500 at this point being -35.41%. The senior index was down for the first quarter of 2020 19.77%, not counting dividends.


So what now? Well, first of all we think that near term market action is highly dependent upon news flow related to the Covid-19 virus and that future news flow is next to impossible to predict consistently. Therefore we suggest that you review your financial plan, make sure that your asset allocation and diversification level are appropriate for your specific goals and risk tolerance and carefully consider how much money you are spending from your portfolio. We highly encourage you to contact us to arrange a time to review your financial plan and / or investment portfolio. As we have said since the crisis started, for those so inclined we still believe that the current crisis will prove to be a golden opportunity to add to your equity exposure as the story plays out.


While we can’t and don’t try to predict the future, we do among other things, attempt to adhere to three cardinal rules of investing initially put forth by Ned Davis Research. We’re not suggesting that investors abruptly uproot their entire portfolio and abandon their long term financial plan as the following conditions change. We view these points as guidelines for making tactical adjustments to existing portfolios as well as looking for entry points to selectively add to or rebalance equity allocations or even consider profit taking.


1) Don’t fight the trend. Right now the trend is clearly down and we are loyal to the trend if nothing else. We don’t think the buying opportunity that we anticipate has yet arrived except for possibly aggressive fundamental value investors.


2) Don’t fight the Fed. The Fed, nearly every global central bank and every branch of the U.S. Government is clearly working to support the U.S. and economy. In fact we believe that the current level of economic support is unprecedented. Before it is apparent to the general public, we think that the tremendous liquidity pumped into the global economy will be the catalyst for the next bull market in stocks.


3) Beware the crowd at extremes. It sounds so simple but its not easy. “Buy when there’s blood in the streets.” “Buy ‘em at the wake, sell ‘em at the wedding.” “Buy when others are fearful and sell when others are greedy.” Obviously fear abounds at levels historically marking bear market lows.


So two of our three cardinal rules are flashing the green light and we are just waiting for evidence that the trend has changed. We don’t know when or from what price level that will happen but it now is he time to prepare. For those waiting for the virus to go away we think the opportunity will be long gone and it will be too late after that news breaks to take advantage of bargain prices in stocks. By the way, U.S. Equities dropped 28.09% from October of 1919 through December of 19201 during the Spanish Flu. That was followed by the Roaring ‘20’s.


1 www.econ.yale.edu/~shiller/data.htm


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