Market Seems Crazy!!!! Why?
Sigh…An interesting world we live in. Markets and headlines never cease to be extreme and the world is gripped by virus uncertainty. This reality leads to a very simple question:
Can you help me understand why the stock market is so volatile; it seems so crazy!!!!!!
The virus outbreak is still in its initial stages and we simply don't know how things are going to turn out long-term. That uncertainty drives volatility and certainly is impacting behaviors of businesses and individuals here in the United States. While conditions here are clearly uncertain, the drama going on in China and other places around the world is more significant. I'll give you an example of what’s happening in Asia.
As I shared in a recent media appearance, many households are been restricted such that only one person every two days can leave the house for food and other items. They have passed out tickets that they present to the local authorities. Here is an example of an actual ticket being used by a family in China provided to me from one of my business contacts. Pretty amazing.
Pause not End
But despite these international headlines, as well as the seriousness of this outbreak, we do not believe it is the death of the US and global economy. Instead, we believe it is simply a pause in the US and global economy.
Let me repeat. Instead, we believe it is the pause (not the end) for the US and global economy.
That means earnings will be lower, company profits will be lower, social interactions will be impacted, and a general economic malaise will occur for the next three to six months. What the market is saying is that on the near-term, you'll likely see lower earnings and lower growth. In fact, the odds of a recession have increased on a global basis.
The losses you see in the markets (as well as gains you see in fixed income) are at least 50% driven by fear. Some investors are reacting with panic and I believe years from now will likely regret making short-term moves that are driven by an unreasonable level of fear.
That’s how it is with short term panic. People have a hard time looking past now and focusing on the future. It’s human nature. That's exactly what's happening in the market today.
Some investors are focused on what the impact will possibly be over the next three to six months based on the coronavirus. Because institutional investors tend to be short-term in perspective, volatility emerges. This is not volatility driven by retail investors it is based on today's headlines. You are seeing institutional panic for investors that have one month to six-month time horizons.
After this economic pause, we will see a bounce back. That bounce back is the focus one should have when investing for long-term strategies.
Prudent investors and Destination Wealth Management do not play the trading game and instead focus on companies that have long-term solid fundamentals. These are the types of companies and investments that tend to power through headlines once temporary challenge dissipate. This is the strategy that Warren Buffett uses and that most successful investors use when building long-term net worth. It's also the strategy we use as we manage portfolios towards long-term planning goals.
One last comment. I've been asked if I have any plans to go to Asia or China in the near future. The answer is no. I was there late December and have no intentions of returning until things calm down. In other words, I'm still here with the entire investment team watching your portfolio and making adjustments as needed.
If you have any questions about this information, please let know. Always here to help.