Fear, agony, depression, anger, and desperation are just a few of the feelings creeping through my mind over the last couple of weeks. As I’m sure you are aware, the market has gone into free fall and the world is in a true state of panic. Coronavirus has spread and brought the world down to its knee. I know things look grim, but as always when investing, it is best to remove emotion from the process. Take a deep breath, go for a walk, whatever you need to do to get yourself into the right mindset.
One mantra I have been repeating over and over is an ancient Persian proverb, This Too Shall Pass. Things look terrible, but the world will one day return to something that resembles normal. In America, we have gotten through the great depression, the financial recession, two world wars, a civil war, four presidential assassinations and once came on the brink of mutually assured nuclear destruction. I have confidence that in time we will overcome and get through this pandemic. We will look back on this as one of those events that we will never forget. This too shall pass.
I don’t say that to minimize the current state of affairs. This is an extremely serious situation that has ramifications felt in all walks of life. Our economy has essentially been put on hold and our most vulnerable citizens are left scared and hopeless. Unfortunately innocent people who did nothing wrong will die. Our hospitals will be strained far beyond capacity. People will lose their jobs and companies previously thought to be impenetrable will fold and go out of business. All we can do is persevere and make the best out of a terrible situation.
Peak to trough, markets have fallen roughly 35%. If your accounts have taken a massive hit, do not feel alone, everyone is suffering. I myself am suffering right along with you. It pains me to my core watching my money wash away. Across the nation, the sense of freedom and security has disappeared in the blink of an eye. Many have lost a significant portion of their retirement savings. I am lucky enough to be somewhat young and hopefully have a long runway ahead of me, but I sympathize with those who don’t. For those who plan to be net buyers of stocks in the coming decades, the only positive way to spin this is knowing that you can now buy stocks today at a 35% discount to what they were just a few weeks ago. I know that doesn’t make it any better, but it is now more important than ever to keep investing.
At some point in the future, there will be a resolution. I don’t know if that will be a month, a year or even many years from now, but eventually we will know where things stand and how the COVID-19 virus played out. In the end, this situation can really only go one of two ways. Either things will ultimately recover and return to normal or our entire world order will collapse and our financial system will turn to ruin. In the first situation, patience and delayed gratification are crucial. In the second, financial assets will cease to matter. Human society will have broken down, so what’s the difference? Who cares what stocks you own or cash you have if the entire system has collapsed? I happen to think the second scenario is incredibly unlikely, but just my 2 cents.
So the question is, how can we make the best out of this awful situation as an investor? Below I have listed 5 actionable steps we can all take.
5 Actionable Steps
- Stop Panicking- Easier said than done, but panic provides no benefit. Calm, rational well thought out decision making will always win. Now is the time to start formulating a game plan. Most of us have been quarantined and are stuck at home. You have an abundance of time, make use of it. Take this as an opportunity to learn and grow. Determine what your goals are and how you can reach them.
- Give Gratitude- I find myself to be a bit useless at times like these. Other than giving away money, I have no ability to save anyone. I do not have the necessary skills for these kinds of disaster situations. For that reason I find it especially important to be thankful. There are men and women out there on the front lines risking their lives in order to give care to those who fall ill. Thank the doctors, nurses, hospital staff and administrators, emergency responders and anyone else who is out there providing vital relief. They are not the only ones putting themselves at risk however. Thank the cashiers at the grocery store, thank the delivery driver who drops off a package so you don’t have to leave the house, thank the bar and restaurant workers providing you with food to go. There are countless other brave souls out there potentially exposing themselves to the virus, making sure our society continues to function. Thank them!
- DO NOT SELL!- The absolute worst thing you can do is to sell out in the middle of a panic. It truly sucks watching your stocks go down every day. I hate it as much as you do, but you never know when the tide will turn. I am not in the game of timing the market. The market will likely recover long before we see the end of the virus. It will turn when sentiment burns bright. I’ll leave it up to Peter Lynch to describe it better than I can. “A stock market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in a panic.”
- Look To The Greats- We may not immediately know what some of the best investors out there are currently doing, but we can at least attempt to put ourselves into their shoes. Even better, what would they do if they were in our own shoes? If Warren Buffett wasn’t handicapped by Berkshire’s massive size and the public scrutiny that comes along with all of his decisions, how would he proceed?. I can’t tell you exactly, but I would imagine he would be turning over every rock trying to find the diamond in the rough. He would be looking for great companies with a strong moat, that have fallen to a price far beneath their intrinsic value.
- Put Your Research Into Overdrive- As an investor, this is probably the most important step. Everything else you do is all for naught if you don’t put in the work. Populate your watch list, start reading 10Ks and sift through as many balance sheets as you can. As for myself, I plan on taking a look at every company within the S&P 500. I’ve gotten to the point where it only takes me about 30 seconds to know if I might have interest in a company. If I do, more work needs to be done, but otherwise I Just pass on to the next one. After that I’ll start using screeners to help me find smaller companies not located within the S&P. This might feel like a daunting task, but truth be told, you don’t get the reward without the process. When the time comes, you will be ready to pounce.
I know this time is challenging and things are likely to get worse, but remember This Too Shall Pass
Thanks for reading. I’ll be back sometime next week to give you my Q1 portfolio update. Sneak Peak: It’s bad! You can follow me on Twitter @TheGarpInvestor.