Scott’s Take on the Market

Over the past few weeks, I’ve been asked by many people when we can expect to see the bottom of the stock market. I believe this thought comes from the wrong mentality—trying to time the stock market for optimal gains. In all honesty, predicting the bottom or top of the market is for southsayers and is not what I do—I counsel with people to attain their financial goals in all economic and investing circumstances.With that said, I am going to share my thoughts on the matter which will hopefully give you some direction and comfort:First, I do not have the ability to predict the future! This may come as a shock, but I cannot. If I could, I would be living on a secluded island, which I would use as my base for solving the world’s problems. Since I am still here in Las Vegas, you can rest assured that I still cannot predict the future.While we can extract data and knowledge from the past for guidance, all previous market movements have an overlay of their own unique set of circumstances, which taints the comparison. For example, the 1920 Flu Pandemic existed at a time that preceded computers—it would not make sense to compare to the economic effects of the 1920 Flu Pandemic with the potential economic effects of the Coronavirus even if there are many similarities in the spread of the disease itself.I have previously compared Coronavirus to the Swine Flu because both are respiratory pandemics that emanated from China within the 21st century and had a massive impact on global health. While the disease and its effects on global health may be similar to Coronavirus, the economic impact will likely be different because governments are responding differently this time around.Comparisons to economic disasters predating 2008 should also be taken with a grain of salt because our government has since developed new economic tools, such as quantitative easing, to minimize the effect of economic crises. While the long-term effects of these tools have yet to be understood, the short-term benefits have been relatively positive.Given these thoughts, I feel that the current investing climate is similar to the 2008-2009 financial crisis because the Swine Flu pandemic was just starting, major companies were feeling the strains of a tight monetary market, residential real estate prices were overinflated, a recession was on the horizon, and technologies were relatively similar to current technology. Going off of that premise, I am going to nerd out right now with some data and graphs. Comparing the Crises?This morning I took a deeper look at major crises of the past 20 years—the Argentine Economic Crisis (1999), Turkish Economic Crisis (2000), Dot Com Bubble Pop (2001), Financial Crisis (2007), Stock Market Meltdown (2009), Icelandic Financial Crisis (2008), European Soverign Debt Crisis (2010), Turkish Currency and Debt Crisis (2018), SARS (2002), Swine Flu (2009), Ebola (2018), and Coronavirus (2020)—here is what I found:Indexed from the beginning to the end of each crisis, 30% of the crises included a bear market that exceeded 25% in total market losses. Of those bear markets, all of them started a long-term recovery within a few weeks of hitting 25% in market losses.The deepest correction took place during the Turkish Economic Crisis when the dot-com bubble popped—the market was down 32.3% peak to trough.The market is currently down by 26% during this bear market and is following a similar trajectory as the 2008 financial crisis. I indexed the gains and losses of each market in the graph below.While the arguments I made above support a case for a recovery beginning next week, we have a unique overlay this time with governors throughout the country shutting down businesses and the economy, which will likely prompt an immediate recession. Given this, there may be several more months of market losses as the market tries to price in the possibility of a recession.Years ago, I learned that timing the market is a losing proposition since there is usually a single day of trading where a significant portion of losses are recovered and, if you miss that one day, you will have significantly injured your portfolio’s ability to recover from the dip. Correct ThinkingMost people try to time the bottom of the markets, and most people are also poor. Here are some steps to make sure that you are investing wisely at this time:Establish long-term financial goals—when are you going to retire? How do you plan on getting there? What will prevent you from attaining retirement? What will you do when something gets in your way? What is your contingency plan?Once you’ve established financial goals, it is wise to sit down with your financial advisor to determine your risk tolerance and align your investment strategy with your goals.Then, as opportunities present themselves in the market and elsewhere, you and your financial advisor can determine how to take advantage of opportunities while also staying true to your long term goals and investment strategies.So, for my clients who have financial goals and set strategies, I believe now is an excellent time to invest in the best companies because they just went on a tag sale, and you always buy the Rembrandt at a tag sale! My clients understand that it is always the best time to buy the best companies—now just happens to be more so. Bottom LineI have found that having financial goals and a sound strategy is the best way to calm your nerves and make the best investment decisions when the investing world is on fire. Before deciding on whether or not now is the best time for you to invest, I highly recommend that you have your goals and strategy in order first.Remember, the wise investor in stocks or mutual funds always seeks outcome.