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WORRY IS A WASTE OF MONEY
Wild daily market swings perfectly reflect the dueling perspectives on the Coronavirus. Markets work tirelessly every day to calibrate reality with expectations. Recent reality has seen an economic mix of encouraging pre-corona momentum with post-corona downsizing. High levels of uncertainty have dashed expectations and thousands of Dow points.
Anxious times like these shorten fields of view. Short term traders feast on the volatility but longer-term investors must resist compulsion. Changing your investment identity from investor to trader only amplifies investment risks.
Consider the following graphic courtesy of Charlie Bilello with Compound Capital Advisors:
On any one given trading day the S&P 500 has an even probability of rising or falling. What did the Fed say today? Who tweeted what? What day of the week is it? What’s the case count? Expectations vacillate, markets gyrate, and it’s a coin toss.
If you use daily action for cues on overall direction, your investment program will surely fail. In fact, if you stop watching the news altogether and make no trading decisions, you have a 74 percent chance of making money in any given year, an 88 percent chance of making money over 5 years and a 100 percent chance of making money over 20 years.
Furthermore, most balance sheets contain more than stocks. Calculate your total net worth and then the reduction overall from a 20 percent drop in your stock portfolio. Feel better? Asset allocation mitigates losses and you are likely much more diversified than you realize!
Bottom line: The Coronavirus has economists and investors quickly calculating worst case scenarios. Global growth could grind to a halt if everyone self-quarantines. This could certainly happen and would rob companies of earnings growth and investors of returns.
Inevitably, governments will react by flooding economies with stimulus which will amplify growth rates as the virus fades. How long will this take? Unclear, but investors have libraries full of wars, viruses, natural disasters, acts of terrorism, and other exogenous shocks for reference. In each instance recoveries followed.
We feel confident that in 2020, history will repeat … not end.
David S. Waddell is CEO of Waddell and Associates. He has appeared in Inside Memphis Business, The Wall Street Journal, Forbes, Businessweek, and other local, national, and global resources.
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