Quite a week we have on our hands here folks! It’s Friday morning, 8:30ish Mountain time as I write this and the S&P 500 is off another 3.4% this morning, after a week-long painful rout in global stocks. The S&P 500 ended last week around 3,337 and right now sits a 2,875, a drop of almost 14%.
That, my friends, hurts. It does! It’s okay to admit that this part is not fun. No one wants to see stocks fall this way (even us young folks who will ultimately benefit from being able to buy more and more stocks at last year’s prices). Seeing huge red numbers inflicts panic in our hearts, and because we have terrible brains for investing, brains that were designed to run from every threat on the savanna, we can only assume that TERRIBLE DANGER LURKS AHEAD.
Of course none of us know what lurks ahead. Maybe next week the market falls another 15%! Or maybe we make most or all of it back. I have no idea. Really, I don’t. Neither do you, neither does the CDC, or the President, or your brother in law, or your next door epidemiologist. Markets are fickle and crazy and made up of humans making decisions that are influenced by what they read on Twitter today and what they had for dinner last night and the fight they got into with their spouse this morning and how bad traffic was on the way to the office and whether or not the bakery was out of their favorite fritter. In the short run, the market reflects the collective madness of our decisions.
So what are we supposed to do? Here’s what we’re going to do.
1) Remember that this happens. No, a decline of this pace is not a super typical thing. Also, it is not unprecedented. Markets go up, and then they go down. Over time they go up more than they go down. In the last 11 years markets have gone up A LOT and down hardly at all. This happens.
2) Remember that we knew from the outset that this happens, so we wrote an Investment Policy Statement that says how we are going to invest. That we’re going to take a (very) long-term view. That we aren’t going to speculate about short-term market movements, or individual stocks, or news stories. Our Investment Policy says we’re going to make semi-permanent investments in a portfolio of globally diversified stocks and bonds so that we can capture the long-term returns of markets.
3) We’re going to take action as appropriate as laid out in the investment policy statement. That means taking tax losses where and when they are available. It means rebalancing portfolios when they are out of alignment (side note: it takes a BIG, REALLY BIG, move in the markets to move a balanced portfolio out of balance).
4) If you have debt, be it a mortgage or a commercial loan, consider refinancing. Long-term bond yields are at or near all-time historical lows as investors search for safety, driving up prices and down yields of safe assets.
5) We’re going to go live our lives. Turn off the news, put down our phones, move on with life. Play with our kids and grandkids, walk and run and ride bikes and hike and ski. We’re going to buy groceries and pay the utility bills and put gas in the car and go to work. We’re not going to sit glued to Twitter and CNBC and convince ourselves that the world is coming to and end. There are no answers there, there’s no peace or comfort or solution there.
Bason Asset Management 