Published On: March 9, 2020
Written by: Ben Atwater and Matt Malick
Watching the financial networks and reading market commentary today is instructive. Almost universally, these commentators did not predict a severe market decline in 2020. They blame “Black Swan” events like coronavirus; the oil price war between Saudi Arabia and Russia that emerged over the weekend; the collapse in Treasury yields; the historic volatility, etc.
The reality is that no matter how smart you are or how much time you spend trying to predict markets, you will fail. We are prime examples of this. We’ve been negative in our market views over the last few years, for a long variety of reasons, led by rich equity market valuations, but, no matter, prices charged higher. But we didn’t let these views cloud our discipline because the timing of markets is impossible.
Rather, we’ve been simply following our discipline, which we will continue to do. If you are a concerned client, please take some time to read Thinking About 2020 and Risk Still Exists, essays we published on November 21, 2019 and January 29, 2020. They offer context on the current market situation and on markets in general.
Having a general understanding of markets is much more important than understanding the current problems. A general understanding tells us that markets suffer extreme volatility and frightening drops from time to time. This is one of those times. Although this feels abnormal, markets do crash at regular intervals.
We have a strategy we will continue to follow. On Friday, we sent our note called Plan of Attack. We are committed to this plan. Our discipline is about determining appropriate long-term allocations for our clients and sticking to those allocations through thick and thin. In the past few years, as the stock market repeatedly attained new all-time highs, we funneled more and more money into high-quality bonds in order to stick to each client’s target asset allocation. Those bond purchases are now paying off.
We are hearing the phrase “this too shall pass” repeatedly this morning. Too frequently in our view. We think we are in for a period of pain, however we can’t waiver because nobody knows when the bounce back will occur. Ironically, eleven years ago today was the bear market bottom of the financial crisis. Very few saw that bottom coming.