Hope you are well and safe during this extraordinary time. Because of COVID-19, the market volatility is much more erratic than the typical “ups and downs”. Since it is difficult to time markets in an attempt to get in and out at the “right time”, staying the course has historically made sense even during uncertain times. We had a major downturn followed by a rally in April. Yet the economic landscape continues to look unpredictable.

Benjamin Graham (Warren Buffet’s mentor) wrote one of my favorite investing books in the middle of the Great Depression. He was a value investor and had to deal with huge economic uncertainty for a decade. Hopefully we will have a much shorter disruption. Yet even during his time, Graham gave helpful guidelines. He said an investor should have a range of 25% -75% stock allocation in their portfolio, even in unbelievably bad or good times.

Our economy has entered a worrisome period. It remains unclear whether some businesses will survive. The economy will take a big hit and our explosive national debt will come with an eventual price tag. Yet my concerns must be tempered by considering a few reasons why the markets may go up.

1. The world banks are spending TRILLIONS to prop up the markets. They are even purchasing risky assets and keeping interest rates down.
2. Missing out on the “best market days” can be huge. For instance, since 1980 if you missed the best 5 days –your market return would be down 35% just from missing those days.
3. Investment gains almost always take place during uncertain times due to the added risk premium. If a proven vaccine for the coronavirus is in place, there’s a good chance markets will bounce back many months before the vaccine is fully rolled out.
4. Investing requires not only knowing when to get out but when to get back in. Often times panicked investors are late to come back into the market.

Implications

I continue to be cautious. The markets seem to underestimate the duration of this economic/medical shut down. But market timing solely based on this concern needs to be tempered.