What to Do Now

Written by Rob Copeland | 12 March 2020

The coronavirus has been tough for investors: We're now in a bear market, which is defined as a drop of at least 20% from a previous high. So you may be asking yourself what, if anything to do.

In brief, the key is going to be to use your head and avoid making reflexive, gut decisions. The market is being driven by two major events right now. The first is concerns about the virus, which the World Health Organization has now classified as a global pandemic. The second is that Russia and Saudi Arabia, two of the world's biggest oil producers, are squaring off in a price war. That's terrible news in particular for the U.S. shale oil industry, which needs relatively high prices in order to keep repaying its high levels of debt.

Stocks have been selling of because investors believe these two events will create a domino effect that will drive down corporate earnings. And they're probably right. In times like this, consumers' fear can become self-fulfilling as they stop spending money, which hurts businesses, which slows the economy.

But here's some perspective: Every crisis eventually comes to an end. As bad as things look right now, things will improve. We'll see the development of effective coronavirus drugs. Societies will learn how manage care for those who are infected, and we'll get better at curbing its spread through public health measures. We're already seeing this with, for example, the NBA suspending the rest of its season to slow the spread of the virus.

The oil situation will eventually change as well. While consumers benefit from cheap fuel, producers don't. Either they will end their price war or reduce production to become more profitable. Yes there will be pain, and highly indebted fracking companies are not the right place to be right now (and neither are cruise companies). But life will go on and eventually return to normal.

Now for the silver lining. Thanks to the market selloff, the stocks of some great companies are on sale right now. I've started selectively buying those that have strong balance sheets and, I think, great futures. Some of these firms, including in tech, had rallied so much in recent years that they didn't make sense to buy. Now they do.

So don't get psyched out by the headlines. And remember, as the saying goes, "the time to buy is when there's blood in the streets." Follow your head, not your gut, and understand that this is a time for optimism. Please don't hesitate to contact is if you'd like to discuss your investments.

What the Coronavirus Means for Investors

Written by Rob Copeland | 12 February 2020

The Wuhan coronavirus headlines are scary: More than 1000 deaths in China since late last year, and over 40,000 confirmed cases globally. Thirteen cases so far in the United States, and thus far no vaccine.

The virus outbreak has shackled the Chinese economy, which was already hurting from the trade war, and shaken its markets. In the U.S., it sent the Dow Jones industrial average plunging more than 600 points on January 31 amid fears that the Chinese slowdown would affect U.S. businesses.

How concerned should you be about your investments? For the long term, not very.
Wall Street analysts estimate that the virus's impact could shave up to half a percentage point off of economic growth in the first quarter, but they expect a rebound in the ensuing quarters and positive growth for the year.

Health researchers believe that the disease's spread is likely to peak in mid-to-late-February. Warming weather should help, and of course a vaccine, which drug makers are working on, would be a game changer.

That said, there are sure to be short-term losers. Developing Asian countries that rely heavily on trade with China are feeling significant economic pain. And U.S. companies that are especially exposed to China – like those in the travel or gaming industries – will likely bear the brunt of the pain.

But in the larger picture, the Wuhan coronavirus is likely to be a temporary obstacle to the market's healthy long-term growth. Experts point to other viral epidemics, such as Ebola, SARS and Zika, and argue that market losses were recouped quickly in each case after it became clear the spread of the diseases had peaked.

Could the current coronavirus be different? It's conceivable. China has become a global powerhouse and its economy is much more intertwined with the rest of the world than during, say, the 2003 SARS outbreak.

Still, I believe the Wuhan coronavirus will ultimately be a passing story. Rather than playing defense, I'm looking for any market pullback that might be an opportunity to invest idle cash. Please don't hesitate to contact us if you'd like to discuss your investments.

Iran Tensions and Your Investments

Written by Rob Copeland | 12 January 2020

The markets don't seem terribly concerned about the threat of war between the United States and Iran. While the Dow plunged 300 points in its first session following the drone strike that killed Iranian General Soleimani, they quickly stabilized, and then resumed rising.

But what if investors are being too sanguine about what might lie ahead? It's conceivable that the death of Soleimani, and the retaliatory missile strike from Iran, will turn out to be the beginning, and not the end, of this story.

If that's the case – and it's worth at least considering the possibility that more shoes will drop – then the markets could drop significantly.

For the moment, tensions between the two countries have dropped. Both sides could claim that they scored a point, and move on. But Iran could launch further attacks, on U.S. bases around the world, or in the U.S. itself, including the threat of cyberattacks.

And there's another source of friction that could easily spark into a major conflict. After the strike against Soleimani, Iran announced that it would pull out of the 2015 anti-nuclear agreement it negotiated with the United States and other countries.

That means Iran could start enriching uranium again immediately, and hypothetically have a nuclear weapon in just about a year. That raises the possibility of a pre-emptive U.S. strike against Iranian nuclear facilities in 2020. Iran would likely retaliate, and a full-scale war isn't out of the question.

In such a scenario, stocks would likely take a hit. Remember, the Dow fell over 13% in the period after Iraq's 1990 invasion of Kuwait and the start of the U.S. military offensive against Iraq. This time, the market action would come in the 11th year of a bull market, with stocks at record levels; this could make a drop especially sharp.

Is the scenario a worst-case one? Perhaps. But when it comes to investing, it's better to be safe than sorry. In times of uncertainty, you want to make sure you're making the right bets in your portfolio. Now is a good time to rebalance your holdings, and to reconsider investments that might have too much exposure to geopolitical risks.

How to Lose Money in the Stock Market

Written by Rob Copeland | 10 December 2019

Is it time to get out of the stock market? That's a question that many people are asking as the longest-ever bull market rumbles toward its 11th year. But the question is the wrong one.

If you're a serious long-term investor, you don't change course based on the age of the bull market. You don't make kneejerk decisions when stocks fall for a few days in a row, as they did early this month. The only question you should ask yourself is whether your goals or comfort level with risk have changed. If they haven't, then nor should you make any significant changes to your portfolio.

Remember the 2008-2009 crash, when investing as we knew it seemed to be forever broken? The S&P is up 370% since the nadir of that period. And if you attempted to time the market back then – to jump out early enough and get back in soon enough – you probably shot yourself in the foot.

It's just human nature. Convinced that the key to protecting and growing their money is to "do something," many investors end up doing the wrong thing. Consider this: The stock market has returned about 10% a year since 1988, on average. But the typical investor in stock mutual funds has earned only 4.1% per year, according to research firm Dalbar. Why have investors missed out on 60% of the market's profits? Because they have hard time simply being patient and letting the markets work.

Failing to exercise patience and think long-term can destroy your investment results. Say you invested $10,000 in the S&P 500 at the start of 2009, and left it untouched. But the end of 2018, you'd have $35,300. But if you had fiddled with that money based on what you thought the market might do, the results might be very different.

If you missed the 10 top performing months in that decade, for example, you wound up with just $15,800. If you missed the 20 top-performing months, you lost a chunk of principal, ending up with $6,830. This kind of behavior happens all the time: Investors see the market starting to decline, or hear experts saying that the market is expensive and is due for a fall, and they pull their money out to avoid losses.

The problem is that nobody knows whether the market actually will decline, by how much, and when it will start to recover. Those who pull their money from stocks and put it into cash or more-conservative investments often do so too early. And they are often gun shy about jumping back in to stocks, even as a recovery has begun. So they miss out on some of the biggest gains as the market recovers.

That's not to say you should never make adjustments to your portfolio. It's important to rebalance – to restore the optimal balance among market sectors and styles – periodically. This helps to give you the best opportunity for growth while avoiding undue risk.

That's very different from market timing, though. As an investor, one of your greatest assets is time, with its power to slowly but surely compound your wealth. Successful investing is about time in the market, not timing the market. If you'd like a no-obligation review of your investments, please reach out and contact us.