As you probably know, the market selloff was sudden and swift. We managed the downside reasonably well. We employ automatic sale triggers on a limited basis in case of events like this. In particular, we trimmed our exposure to stocks in the travel industry and those with supply chain risk.
However, we do our best not to overreact in a manner that upsets or violates long-term investment strategies. Who knows what tomorrow brings? The markets can recover quickly. The Dow was up over 1000 points on March 2. The next day it rose another 2% in a matter of seconds as the Fed cut rates. But then it fell 5% from that intraday peak by the end of the day, losing about 800 points. Yesterday the Dow surged upward almost 1200 points, only to give back half those points before noon today, as I write. No one can react that quickly or efficiently to such moves, which is why staying the course is critical.
Short-term reactions can destroy long-term investment returns, especially when driven by fright. It takes discipline to maintain a long-term perspective in times like these. That is where asset allocation is the most appropriate strategic tool for optimizing risk and return. This should be reviewed periodically, particularly as we get older.
It is hard to assess the long-term damage that may be done by this virus. We do know that the best professionals are hard at work at everything from physical containment to development of a vaccine. There is hope (but not certainty) that warmer weather will inhibit the spread of the virus.
In the meantime the market has reacted much more severely to this than to any other health crisis in the past decade. The decline was also much sharper than occurred during the Cuban missile crisis in October 1962.
Sometimes market recoveries are in the shape of a V. Other times they take months. After 2008 the recovery took even longer. That crisis involved financial distress more germane to security valuations. Still, anybody who stayed the course is well ahead of the game.
There is always something we could have done better, but there are no known geniuses who can call market tops. And most often when one sells, prices tend to be higher within a few months or a few years at most. In minor market squalls, selling often occurs at an inopportune time. Studies from Fidelity and others show that attempts to time the market lead to material underperformance.
We do our best to keep losses to less than they would be in an index fund and have generally succeeded in this task. We are available at any time you care to discuss things further.