This Is What You Pay Us For

Currently, emotions are running very high with many investors. Soon, they will discover what we already know: That acting out of emotion usually means overreacting. And that’s never a good thing.
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If you’ve opened a newspaper or kept an eye on the markets lately, you know that the last few weeks have been crazy.  Volatility is back, and it’s back with a bang.  Currently, we are experiencing what’s called a bear market—a 20% drop from a recent peak. 

It’s not fun to watch the markets go on their own personal rollercoaster ride … but it’s not unusual, either.  For that reason, I’d like you to remember two things:

1.     Bear markets are inevitable.  Since 1926, there have been eight bear markets.  “The average Bull Market period lasted 9.1 years with an average cumulative return of 480%.  The average Bear Market period lasted 1.4 years with an average cumulative loss of -41%.1

2.     This is what you pay us for—to hold your hand and help you get through times like these.  So, with that in mind, I’d like to tell you about a few things my team and I are doing. 

First, we’ve been studying the markets intensely over the past several weeks.  It’s no secret what’s causing all this market volatility.  Investors are deeply uncertain about the effect the coronavirus pandemic will have – not only on the companies we invest in, but on our friends and loved ones.

Second, we’ve reviewed how past epidemics have affected markets.2  Here is the answer:

........................................CHANGE OF S&P // CHANGE OF S&P
SARS // April 2003 // 14.59 // 20.76
Avian flu // June 2006 // 11.66 // 18.36
Swine flu // April 2009 // 18.72 // 35.96
Cholera // November 2010 // 13.95 // 5.63
MERS // May 2013 // 10.74 // 17.96
Ebola // March 2014 // 5.34 // 10.44
Measles/Rubeola // Dec 2014 // 0.20 // -0.73
Zika // January 2016 // 12.03 // 17.45

Of course, past performance is no guarantee of anything. But let me ask you this.

If you were me and you were going to recommend action based on this data, what would you do?  Buy gold?  Get out of the market? Would you stay put? 

If I were you, advising me, I would say, “Stay put.”

Third, we’ve reviewed your portfolio for any potential problems or signs of weakness.  The good news is that we feel your investments remain on solid ground.  We’ve invested in good companies, have factored in your goals, risk tolerance, and immediate needs, and ensured that you stay properly diversified.  While you certainly may see a further decrease in performance in the short term as the markets take time to settle, remember that we’re invested for the long term.  The day-to-day noise of the markets is just that: Noise.  Our job is to filter out that noise and keep you focused on what’s really important: Your long-term goals. 
This is what you pay us for—to keep an eye on your investments in an unemotional, unbiased way.  Currently, emotions are running very high with many investors. Soon, they will discover what we already know: That acting out of emotion usually means overreacting.  And that’s never a good thing. 

So, here’s how we’re going to act: With patience, rationality, and rules.  My team and I will continue evaluating both the markets and your portfolio.  If we feel the need to recommend any changes, we’ll let you know immediately.  Because that’s what you pay us for.  It’s in situations like these that we feel we can bring you the most value. 

One more thing.  I mentioned a moment ago that a lot of investors are acting emotionally—and that primary emotion is fear.  If you know anyone who needs someone to talk to, please send them our way.  Feel free to give them this letter. 

In the meantime, we’re here for you if you have any questions or concerns.  Please feel free to give me a call at 215-665-6609 at any time.  I’m always happy to talk to you!  

March 2020

1First Trust Advisors L.P., Morningstar. Returns from 1926 - 9/28/18. Quoted in
2“How the stock market has performed during past viral outbreaks, as coronavirus spreads to Italy and Iran,” MarketWatch,

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