The stock market has taken a beating this week with the Dow Jones Industrial Average (DJIA) experiencing at least two quadruple digit loss trading days and a possible third today. The DJIA peaked earlier this month at 29,551 points, but is currently trading in the 24,000’s territory.
While we are noticing and tracking these market moves, we are not yet concerned. We are still optimistic about investing in the 2020 stock market. Here’s why:
- The stock market does not behave rationally. We believe that the coronavirus is not as serious of a threat as the irrational market investors make it out to be. We have seen epidemics such as the swine flu, ebola, and yellow fever before and the stock market always rebounded and made more gains subsequently.
- The economy is looking good with unemployment still low. Consumer spending was up .2% last quarter. This is an election year with an incumbent running for office which has always bode well for the markets. These are the fundamental issues that affect returns. Because the fundamental issues are all good we don’t see this as a sign of the next bear market.
- While we don’t see a bear market coming, we don’t see a bull market coming either. We feel pretty average about 2020. At a conference last week I heard a world-class economist give his prediction that 2020 will be an uneventful, volatile perhaps, but still even-keeled year. In other words, you won’t lose your shirt in the markets this year as long as you stay in.
- The coronavirus is just an epidemic with still under only 2,800 deaths and roughly 82,000 confirmed cases. The mortality rate is 2.3% which is concerning, but there have been no coronavirus deaths in the US.
- In the words of Franklin D. Roosevelt in his presidential inauguration in 1933, “The only thing we have to fear is fear itself.” The coronavirus has scared a lot of investors which have caused them to pull out of the markets in anticipation of a sell down. History proves that selling in a scare like this is counterproductive and only causes losses or lost opportunities in your portfolio.
- Now might actually be a good time to buy in. When the markets are down it’s a great time to invest because you’re able to buy in at a discount and then ride the waves of the market returns after the scare is over.
- Whatever you do, don’t sell. Markets are not rational because the majority of investors are not rational, but you can be different and invest rationally. Good investing comes down to this: buy low sell high. If you’re selling at the bottom of a market you’re selling low and buying high, the opposite of good investing philosophy.
- Whatever assets you have in the stock market should be long-term investments anyway, so you don’t need to worry what the market does in the next months or even next few years. Your portfolio should consist of different asset classes including real estate, bonds, cash, and stocks. The stock portion of your portfolio may be taking a beating right now, but it will bounce back and continue to grow over time. Sit back, relax, and let your investments go to work for you.
While the fear of the unknown can be scary, we encourage you to relax and stay committed to your investing strategy. If you have some extra funds sitting around, now might be a good time to invest them in the stock market. Resist the urge to hit the sell button. Continue playing the long game because good times lie ahead in your investing future.
Of course, if you have any questions or would like an opinion on your portfolio, please let us know.
