Now What the Hell Do I Do?

  • The coronavirus pandemic has triggered unprecedented levels of economic turmoil and stock market volatility.
  • It’s very difficult to stay the course when no one seems to know what lies beyond the horizon.
  • There are steps you can take to help your investment portfolio survive the Covid-19 pandemic.

In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.” 

Warren Buffett

I think it’s fair to say that few of us imagined in our wildest dreams what has been happening lately.  The efforts to address the Covid-19 pandemic, and the economic repercussions of those efforts, are an all-time first. 

Investors are told to prepare for the unexpected by investing in a diversified portfolio of stocks and bonds and adopting an investment policy statement that they are committed to over the long term.  The goal is to embrace an investment approach that you can stick with when the unexpected occurs.  

Unfortunately, it’s much more difficult to prepare for the unprecedented than the mere unexpected.  Too many times we mistakenly equate the unprecedented with the impossible, and therefore we find ourselves unprepared when an extraordinary event strikes.  Being caught flat-footed can lead to decisions with long-lasting adverse consequences.

One of the most commonly given pieces of investment advice is to “stay the course.”  In most cases, that’s sound advice.  That’s not to say, however, that you should stand still like a deer caught in the headlights.  To the contrary, one of the best consequences of being proactive when facing the unpredictable is the greater confidence that flows from just doing something!  

Here are some things you can do to help you make sound decisions when entering uncharted waters.

  1. Review your investment policy statement (or create one if you do not have one). A thoughtful and well-reasoned investment plan can remind you of where you want to go, and how to get there.  It can also help get you get back on course when you’ve gotten lost because you let your emotions lead the way.

  2. Re-examine your investment strategy. Hopefully you have adopted an investment strategy that is academically sound and has been rigorously tested.  If so, re-acquainting yourself with the support for that approach can provide invaluable peace of mind.  If, on the other hand, your investment decisions are ad-hoc and predicated on predictions of what comes next, then think seriously about adopting a more methodical approach.  Remember, risk comes from not knowing what you are doing.

  3. Tune out the market forecasters, soothsayers and fortune tellers. Buffett puts it this way:  “(Charlie Munger and I] have long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

  4. Keep an eye out for positive developments; there will be plenty of people anxious to tell you about the bad ones. For example:

  • The FDA has authorized a new test that could detect coronavirus in about 45 minutes. [Read more here.]
  • A simple and medically feasible strategy is available now for treating Covid-19 patients via transfusing blood plasma from recovered patients. [Read more here.]

  • Israeli scientists may be on the cusp of developing the first vaccine against the novel coronavirus, according to Science and Technology Minister Ofir Akunis. [Read more here].

  • The Federal Reserve has pledged to provide limitless support for credit markets. [Read more here.]

  • You don’t have to buy in at the very bottom to make money investing in stocks during bear markets. [Read more here.]

  • “Every dollar they invest in the current market environment will grow to far more than one invested in months prior, assuming that the market eventually recovers.” [Read more here.]

  1. Consider converting your traditional IRA to a Roth IRA. There may never be a better time to do so.  The stock market sell-off most likely means the upfront tax bite will be much less and higher tax rates could follow in the wake of the November elections. [Learn more here.] 

  2. Perhaps, most importantly, remind yourself that if you are a long-term investor, then time is on your side. If, on the other hand, you are a short-term investor, then you probably should not be invested in stocks in the first place. [Learn more here.]

Be safe, stay calm, and carry on.

Thank you for reading,

Mr. Market Commentator

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