by Arnold Machel CFP
“I have told you these things, so that in me you may have peace. In this world you will have trouble. But take heart! I have overcome the world.”
– John 16:33 (NIV)
Before I say anything else, let’s remember that God is still in control during these anxious times. He is not surprised or worried. Cling to His love. He is still there.
On July 8, 1932 the Dow Jones Industrial Average hit an intraday low of 40.56. At the time of writing, the Dow is around 21,200 – up over 500-fold since that intraday low (and that’s not even including the regular and increasing dividends paid), but down from its high by almost 30 percent.
Do you remember that “Start the car” ad? The one where the wife came running out to her husband yelling, “Start the car” because she couldn’t believe how cheap she was getting her goods for? I can’t even remember what the ad was for, but I remember the ad itself. And that’s precisely how I feel about equity markets right now. They are on sale at prices we haven’t been able to get for 3 years and it’s unlikely we’ll ever be able to buy them at such a low price ever again.
I’ve only said this a few times in my 25-year career…
While it’s always possible they could go down further, I believe we are at or near the bottom and equities are on such a deal that investors should load up as much as they possibly can. This is a “START THE CAR” kind of sale.
I have learned that in times like these, one of the healthiest things to do is to focus on what I can control and not to worry about the things I can’t. For example…
Things I can’t control
• The global spread of Covid-19
• Other’s reactions to the spread (hoarding, etc.)
• Stock market gyrations
Things I can control
• Hygiene – I can wash my hands more and I can sneeze, cough, etc. into a tissue or my sleeve
• Social distancing – I can avoid others who may be sick
• My investment behaviour – I can buy low, sell high rather than the other way around
By focusing on what I can control, I can make proactive, wise and healthy decisions that will likely impact me positively in the long run. Whether that’s my physical health or my financial health, it applies to both. It’s hard, because the news inundates me with things I simply cannot control, such as the rapid spread of the virus and its mortality rate, the craziness at the grocery stores and wild stock market fluctuations. And for some people, that makes them feel helpless.
The way to combat that feeling is to come back to focusing on our sphere of control and our sphere of influence. To simply do what we can and forget about the rest. We can be more careful around others. We can sanitize regularly and especially when we’re out and about. And we can take advantage of the market gyrations.
Since 1926, there have been 15 other instances where the U.S. benchmark was down 10 percent or more from a Friday close to a Friday close. Some of these include:
The Great Depression: a cluster of nine weeks between 1929-33
March 1938: the outworking of the infamous Federal Reserve policy mistake of 1937
May 1940: when Nazi Germany enacted the Manstein Plan to conquer most of Northwest Europe
October 1987: Black Monday
April 2000: Dot-Com Bust
September 2001: 9/11 terrorist attacks
October 2008: Lehmann Brothers declare bankruptcy
There is little pattern in terms of what happens next. Of the 15 instances, six experienced further negative performance over the subsequent twelve months and nine were positive. The worst-case scenario was -25 percent, the best +117 percent. Which might it be this time around? My belief is that it’s more likely to be positive, but even if it’s negative over the next 12 months, long term investors have always been ultimately rewarded and there’s no reason to believe that this time will be any different.
In my 25 years in the industry and my 10 years as a DIY investor prior to that, I’ve been through dozens of declines, a handful of which were of this magnitude. They happen relatively often (about every 5 years or so on average) and every time, some aspects are unlike anything we’ve ever seen before, but also some aspects are very similar.
This one actually reminds me most of an event that occurred when I was just a baby – the Cuban Trade Embargo and the Cuban Missile Crisis ending in October of 1962, in the sense that it was a world-wide existential crisis – watch the movie “13 Days” if you get a chance. The Dow hit a low of 535.76 that year.
In other ways, it reminds me a bit of 9/11. We were clipping along just fine, until all of a sudden, we got blindsided with a big event causing the Dow to drop to 8,920. We believed (and in some ways we were right) that the world would never be the same again.
These are just a couple of terrible events the world has come through. We’ll get through this one too.
What should we be doing?
First off, don’t panic – your portfolio is probably designed for this, but check with your adviser. Most advisers build a portfolio, knowing that a bear market will come along eventually (in fact, regularly). The best advisers create asset allocation, re-balancing strategies and defensive strategies and build them into the portfolios they utilize to help mitigate declines while still taking advantage of opportunities. Talk to your adviser. They will be happy to share those strategies with you.
Second, do what you can to add to your portfolios. The best thing you can do is add cash right now. If you have money sitting idle in the bank or GICs available to cash in, history has strongly rewarded savvy shoppers buying equities while they are on sale.
Lastly, consider adjusting your asset allocation. You may be thinking, “I don’t have any more money to add. All of my money is already invested.” There is still something you can do to take advantage of the situation. This isn’t necessarily the right thing for everyone, but if you have a long-term time horizon and an account that you are not drawing down on and you’re willing to take on a bit more risk to take advantage of this market, then you may want to consider slightly increasing the equity component of your portfolio. For example, investors in a conservative portfolio may wish to move up to balanced, those in a balanced portfolio may want to move up to growth and those with growth portfolios may want to go all in to an all equity portfolio.
These are not decisions that one should take lightly, but if you want to take advantage of this market and if you think you might be willing to bump up your risk profile a bit, then call your adviser and ask their opinion.
I’ve been through several bear markets. Every time, they recover. Every time, people say “I should have bought more while it was so cheap”. Don’t let that be you.
Arnold Machel, CFP® lives, works and worships in the White Rock/South Surrey area where he attends Gracepoint Community Church. He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services. Questions and comments can be directed to him at firstname.lastname@example.org or through his website at www.visionvest.ca. Please note that all comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary are those of Arnold Machel and may not necessarily reflect those of IPC Investment Corporation. While every attempt is made to ensure accuracy, facts and figures are not guaranteed.