With two of the most volatile weeks in market history behind us, and with an unclear and uncertain near -term future, it’s important to remember and to understand the greater context of RMR’s long-term investment philosophy as a wealth management and financial planning company.
- As the coronavirus (COVID-19) has emerged as a global pandemic with uncertain and unrealized capacity to exert negative influence on the worlds economy, the financial markets have been turned upside down with an ugly voracity that has left many investors fearful, panicked and unsure.
- While the effects of the coronavirus and its negative impact on the domestic and global economy are temporary by nature, the wider the spread of the virus and the longer the shutdown of various establishments is extended, the longer and deeper the ensuing economic downturn will be. With the US economy already in solid form and in full growth mode prior to the pandemic, the prospect of a stronger recovery becomes more likely the sooner the threat is alleviated and businesses and markets resume some semblance of normalcy.
- Though each new crisis or pandemic presents itself in a novel manner with unique challenges, there is nothing new about market volatility or bear markets. Financial markets have weathered viral epidemics and pandemics before, as well as other situations that have exerted unforeseen negative effects on the economy.
- Emotional and impulsive decision-making driven by fear and panic is usually irrational and harmful to the overall goal. RMR’s long-term investment philosophy as a wealth management and financial planning firm is inherently objective and unbiased in nature, advocating well-diversified and purposive portfolios designed to withstand the most volatile of down markets while prospering in the best of up markets. Stay the course. Stay calm, stay focused, stay invested, stay diversified.
A GLOBAL PANDEMIC
As the Coronavirus has evolved into a global pandemic, the financial markets have reacted in a very volatile and dramatic nature, bringing an abrupt end to an 11 year bull market and plunging the markets into the first bear market since 2007. With so much uncertainty around the spread of the disease, the extent of infection and the breadth of the steps being taken to mitigate the spread of the disease, it is very difficult to provide accurate projections on just how much of an impact this will all have on the economy. It goes without saying that the longer we remain “shut down”, the longer and more pronounced the ensuing economic downturn will be. With that, the risk of further downside in equity markets continues to remain elevated in lieu of such clarity.
While monetary policy, fiscal stimulus and government intervention are not enough to entirely prevent a downturn, they are incredibly helpful, if done properly and sufficiently, to provide strong levels of support and reassurance and to help stimulate a more rapid recovery as the spread of the disease begins to abate and we pull through the crisis. Moreover, the US banking system remains very well capitalized, with banks publicizing their willingness to extend credit, modify loans and provide a wide array of lending and financial assistance to help small and medium sized businesses get through the slowdown. Unlike 2008-09, the underlying US economy was in fairly good condition leading up to this situation, with the odds of an instantaneous and prolonged transition from solid growth to recession very rare and unlikely, especially considering the circumstances of this selloff being related to the more temporary effects of the virus as opposed to the more systemic affects of a poor economy. That being said, while it is expected that the downturn will be short-lived and contained, it will still likely cause a sharp and painful downturn beginning in Q2. With a widespread national state of emergency having been declared, extensive venue closures will have a massive impact on corporate revenues as well as layoffs. If the negative shock to the system is brief and fleeting, economic growth and expansion should continue in the second half of the year as employers and workers get back to business as normal.
While the unknown and novelty of each newly introduced catastrophe or pandemic can create uncertainty and anxiety, we must understand that so many of the crises and pandemics that we have experienced throughout modern history were similarly novel and skittish when they first occurred. While the coronavirus pandemic is particularly fearful in itself, the markets have always withstood such novel challenges and expediently moved forward to create new highs. Whether it was the bursting of the tech bubble in 2000, the terrorist attacks of 9/11, the global financial crisis starting in 2008, the European debt crisis in 2011, or even other disease outbreaks such as the SARS virus, the avian flu virus or the H1N1 virus- our economy has always rebounded and pulled through and our markets have always stood strong and prospered shortly thereafter. Eventually the spread of the coronavirus will slow down and disappear, with people, businesses and the markets returning to normalcy.
As uncertain as the ultimate duration and impact of the coronavirus and its effects on the economy and capital markets are, it is expected that its related negative effects will be temporary and limited in nature. Accordingly, this is the time for investors to maintain a long-term investment perspective. While fear, panic and outright hysteria are at very high levels, it is most important to remember, now more than ever, that emotional decisions made void of any sense of rationality or objectivity are the ones that cause us the most harm. That while selling when losses occur may make us feel better, that selling into falling markets rarely works out to our advantage in the long- term and usually puts us in a much worse position going forward than we were in before we started. Our prudent, long-term investment philosophy is not about what happens today or tomorrow, next week or next month. It’s not about the headlines, or trying to constantly time the markets. Rather, it’s about having a financial plan and an appropriate asset allocation properly designed for the long-term, and having the conviction to stick to it knowing that we’ve always emerged from these situations with the markets pushing higher than they ever were before. As concerned as we are about the present negative conditions, we are much more concerned with staying the course and remaining positioned to take advantage of the positive financial opportunities that are present and evolving as a result of where we are now and where we just were economically.
While its always most difficult to “act like you’ve been there” when a crisis is at its most unknown inflection point and fear is most rampant, there is a certain amount of composure that comes with experience and wisdom. We have been here before, or at the very least somewhere very similar. We’ve seen bear markets and pandemics, we’ve seen well managed funds and blue chip stocks lose significant value in the past, and we’ve seen those funds and investments and the investors that hold them survive and prosper over time. And while it’s difficult to not get caught up in the minute by minute media barrage that so easily stokes fears with speculation and drama, long-term investors that are able remain calm and objective will ultimately be rewarded.
As a wealth management firm that has been in business for over 34 years, we’ve endured and prospered over and through the many ups and downs that have occurred since 1986, through the highest of highs and the lowest of lows, through periods of maximum optimism and through periods of maximum pessimism. We’ve maintained and promoted our advocacy for sound financial planning and portfolio diversification that is long-term in nature and inherently designed to withstand the most turbulent of markets while also prospering in the best of markets. Our purposeful decision-making process has always been strategic, disciplined and objective-never influenced by irrationality, fear or panic. Strategic in that we identify long-term and overall goals and objectives and the means of achieving them. Disciplined in that we remain diligent and committed to our values and convictions in pursuing these goals and objectives. Objective in that we never allow bias or emotion to adversely effect or corrupt our process. Over four decades we’ve come to understand what it is that we can control, and what it is that we have no control over. That while we will never be able to control whatever crisis or pandemic the world throws at us, that we will always be able to optimize the factors and variables that provide the best chances for standing the test of time and overall success in reaching the goals and objectives that were originally planned for. Staying calm, staying disciplined, staying invested and staying diversified- making appropriate and timely changes when and as necessary and always staying focused on what it is that was planned for when we first set out on this journey.