Well, here we are a bit over a month in this new place in the market cycle. The Dow Industrials fell into a bear market on March 11 – defined as a decline of at least 20% – in 19 trading days, the fastest plunge ever. The S&P had a similar drop. Since the mid-February market peak, the Dow Industrials have closed more than 1,000 points lower on six trading days and have rebounded at least 1,000 points four times. There has certainly been a great deal of selling and buying based on health and economic issues involving coronavirus, the price of oil and liquidity concerns in the credit markets.
But it’s not just economic and health concern and uncertainty that are driving market volatility. A great deal of the volatility is because of large institutional traders who use preset algorithms to make computerized trades. These trade triggers are dictated by a series of inputs and one of the most important inputs is the markets own volatility. As a result, when things get wild, the computers start selling and buying – helping make it wilder still. In earlier times, investors weighed volatility to some extent, but not in any defined manner like an algorithm provides. Now for many traders, a stock is simply a thing that moves in price, whether a company makes socks or cars or dog food. And how much a stock moves and how sudden are its swings, is a factor as important as any other in whether to buy or sell it. Because of advances in technology, it’s just the norm and a nuance of where we are in the market cycle.
This norm of volatility at a certain point in the cycle is here to stay and we may as well understand where it comes from and accept it. And the way to accept it is to disregard it. I have a hunting dog named Sheba that I’ve trained to retrieve ducks. I’ve had the pleasure of spending a lot of time with her teaching her how to be a “working dog” and I gladly say, working with her has also taught me a lot about life. One of the commands Sheba knows is …. “leave it’. When I tell her to leave it, she immediately walks away from and disregards whatever had her attention. I want to encourage you to for the next year or so to disregard and leave alone what is going on inside of your investment accounts. Just don’t pay any attention. Reality is you never gain or lose until you sell and until the point of sale, it’s just a varying number on paper. Furthermore, if you are in the accumulation phase you’re buying at a deep discount now. Either way, if you are invested correctly based on where you’re are in life you’re ok. And this downturn in the cycle is just part of the long term favorable returns that make capitalism great.
So relax and leave it for a time and whatever you do, don’t touch your face or your 401k.
Please, don’t hesitate to call me if you feel I can provide information or be of service in any way.
Jeff Christian CFP, CRPC
J. Paul Getty