We’re in the midst of a Health War. A unique war, with every country in the world united in an effort to beat the same enemy. A silent, invisible, deadly enemy.
It’s encouraging that China has curtailed the virus with very few new cases. This is a crisis that no one alive has faced, certainly not at this scale, but we will get through it.
A Story of Two Frogs
Two frogs fell into a milk bowl that they were dancing on top of. Both swim around but soon realise the edge of the bowl is too high for them to ever get out.
Frog One panics and thrashes about saying “we’ll never get out, we’ll never get out!” until the frog drowns.
Frog Two thinks “I must keep calm, there must be a solution.” The frog slowly swims round and round thinking for hours, until the frog notices that the milk has turned into a pat of butter. This allows the frog to jump out.
Crisis doesn’t create character, it reveals it
Through this Health War people will suffer, be it losing a loved one, facing a business closure, a loss of earnings, and major disruption to their lives and jobs. From a financial perspective I think our order of concern should be:
1. Personal liquidity. Will I have enough money to see me and my family through and will my business/job/career survive? What immediate actions do I need to take and take now?
2. Invested capital. Your investments/pensions etc. These are invested in a historically appropriate portfolio designed with these events in mind, so if you have no reason to sell for personal liquidity reasons, the action to take is to ‘do nothing’. As counterintuitive as it sounds it is for most the correct cause of action. I’ve personally felt every drop of the market declines.
3. The wider economy. It usually reacts later than the stock market. It’s clear we’re effectively in a recession even though it’s not ‘official’ yet. Recessions are part of the business cycle, painful but nothing unexpected.
Your Faith In Our Future
At this critical juncture your decision is binary (one or the other).
1. You believe we will see this health crisis off and humanity will get back to where we were, or
2. You believe we will not get through this.
If your answer was dictated by the headlines you may think the latter, if it was dictated by history you would be all in on the former, as I am.
The two emotions that collide here are fear vs faith in the future. Personally, I’m not betting against humanity. It’s a powerful force.
The investment decisions you make in the near future will impact the rest of your life. The stock market is there to test you. The current crisis may be the greatest test you’ve faced.
Remember, the stock market is a collection of the greatest businesses on the planet. We regularly lose a few businesses but human ingenuity also means we gain new ones. Capitalism is a success story.
Looking at the prices of the stock market day by day will fill you with anxiety. The less you look the better you’ll do, but more importantly the better you’ll feel. If you’re looking at your portfolio daily, you’re not a long term investor, you’re a short term trader.
Money is like a bar of soap, the less you touch it, the more you’ll have.
You haven’t checked the price of your house day by day because you can’t. If you could, the price of it would be considerably less than the figure you have in your head. However, as you’re not selling your house, the price is irrelevant, you still own the same number of bricks.
The same is true with your investment portfolio. The prices have changed but you still own the same number of units. When the story changes, the prices will change and believe me the story will change.
After darkness there is always light
Studying previous global stock market crashes (temporary declines) it’s a recurring theme that when the story and noise are at its peak, things are usually about to change.
Staying disciplined during a time like this can feel like you have your hand on a burning stove when all you want to do is pull it off. Beware of the person who claims to know when this will end.
As Nick Murray says:
A permanent loss in a globally well-diversified equity portfolio is a human achievement of which the market is incapable.
A reminder of the successful investing traits:
• Have a diversified equity (stock market) and bond (lending to governments and businesses) portfolio which is the funding vehicle of your financial plan, which lists your most cherished life goals and transitions.
• Act with equanimity (doing nothing) through all markets cycles. The cycles are driven by fear and greed. Let’s not compound the issues we’re facing by committing an investment mistake, we have enough to contend with through the lifestyle disruption and beating this invisible enemy.
• With the extra free time at home please don’t stress too much about your portfolio, leave that to us. If you can get through this market period without committing the gravest of investing mistakes, which is selling low in a declining market, you’ll likely not encounter such extreme conditions again. We obviously can’t guarantee this, but it’s a hunch.
Being your Financial Adviser means the world to us, we’re here for anything, just call.
Stay safe, stay connected, stay sane, your loved ones need you.
Be like Frog Two.
Jamie, Andy & The Co-Navigate Team
With kind permission from Andy Hart