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What can I say about the market’s recent behavior? Is it inappropriate to comment on market moves in the face of an international health crisis? Should I even attempt to put some perspective on factors that are still unknowable? I believe you deserve to know my thoughts and observations, and perhaps some of the lessons learned over the past 35 years. (Blogger’s Note: I celebrate my 35th anniversary in the industry in two weeks).

These past few weeks are unprecedented for all of us. A global health crisis coupled with an oil price war between Saudi Arabia and Russia has ripped trillions of value from the stock market. The S&P 500 close on Monday, March 16th was about 30% lower than the all-time high set on February 19th, 2020. Yes, in three weeks. The rapid change from bull to bear market is the most sobering element, in my opinion. Oil prices have gone from the high $50’s to the high $20’s per barrel. Stock prices of great companies have fallen. Some companies with stressed balance sheets (too much debt vs. equity) have seen price declines in the neighborhood of 60- 70%. I watch them on my screen and recoil. But we’ve seen times like this before.

In October of 1987, the Dow fell 22.6% in one day. This remains the biggest single day percentage decline in the history of our markets. It was shocking and scary, but we bounced back. In October of 1987, many stocks had 25% price swings in a day – names like JP Morgan, Security Pacific Bank, and Polaroid come to mind as they were on my buy list. It was NOT a barrel of fun, to be honest. But crisis created opportunity. Careful investors were able to capitalize on the moment.

Some other “fun times” occurred throughout the 1990’s. The Gulf War clipped stock prices pretty hard. I remember several friends leaving the business in frustration. At the time, we had a young family and tightened our belts. We made it through.

The 2000-2002 decline was slower yet more painful. Over two years, the headquarters of a booming tech company located across the parking lot from our offices went from bustling activity to a darkened suburban office building. It was staggering to witness. Value investing worked comparatively well during that bear market. Old fashioned value investments held up better. That is when I learned that boring is good.

The big bad bear of 2007-2009 lasted about eighteen months and fell 56% from top to bottom. It was the worst period for the markets since the Great Depression and really challenging. In the final few months as several major companies went under and had to be salvaged, investing was hard. Movies have been made about this period, it was so historic. But somehow we made it through.

The Flash Crash of 2010 came next. You may recall that day because the market fell 9% in about 45 minutes. By the end of the day, we were down only about 200 points (2%). I was at my Dad’s funeral and missed it. My friends told me what happened. My mind was elsewhere. And now we have this. As I said before, this is the swiftest change from bull to bear market in modern investing history. The Federal Reserve has responded quickly, a lesson learned from 2008. We need to learn from experience too. Our collective experience will be useful during this bear market.

Some specific thoughts:

  1. Use a buy list. Come up with a list of companies that you understand and are of high quality. If share prices fall to levels that you find attractive, step up and put them in your portfolio. Five years from now you will be glad you did.
  2. Don’t try to outsmart the market – remember that boring is good.
  3. If necessary, tighten your belt. Spending is the single biggest influence in our planning process.
  4. Be humble. If you have not learned this lesson from past experiences, take it from me. The market is a very humbling beast and you need to respect the beast.
  5. Do your best to remove emotion from your decision-making process. This will be the toughest piece of the puzzle.

Those are five suggestions. Let me leave you with one final message: communicate with your advisors. Shared knowledge is better knowledge. Different perspectives create a clearer picture. You deserve solid professional advice in times like these. Don’t hesitate to ask for it.

Ralph McDevitt March 18, 2020

Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James.

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