Dear Friends,

Almost 1 year ago exactly we posted onto our blog and quarterly letter a piece called “Recovering from Bad Markets and Flu Pandemics”.   In it was a timeless quote from Sir John Templeton, widely regarded as one the greatest investors of all time.  He famously said decades ago “In all my 53 years of investment counsel, there’s never been a year without problems, but for every problem, we have 10 blessings, (but) you only hear about the shocking things. So please don’t be discouraged by the horrible things you’re flooded with and take time to find out what the underlying facts are.”  Timely and wise words – as currently global equity markets are down for the 6th day in a row on fears over the Coronovirus and the subsequent impact on global economies.  Although there is no doubt the virus will have an impact for a period of time, here are 6 ways to manage market uncertainty:

Focus on Long-Term Goals and Plan.  As any of our clients know we start with Long Term (5+ years and beyond) in any financial plan and those long-term goals are unaffected by the current conditions.  If your horizon for needing the funds is under 5 years then your portfolio is likely in a preservation structure with at least 1-5 years of spending needs in cash and short-term securities.

Understand that most media outlets exaggerate and sensationalize any bad news because it drives ratings and ratings drive advertising dollars.  While the current Coronavirus outbreak could be more widespread, we do have some experience with viral outbreaks and the economic impacts.  In 2003 we had SARS, the market declined over 10% before rebounding by ~35% by year end. More recently in April 2009, the H1N1 virus emerged in the US in April and within a year it had infected an estimated 60M, hospitalized almost 300,000, with deaths of over 12,000.  The good news is a vaccine was developed in 8 months by that fall.  Many analysts believe we could get a Coronavirus vaccine in the next 3-6 months, limiting the ongoing impacts.

Be Diversified – there are 12 major asset classes all of which have different return and risk profiles and when paired in certain combinations together can vastly lower volatility in portfolios while at the same time delivering returns that help reach your long-term goals.  The focus on diversification has been abandoned by some advisors and asset managers over the last few years and the Largest US equity stocks have delivered outsized returns vs. other asset classes.  Data suggests that the other asset classes typically make up ground in times of volatility and during market recessions.

Re-examine risk over the next 3-6 months, not during the midst of a market reaction.   Those who really need funds in the next 3-6 months don’t need to be invested anyway so stay calm, and avoid panic.  I know things can get really uncomfortable, but when was the last time your heard someone that you think is wise say “man, I am REALLY glad I panicked – that worked out well!”   Not often, if ever, so don’t panic now.  This too shall pass.

Make some Lemonade!   During times when the markets are turning great companies and asset classes into “Lemons” take advantage.  The lemonade will be cool and refreshing when the next up cycle returns!

Mitch and Destin