The Stock Market, Your Portfolio & Your Emotions

[Full Video Script]

Hello and thank you for joining Dan Bennett and myself, John Enright.  We do not want to take time here to provide you with an update on the Coronavirus as you have many sources for that.  We will just take a moment to remind you to be certain to get your information from reliable sources such as the World Health Organization, the CDC and Johns Hopkins University.  

Monday, March 16, 2020, ended up being the second worst day in the 124 year history of the markets, based on the percentage decreases of around 10-12%.  The worst day in stock market history was October 19, 1987 where the market dropped by over 22% in one day.  While yesterday was a very small loss compared to that disturbing day in 1987, it was still a day that most of us will remember for a very long time.  

Your team here at Custom Wealth Management remained diligent in our efforts.  It was business as usual…well, alright, maybe with a few more phone calls, emails and reallocations than usual.  

Although we felt like we were fighting an avalanche with a pitchfork at times, we consistently reminded one another that we are strong, that we are confident in the ability of the United States to get through this, and that we have a responsibility to you to not only do the best we can with your moneys but to also reassure you that we will make it through this together.  

We started our day with a discussion around 5 points that I had written on the dry erase board before everyone arrived for the day.  We took a picture of that white board this morning so we could share it with you.

Put picture of the white board on the entire screen at this point 

As they day finished, it was clear just how strong this team really is.  We had low moments and high moments and we shared some laughs in the midst of the most challenging day in my 20+ year career.  I am thankful that we have such a strong team to serve you and your family. 

We would like to take a few minutes to provide you with reassurance on our efforts as it relates to your financial well being.  A great deal of our effort is focused on confirming that you own good quality positions in the marketplace.  Also important, if not more important, is our effort to assist you in understanding what this most recent volatility means for you and what the future might bring.  First and foremost, is understanding the impact of emotions and how emotions lead many to make very unfortunate decisions.  If you had an opportunity to see our video from last week, you will recall these pieces.  I think it is helpful to revisit these. 

The first is the market cycle and the emotions that tend to occur during the different points in the cycle. These emotions are  only natural and although we all felt the very same fear and anxiety you experienced yesterday, we also are confident about what is on the other side.  It is also very important to understand the approach we take in managing your money.  You should be familiar with this piece.

We have worked diligently with you to determine what your withdrawal needs are over the next few  years and have built your portfolio to ensure those needs are address with little volatility.  

The portion of your portfolio that is expected to be used in the next couple of years is either in cash or identifiable cash that will be distributed via dividends or interest.  The next 2-7 years of need is allocated to bonds and the moneys that are not anticipated to be needed for at least 7  years are allocated to equities.  The moneys allocated to this part of your portfolio, that 7 year and longer moneys, are the portion of your portfolio that has experienced the greatest volatility.  

That is great news as that means as a result of our work together, we have 7 years for the moneys to rebound and, most likely, regain their losses and then some.  While we do not know what will happen, we do know that historically periods of significant crisis, such as 2000-2003 and 2008-2009 were followed by periods of strong growth in the equity markets.  

We agree, this time it is different.  But, what is different is not the resiliency of this fine Country but the actual cause of the decline.  Interestingly, the cause of every decline has been unique.  What has remained the same is the strength of each one of us to prevail, to respect one another and to grow from the experience.  This time will prove no different.

We also want to share with you that emotions are what has lead the average investor to perform so poorly over the last 20 years ending 12/31/2018.  

There is the old saying that emotions sell…and that case is in point these last few weeks.  As people’s emotions get the best of them, they sell.  While that saying wasn’t necessarily meant in that context, it is clear that people’s emotions do get the best of them.  Great news, you have proven that you are not like the average investor.  You are strong, you are not willing to give in to headline risk and you will prevail.

One of the biggest reasons for the significant underperformance of the average investor is not that they sold at the wrong time, it is actually that they didn’t buy in at the right time.  

They sold off only to standby and watch the markets improve and then buy back in.  Simply put, they sold low and bought high, they missed the comeback!  I believe that it is far harder to buy back into a down market than it is to sell out of a down market.  Missing just a few of the best days in the market has a lasting impact.  The fact is that most of the best days occur within a two week period of the worst days.

While this time certainly feels different, I am confident that the next time will as well.  I am also confident that the use of the phrase “The New Normal” will increase in the near future, just as it did after the 2000-2002 and 2008-2009 bear markets.  We were here for you during those bear markets and we will be here through the current and future ones as well.  We will be your voice of reason.

As we leave you to tend to the rest of your day, we want to invite you to reach out to us with any questions you might have.  We would be happy to schedule time by phone as we progress through this latest market cycle.  

Please also keep in mind what has kept us successful in times like this:

1. Do not buy or sell based on headlines alone
2. Take sensible precautions to keep you and your family safe, especially those at higher risk
3. Keep an Attitude of Gratitude, recognizing how much so many have are doing to keep us safe and informed.
4. Breathe…..set a reminder to practice breathing exercises every hour.  The Apple Watch has reminded me how important this is in our daily lives!

Thank you and we look forward to speaking with you very soon!