“The three stages of a bull market”: the first stage, when only a few unusually perceptive people believe things will get better, the second stage, when most investors realize that improvement is actually taking place, and the third stage, when everyone concludes things will get better forever.” – Howard Marks, Mastering the Market Cycle
The entire market cycle, in three months. Those feelings you have of being confident, confused, defensive, panicked…all the things? Think back to the old VCR days and how you would hold down the fast-forward button to zip through the plot and stop in the middle of the movie, the moment of crisis. That is what we have watched unfold in the movie of our lives. The pace will remain fast and that will be stressful, but there is hope.
The resources, wisdom, initiative, and compassion of our country are awakening. They can feel dormant when we have years of complacency and bickering. But when the human potential of America comes alive, the results can breathtaking. Doctors and nurses are doing heroic work. Volunteers are shifting focus to the greatest needs of their neighbors. The stories are anecdotal now, but they are essential speed bumps for our worried minds. They slow down the racing fears that can turn to panic and then paralysis. The positive stories are not the narrative but with time, they will be.
Confusion is the norm of the day. Last week, the stock market had one of its’ worst weeks in history and people were living their normal lives in many American cities. On the morning of March 26th, as I write this, the news is that 3 million people filed for unemployment and New York City is shut down. Yet the Dow Jones Industrial Average is almost 4,000 points higher than it was three days ago. I will not try to make sense of it because sense is a luxury that comes with time and hindsight. There will be time for that later. Perspective is the order of the day. Perspective and humility that we cannot know everything, but we can make good choices for our families, our businesses, and our communities. Here is my perspective on where we are today, in March of 2020:
- Diversity of Impact: The story of the virus is compounded by the medical, economic, and social consequences. If you watch the news, you will hear the full, negative experience of everyone. That is not your story, however. Take your eye off the large, global story and think about your story. Not just how you are at risk medically and financially, but how you are safe. Our team has spent most of our time in recent weeks acknowledging the risks of today, but also reminding our clients of how many ways in which they are secure. We all need that reminder from time to time.
- Liquidity and Flexibility: If there is one thing almost any crisis has in common it is that liquidity and flexibility are rewarded. Why was selling so brisk in everything from stocks and bonds, to gold? There was a race to get to cash. Everyone needed and sold what they could rather than what they wanted. In your personal financial situation, if you did not need the cash for the short-term, there was little reason to sell. We will recover from this over some period and that means, if you have any level of diversification in your investments, you had no reason to flee for safety. Having the right liquidity also allows us to be flexible in our decision making. We can bend without breaking. There is confidence in that.
- Baked In: The confusion of bad headlines/good markets is a reminder of how the stock market tries to anticipate the future more than respond to the present. Last week, when Goldman Sachs predicted a 25% decline in the U.S. economy in the 2nd quarter (25%!), the market barely moved. Why? Maybe with declines of nearly 30% already, the market was already counting on that much, if not more. Bad news will continue on many fronts for some time to come. But even before the news turns good, it will start to be less bad. That in itself is enough to start the turnaround in what has been a truly awful year. As Howard Marks alluded to in the quote above, it is only after the recovery has begun that most of us realize that the bad news was already baked into stock prices.
Some final thoughts on the last few weeks: I wish I was writing more, but this has been a time for conversation. I wish I could document the pendulum swings of emotion that I feel, hear, and observe, but I have never been good at jotting all of that down. What I am trying to do instead is listen, learn, and lead.
Listen: The words I am hearing from clients and my team offer lessons that will inform me for decades. I need to listen to them and heed them because this is not the last crisis. The next family we serve will need to know what we have learned through experience.
Learn: Professionals in every field are stepping up. Beyond the medical professionals, we see entrepreneurs, accountants, and teachers sharing all that they know in order to keep us better informed. What an incredible time to find the trusted voices who can teach us about the world!
Lead: We are all asked to lead our families, businesses, and communities. We notice when leaders step up and when they are absent. I believe that being financially successful is an exercise in leadership. It requires us to balance our hard and soft skills: discipline, accountability, empathy…all of them. This is where I am most proud of our Morton Brown team. I see accountability and initiative all around me. I hear the comforting conversations as well as the firm ones. We can never predict, but we were and are prepared for what can come. I am fortunate to be surrounded by great people doing the work that every advisory team should be doing: stepping up, communicating principles, and leading.
These conditions of isolation could last longer than we expect, but they will pass. In the meantime, we will be present by sharing our thoughts with you here and in new, exciting forms. Look for Coffee with Katie to become a virtual experience. We will share my video conversations with smart people who are bringing their talents to help others now. We want to hear from you, too. Because building a community, even if it is distant, is what we set out to do in the first place.