Reflections on a Fearful Market

5 min read
March 17, 2020

Reflections on a Fearful Market


Since reaching all-time highs in mid-February 2020, the S&P 500 recently entered “bear market” territory. (For the uninitiated, a bear market is a decline of more than 20% from a previous market peak.) Fears about the novel Coronavirus led to unprecedented changes, cancellations, and market turmoil.

On March 12, 2020 the Dow had its worst day since 1987. A circuit breaker used to stop rapid declines in the stock market was triggered not once, but twice during the week of trading beginning on March 9th. Oil prices plummeted, nations are restricting travel and gatherings, New York dispatched the National Guard to set up a containment area around the New Rochelle suburb, presidential candidate Bernie Sanders cancelled a Cleveland rally, Coachella was postponed, NCAA basketball tournament cancelled, and the NBA, MLB, and NHL suspended seasons.

No doubt you have been affected on an individual level as well. Perhaps you’ve learned, as I have, that your trip insurance may not cover a decision to cancel flights due to fear of travel associated with the pandemic. Maybe you’ve gone to Costco and Walmart in order to stock up and have been shocked to find that you can’t get cleaning supplies, or toilet paper.

It’s a strange time and it’s probably going to get worse before things get better. As an investor, what are you to do?

Stocks Just Got Cheaper

Warren Buffet has a way with words. He’s also arguably one of the best investors of all time. In Burton Malkiel’s A Random Walk Down Wall Street, Malkiel includes one of Warren Buffet’s quirky and insightful ways of looking at the market. Here’s what Buffet had to say:

“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

“But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.” (351-352)

For those looking to purchase stocks over the next several years or decades, stocks just got cheaper. Wise investors balance risk and reward with an understanding that over long periods of time investors have been rewarded for investing in risky assets such as equities. 

But as investors approach the actual use of invested funds, that risk should likely be reduced in favor of producing income and preserving principal.

The key in all of this is a delicate balancing act between obtaining your fair share of market returns, while simultaneously making sure that you can sleep well at night. 

Worry About Those Things You Can Control

It has been said that we should seek to “control what we can control.” If you are inclined to worry, then worry about those things you can control. Can you control the market? Can you control the spread of Coronavirus? Can you control the actions of your fellow citizens in light of fear and uncertainty? The answer to all of these questions is “no.”

In a recent article titled, “What Benjamin Graham Would Tell You to Do Now: Look in the Mirror,” Jason Zweig begins by stating, “[f]orget about what the stock market is going to do. Instead, focus on what you, as an investor, ought to do.” 

Graham believed that price fluctuations represented “an opportunity to buy wisely when prices fall and to sell wisely when they advance a great deal.” This is counter to the mainstream action of fleeing from stocks when they fall in price. As Zweig points out, Graham thought that paying “too much attention to what the stock market is doing currently” is the “primary reason many individuals fail as long-term investors.” Keep your focus on the long-term and avoid narrowly focusing on short-term outcomes.

For Graham, the “intelligent investor” didn’t need “superior intellect, training or expertise.”  Instead, he cited traits like self-control and patience as marks of the intelligent investor.

Stay the Course. Stay the Course. Stay the Course.

In his 1990 Berkshire Hathaway Inc. Chairman’s Letter, Warren Buffet wrote, “[l]ethargy bordering on sloth remains the cornerstone of our investment style.”  

If you find yourself energetically and frantically making trades in order to try to time the market, outwit your fellow investors, or simply avoid the pain of a market downturn, don’t be surprised if you get burned in the process. 

Jack Bogle’s refrain to “stay the course” rings true today. Wise investors should heed the advice: “Don’t just do something—sit there!”

Keep making those payroll contributions to retirement accounts, and follow a disciplined approach to rebalancing your portfolio if it becomes too far overweight in any single asset class.

Some Final Thoughts

As I reflect on the last 100 years of history, there have indeed been scary times. During those times, as well as now, it’s worth recalling that “this too shall pass.”

It’s likely that for the time being we will be dealing with a fearful market. As you do so, I hope you will remember that cheaper stock prices are buying opportunities for those who will be net purchasers over the next several years or decades, that it doesn’t make sense to worry about those things over which you have no control, and the importance of staying the course, staying the course, staying the course.

Ultimately investing comes down to belief. Do you believe that the companies of the world are going to be worth more in the future than they are today? If you do, there’s a case for investing in them.

The content provided is for informational purposes only and represents my personal opinions based on my experience, study, and practice. Yes, I’m a financial advisor, but this article isn’t intended as advice for you specifically. Your unique situation needs to be taken into account, and the ideas presented here may not apply. 

Please make sure you do your due diligence before implementing anything. Due diligence includes hiring a qualified professional who understands your situation completely and can offer you personalized advice.

Donovan SanchezAbout the Author
Donovan Sanchez is a Flat Fee Only financial advisor and owner of Skyview Financial Planning, LLC.







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