Market downturns are undoubtedly stressful and stress induces us to think and act irrationally. Very few of us can keep our wits about, something very important yet rare in the business of giving investment advice. Rubin Miller is one such rare individual providing some sensible perspective in this blog. First a few guiding principles he shares:
“Market prices already reflect probabilities of future outcomes. Investors should not describe issues that the world already knows about, and assume they have not been calculated, considered, and embedded into prices already.
It’s okay to be disappointed, but it’s not okay to be surprised. If you use an advisor, and are surprised by your returns, it’s time for a hard conversation. Clients deserve appropriate expectations for their investment journey, and part of that will be occasionally disappointing market returns.
The market is never “going down” – it only has gone down and may go down further. Remember that three weeks into the Covid-19 downturn, the market pivoted, screamed higher, and never looked back. Research on market recoveries tells us 3 critical things: (1) downturns have always recovered, (2) expected future returns over the next few years are higher after a downturn than before a downturn, and (3) markets are brutish and irreverent, and will not wait for you to get your shit together.
Economic data lags market prices. It wasn’t until October, 2009 that jobs data improved following the Great Financial Crisis, but the stock market bottom was seven months earlier on March 9, 2009. Markets are anticipatory and love making fools out of investors who are waiting for economic signals.”
And then he shares his blueprint for success, which boils down to systematic rebalancing of asset allocation and geographic diversification:
“When it comes to stocks and bonds, methodically buying what’s relatively gone down and selling what’s relatively gone up DOES makes sense. If your portfolio has been designed with your ideal life in mind (i.e. taking enough risk to live the life you want, and avoiding unnecessary risks that won’t accomplish this), then part of implementation is rebalancing. If you are targeting a 60% stock and 40% bond portfolio, and a stock market downturn causes you to be 50% stocks and 50% bonds, then you should strongly consider going back to your target weights. Buy low, sell high, because the baseline of these descriptions has been informed by what you are trying to accomplish.
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
