A few clients have asked me about the recent stock market volatility in the broader market in general and with a few select stocks in particular which contain a high amount of short interest (such as AMC Entertainment and GameStop). As such, I thought I would share my reply with everyone as you may be interested in my thoughts and our strategy going forward.
A lesson I learned in the Marines, and especially during survival school, is that things usually aren’t as bad as they seem when you are first encountering them and that you must keep moving forward. Persevering when things feel their bleakest is not easy, but it is a lesson we again learned this year. During the height of the COVID lockdown, when the future looked very uncertain and the market fell precipitously over 30% in a month, many investors panicked and sold – but we didn’t.
With the coronavirus spreading panic and a market selloff over the last week, some are wondering how we should position our portfolios in light of a potential epidemic. As is usual under such circumstances, I prefer to take an historical perspective. Though history doesn't repeat itself, it certainly does rhyme and may give us a sound guide of how to proceed going forward. As such, I've attached a chart below which illustrates how the market has responded during the onset of other infectious diseases including SARS, Ebola and Avian Flu among others. Though such epidemics may certainly have an impact on the broader economy and market over the short term, you'll notice that over longer periods of time, the stock market has been "immune" to broader damaging effects.
With a bear market upon us and volatility continuing this New Year, fears are arising that a recession may be at hand. During such times, I believe it important to gain a perspective from past bear markets and recessions as we develop an investment plan going forward. Reacting to 500 point Dow rallies or tumbles certainly isn't prudent, thus I recommend turning off your televisions and reading books which may give us an historical viewpoint and strategies for surviving such tumultuous periods. Though I unabashedly recommend my recently published book, I also include a list of some books I would highly recommend and which have had the most influence on me.
We don’t currently own Nike; however, this is not due to some patriotic position for or against the company’s recent ad campaign featuring Colin Kaepernick. Instead, it is based upon an unprejudiced review of Nike’s valuation, financials and its paltry 1% dividend payout.