“Men are disturbed not by things, but by the view which they take of them.” One of our favorite Greek philosophers Epictetus was supposed to have said that. We have used this quote before, but it has meaning in this moment.
Fear has gripped Wall Street and “main street”. It has pushed people and machines to sell quickly. Many of us remember 2001 and 2008, and the fear that accompanied those times. Those market routs were based on true fundamental economic problems. Most of us forget 1987, 1990, 1998, 2010, 2011, 2015, 2016, 2018, and 2018 (again). The markets reacted in those times much like they are reacting today to the forward-looking fear. But that was all those times were, fear that was not based on fundamental problems. We do not know the extent of the damage that COVID-19 will do to the global economy. What we do know is that there is a panicked reaction happening right now.
Being overtaken by fear leads to panic. Panic causes poor, uninformed decisions. We have built an investment philosophy that guides us when markets exhibit fear and panic. We recognize that we are susceptible to fear and have taken steps to keep us from reacting with panic to uncertain market conditions. It is not that we are not afraid, it is that we refuse to let that fear metastasize to panic in our reaction to the markets.
Due to the precipitous drop in equities over the last week we have taken steps to lower the volatility of our Tactical Asset Allocation portfolios. We have moved some money to traditionally less volatile more defense orientated market segments, while not lowering our equity allocations yet. This is a first step in our defensive process. We do not want to overreact to short term market corrections.
Every time the market draws down, everyone (us included) forgets that -10% to -19% moves in equity indexes are commonplace. Most of these negative moves resolve themselves to the upside, some will continue to go down. We do not know where the next leg of this market will go. We have built our plan for how to react to downside market risk. Now we are executing that plan. If the markets continue to fall, we will trim risk from our portfolios according to our strategy.
Let’s take a moment to put the current correction into perspective with what has happened in relatively recent history.
We are aware that past performance does not guarantee future returns. The current market conditions do not mean that the end is here. We will continue to monitor the markets and react appropriately and with caution. If you have any questions, please call me.