The emotional outlook for the US and markets have certainly changed in the last two weeks. The S & P 500 index is currently down 10% over the last 5 days. Fear is very evident on all the broadcasts. It’s scary. What do we do? Markets typically have one to two 5% corrections each year and a 10% correction every two to three years. 2008/9 was a recession/depression selloff that was caused by decade long bad lending practices and bankruptcies (Lehman Bros., GM, AIG Bear Sterns, etc.) 2014-15 was caused by collapsing oil prices with oil collapsing from over $100 to the mid 20’s. Oct.-Dec.24, 2018 Federal Reserve raising interest rates 3 times. This time it’s fear about an economic disruption due to a virus. No one knows yet what the outcome will be.
However, there are measurable clues we use to track emotions. Why is this important? Because stock prices, in the short term, are reflections of greed and fear. Below is one of several tools we use to monitor investors emotions. It is the CNN fear and greed index. You’ve seen this before as we used it to our advantage back in December of 2018. As you see, we are now in the fear zone. This will be the 5th time in the last 4 years. Ultimately, each time was an opportunity.
We have a large amount of cash & short term bonds and have been patiently waiting for opportunity. You never know where the bottom, is as it could always go lower. The best strategy is to dollar cost average into the decline by investing a portion of the cash periodically. In 42 years of doing this I’ve seen multiple panics, all different reasons but all the same. Painful as it happens, but it ultimately passes. We will continue to keep you updated as long as this lasts. Buy low, sell high is never easy. Being prepared with a plan takes the emotion out of the process and greatly improves your odds of success.