April 16, 2020
THE MARKET IS STRANGE. EVERY TIME ONE PERSON SELLS, ANOTHER ONE BUYS, AND THEY BOTH THINK THEY’RE SMARTER THAN THE OTHER.
As much as I aim to keep you apprised of the current market conditions, this week has flown by, and I’m not sure where it went. All I know is that it has been busy, and I will be keeping this week’s message brief.
That said, I will point out that since March 23, the S&P 500 has been on a tear. This has been a historic run, up close to 25% as of the time of this writing. These short-term market gyrations, while expected, are not predictable, and are fleeting. It is important to recognize them for what they are – phases of interim volatility, relief rallies. As such, we don’t think they constitute a sustainable trend at this point in time. As was pointed out recently by one of our advisors, we shouldn’t expect 3% to 5% days going forward until we are back to where we were in early February. I agree, and would not be surprised by additional volatility in the near future.
We believe to the extent an investor is properly positioned now, patience rather than force will prove to be a prudent strategy. With that, I offer the following…
“ALL MEN COMMEND PATIENCE, THOUGH FEW ARE WILLING TO PRACTICE IT” – Thomas à Kempis
Several years ago, Jack Bogle (Founder of Vanguard and part-time comedian), was asked for his advice to investors in light of the market volatility at the time. He replied “Well, my advice – and I have to be careful here because this has only been right about 99% of the time – is ‘Don’t do something, just sit there.’”
This is contrary to what most Americans are trained to do. We have an “action bias”, (a predisposition toward immediate decision making and action), and a desire for quick fixes. Sometimes these actions are effective in providing short-term satisfaction or stopping short-term pain but can be correspondingly detrimental to long term goals. Think about it… parents that for fear of their child receiving a bad grade, won’t let their kids do their own homework; medical patients who have the option to make healthier daily lifestyle changes and choose pharmaceuticals and surgeries; individuals who rather than saving and investing, use debt (e.g.: credit cards) to maintain a steady flow of impulse purchases.
Bogle states that the challenge for investors isn’t simply to be right about getting out of the market when it’s declining. The challenge has much more to it than that. It’s knowing when to get back in. Most investors don’t get back in until things “look better,” but then it’s too late. In actuality, they need to be right on four decisions to be successful – two-directional judgments, and two-timing judgments:
1. Directional Down – knowing that the market is actually declining (not just exhibiting interim volatility),
2. Timing Out – Knowing it will continue to decline to a much lower level or for some extended period,
3. Timing In – knowing that the market has ended its decline,
4. Directional Up – Knowing the market possesses the ability to deliver a sustainable upturn.
If the investor is wrong on point number one, they are already in trouble because they would now be behind the market and attempting to play “catch up.” If they are wrong on number two, they will have fallen victim to the dreaded whipsaw and can lose a lot of ground on the market.
Even if they’re right about the first two points, number three is usually where the best-laid plans unravel. Markets bottom on capitulation (a sentiment that conditions are so bad that recovery is not likely in the foreseeable future). When this level is reached, human nature leads us to an abundance of caution that prevents most from re-entering the market.
Most individual investors don’t spot the conditions that can spark or sustain a rally until the rally is well underway, and then most participants don’t re-enter until levels are well above their exit point. If history shows us anything, and investors behave as they did through the market of 2007-2008, large amounts of potential return will be foregone due to investor fears.
Being right about all that goes into a market timing strategy is highly unlikely for professional market participants, much less the retail investor. As you are well aware by now, staying invested and properly positioned, diversified, and patient – even in these uncertain times – is typically a better strategy than market timing.
I hope this email has found you well, and you and your families continue to be healthy.
Please feel free to contact your Atlas Wealth Management Advisor if you have any questions about this or any other financial matter. As always, we are always available to serve you.
John C. Ogle
 Bogle, John C. Enough: True Measures of Money, Business, and Life. John Wiley & Sons, 2010.