Here is a list of things you should do during the coronavirus stock market volatility:
1. Do nothing. The value of your portfolio has already declined. Don’t convert those paper losses to real losses by selling.
2. Stop looking at your portfolio and its value on your phone or tablet or laptop or desktop. Go to Settings on your devices and turn off Notifications. It’s too late for you to do anything. It’ll only make you anxious—or worse, make you want to do something. Which you shouldn’t do. See #1, above.
3. Stick with your existing investment plan. Keep investing as you normally would. If you have money going into your savings or retirement plan every two weeks or every month, keep doing that.
4. Remind yourself that when the market jumps 800 points and then falls 2,000 points and then reverses to rise 1,200 points all in the course of a week—or a day—that rationality has left and emotion has taken over. Best to just sit back and wait until things calm down.
5. You cannot pick the market bottom or the turnaround to jump in. Fight the impulse to think you can.
6. The U.S. has been through world wars, double-digit inflation, gas shortages, recessions, depressions and recoveries. The stock market has been through rallies, bulls, bears, corrections and crashes. This is just another one or two of those. This too shall pass, the center will hold, and normal valuations will return.
7. If you absolutely have to do something, take this as a learning moment. If you hold individual stocks, review those holdings in your portfolio or ask your advisor to perform a review.
Break it down into four boxes:
· First box, fill with stocks that beat the market during the updraft last year but fell less than the market during this period.
· Second box, fill with stocks that underperformed the market last year but fell less than the market during this period as well.
· Third box, fill with stocks that outperformed during the updraft last year but also fell faster than the market now.
· Finally, fill the fourth box with stocks that underperformed the market last year and fell further than the market did currently.
This exercise will quickly sort out your portfolio as to both performance and risk exposure. Take your time to coolly assess what stocks helped, what stocks hurt, what stocks added to volatility and what stocks dampened volatility. I can promise you you’ll be surprised at the objective results. When market volatility abates and emotions cool, you’ll be prepared to make rational decisions as to your portfolio’s risk profile investment composition.
Oh, if your advisor can’t do this simple exercise, fire them and find a new advisor. This is investment portfolio management 101. If you can’t do this exercise, fire yourself as an advisor and find one who can.
Warren Buffett (Photo by Daniel Zuchnik/WireImage)
2017 Daniel Zuchnik
Sigh. I know all this will fall on deaf ears for some who want to use this market decline to “buy low and sell high,” seeing this time as the “buy low” part of this equation. They may remember all too painfully how much they left on the table when they either sold in the market crash of 2008. Or maybe they didn’t buy during the market crash of 2008. Or in some self-justification to buy, they may invoke Warren Buffett’s mantra “Be greedy when others are fearful and be fearful when others are greedy.”
First off, you are not Warren Buffett. Second, Warren Buffett also said that whatever he leaves to his wife after his death he intends to instruct her to be invested in the S&P 500. Third, you likely do not have Warren Buffett’s net worth, steely discipline or a list of value stocks with buy-signal price points. Fourth, there are always other market experts to quote, such as the oft-cited and world renowned economist John Maynard Keynes. During the Depression of the 1930s, Keynes coolly observed that, “Markets can remain irrational longer than you and I can remain solvent.”
So, if you must buy into this market, do so in a disciplined manner with planned, steady increments. See how much cash you can afford to risk. Stick to buying a market index of stocks (the S&P 500 has numerous mutual fund and ETF equivalents) every day, or every other day, or every week or over whatever time frame you choose.
Just make sure you can stay solvent while this market remains irrational.