View from the Chair: Windermere’s Market Perspectives (April 2020)

April 28, 2020

“When will this end?”

“Has the market reached its bottom yet?”

“Could asset prices go higher?

“Could asset prices go lower?”

“What else will the government do?”

“How will the virus progress from here?”

These are just a sampling of the questions I’ve been discussing with clients over the past months as the COVID-19 situation has unfolded.

When we discuss them, the first thing I always emphasize – no one (including me, them, the media, and everyone else) knows the answers to these questions with 100% certainty. In fact, the only thing certain at this moment is tremendous uncertainty. And the next thing I point out is that uncertainty is not new and we can still (and will) move forward.

Yes, this uncertainty is exceptional and is being caused by a terrifying disease we can’t begin to fully understand, address, or control. I understand that and am fully aware of that. I’m not diminishing the devastation of the unfolding events and the wide range of possible outcomes from here as it relates to economic activity and the future of the markets. But yet, we must move forward. Here are some strategies that may help you do the same.

1.) Check in on your allocation: If you are an investor, hopefully you had an established plan you were working from. This plan likely outlines the various percentages you have allocated to each asset class (see our post on allocations here). Your plan was likely established to take “shocks” into account. Your plan was likely established to allow you to reach your long term goals. Your plan was likely drafted considering your risk tolerance. So pull out that plan and compare it against how your portfolio is allocated now. Consider bringing your portfolio back into balance to realign yourself with your plan.

2.) Assess your risk tolerance: This event has made many investors revisit their risk tolerance. Shock testing done while establishing a plan is one thing – but when such an event actually occurs and portfolios fall, it is an entirely different experience. Take some time to pause and evaluate your risk tolerance. How have you felt over the past two months? Have you been tempted to take actions to abandon your plan (or have you taken those actions)? Is the stress of portfolio volatility too high a burden to bear to reach your goals? Are you willing to adjust those goals in line with adjusting your allocation?

3.) Audit your investments: I know it can be difficult to even open investment account statements at this stage. But you must. Now more than ever, it’s important to understand what you own.

Questions to consider for equities: Do you own individual companies? Do you own equity index funds or mutual funds (that are a compilation of many underlying businesses)? We suggest you think like a creditor – what’s the balance sheet strength of the businesses? Do they have cash flow to get thru this time? What will they look like on the other side? What is the intrinsic value of the company (including negative impacts on earnings due to COVID19 – and how does that compare to the current trading price)? Are there better opportunities for your capital?

Questions to consider for bonds? Do you own individual bonds? Or do you own bond index and mutual funds? What is the credit quality of the bonds? Are they in a troubled industry (like energy?) Where are interest rates now and what is the likely path from here?

Know what you own, why you own it, and adjust.

4.) Evaluate your investing alternatives: I’ve made this statement before and will make it again – for it is one of the most important concepts to understand in the long term compounding of wealth.

Each day, you need to make the investment decisions that are best for your situation and goals from the range of available options at the present time. Consider likely rates of return across asset classes at today’s levels. What mix allows you to meet your goals? Resist the urge to look backwards. Past returns are not necessarily indicative of where we go from here (meaning, just because equities have fallen ~20% doesn’t mean their next move is going to also be down 20%). Consider what each option is likely to earn from here and calculate the mix of each you need to reach your overall goals

5.) Revisit liquidity needs: We’ve always stressed the importance of having an emergency fund and now, we have a real life example of why such a fund makes sound financial sense. If you were fortunate enough to retain your income and maintain your lifestyle during this phase, consider it a blessing. Yet be aware that some event in the future may have a different outcome. Take this time to evaluate your monthly liquidity needs (ie: how much do you have to spend a month to pay fixed/essential costs). We’d suggest having 6-12 months worth of those liquidity needs in a cash/savings account at all times

6.) Remember why you started: The “fight or flight” response is a human instinct and many investors feel it very strongly when markets correct. We feel afraid, we feel anxious, and we want to do something – anything – to take action and address those feelings. In that moment of panic and self doubt, try to pause. Stop. Breathe. And remember why you started.

Why are you investing? Why are you subjecting your savings (and your emotions) to this process? If you’re like me, you started since you want to compound your wealth. You started so you can create a dual-track of earnings (your portfolio and your career). You started so you can be an owner of some innovative and world changing businesses. You started so you can have flexibility and a range of choices in the future. You started because you saw it as worth the risk. So why stop now?

Again, we know this is a challenging time. It has tested our emotions and resolve. And yet, we move forward.

Invest on, be well, and wash your hands,


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