Insights What Successful Investors Do During Periods of Extreme Market Volatility 

What Successful Investors Do During Periods of Extreme Market Volatility 

John P. Swift, CFA, CPA Chief Investment Officer
312-259-9595 or
March 12, 2020

Recent headlines are scary and hard to take, and with news of plummeting markets, circuit breakers, and Hollywood stars contracting the COVID-19 virus it’s understandable that investors nerves are frayed, and basic instincts scream to get out of the market. What is especially jarring is both the speed and the magnitude of this correction. But capitalism will survive this latest corona virus just like it survived the 2002-2003 SARS corona virus, the 2009 H1N1 “Swine Flu”, and all other infectious outbreaks.

Pandemics, like the diseases themselves, will run their course, and this latest corona virus will run its course, as will its impact on global markets and economies. Fortunately, the Northern Hemisphere is now exiting the annual cold & flu season, and warmer weather along with global containment efforts will halt the contagious spread of this version of coronavirus.

Economically, I expect a quarter of negative global GDP growth with a quick rebound once the virus abates. Once people get back to their normal activities and come out of hiding economic activity will have a large spike to make-up for the pent-up demand and backlog of orders occurring presently.

One of the Major Benefits of Strategic Asset Allocation

One of the main benefits of adhering to and rebalancing towards a strategic asset allocation is that you’ll naturally buy into weakness and sell into strength. This rebalancing enforces a buy low-sell high discipline, and that’s exactly what we practice especially during turbulent markets. Fear, and the flight instinct that it motivates, enforces a sell low-buy high haphazard strategy. Selling into extreme market weakness will only lock in losses and result in lower long-term returns.

Now, we may see further losses from this point forward, but why should we be afraid to buy into world class organizations when their shares are on sale? The investment markets are the only place where shoppers flee from discounted prices.

We’ll stick to your strategic asset allocation, and if you had additional capital, now would be an opportune time to put it to work.

Turmoil in the Oil Markets

Additional angst among investors has been provided by the breakdown of OPEC negotiations with the Russians over curtailing production in the face of temporarily reduced oil demand. Headlines of “Oil Market in Crisis” have fueled the fires of investor fear. Now, the oil market isn’t as much a crisis as a blunder by the Russians who believe they can take market share away from the Saudis and U.S shale, but normally you try to take market share into a strong market where demand is present. The Saudis

are the low-cost producer and will win that battle every time especially into a weak demand environment. Now, If the Russians are trying to hurt U.S. shale that is also foolhardy. They may drive out some weak U.S. producers, but those assets aren’t going away and will only fall into stronger hands. My guess is that at some point the Russians capitulate, curtail production as the Saudis correctly proposed, and oil rebounds to levels consistent with the temporary drop in oil demand due to the economic slowdown caused by containment efforts.

In summary, investing is, at times, difficult, and down markets really separate the speculators from successful investors. Rest assured, that we will be taking advantage of this period of temporary weak prices to increase your exposure to world class organizations at prices only several weeks ago would have been thought to be unobtainable.

As always, I look forward to seeing you soon, and trust that this note finds you and your family well.

Warm regards, John