Lockdown survival guide 2: investments

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Part 1 is here.

Hi, Zoomers.

I meant to tell you, back when I gave you The Talk about those donkey videos you’ve been watching since you were twelve, sometimes we have these horrible things called recessions.  This isn’t the first time we’ve had one.  They’re actually pretty regular.  Like, literally.  I know, it totally sucks, doesn’t it?  #OMG!

First, don’t panic.

Stop checking the financial news every hour.  In fact, limit news in general – there’s only so much information that you can do anything with.  Twice a day is enough.

Don’t check your investments.  You know what is happening.  They are going down, down, down, right down to the ground.

When you got into shares, you were supposed to know that this sort of thing happens.  Look at this historic S&P 500 chart: present circumstances are perfectly normal and have happened many times before.

sp-500-historical-chart-data-2020-03-22-macrotrends

If you can’t afford to cop the present losses, either because you need the money soon or because you’re psychologically too much of a girly-man to cope with a garden-variety bear market, then you shouldn’t have bought shares in the first place and it’s probably too late to change now.  Going to cash crystallizes your losses.  Hang in there and it will only be a paper loss because your fund will most likely recover.

This does not constitute financial advice.  I don’t know you from a bar of soap and if you follow directions from some random blog and then try to sue me when you’re forced to live on cat food as a result, everyone in the civil court is going to laugh at you when this paragraph is read aloud as evidence.  Even the burly black security guard will laugh at you, and so she should.  Imagine the snide remarks Judge Judy will make.  ‘Got a ring and a date?’  ‘Doesn’t this post scream, ‘this is not advice‘?  Think about it.

The main reason people lose money on the share market is they don’t know when to hold ’em or when to fold ’em.  You hold ’em for the long term, not panicking when there’s a downturn, like right now.  You fold ’em when your long-term strategy demands that you do – for most people this means gradually moving to more bonds the closer they get to retirement.

If you happen to have some dry powder, now could be a good buying opportunity.  I happen to have some because I was too nervous to go all in when my plan dictated I should.  Instead of doing it all at once, I’ve decided to do so over nine payments, one every three weeks up until September.

Normally the bottom of the market is reached from two months to two years after the fall, but I reckon this time there may be a quick recovery once this virus dies down, which it will.  It’s impossible to hit the bottom exactly except by crazy luck, which I lack, so I’m planning on spreading out the move in order to avoid the risk of buying right on a bump.  Averaged out, I should be buying the downturn overall.

I can’t buy sharp dips anyway – I have to fax off a form to Australia then wait for the office to put it through after a day or so.  The ETF fee was slighty higher so I chose this inconvenience.

Unfortunately everything is closing down and I may not be able to send a fax from the office centre for long, but I think I can find a work-around.

The quick slump and recovery I anticipate is not guaranteed.  The market was way overheated to begin with, and everything was overpriced.  This might end up being a slow, bumpy recovery.  On the other hand, we already had that massive crash in 2008, which must have got rid of a lot of dead wood.  Or did further wood pile up with all that QE, cough Tesla cough?  Or will even more dead wood pile up now with additional QE?  To me, this last possibility seems the most likely, but the future is unknowable.

On the other hand, doomsters on ZeroHedge will remind you that the Nikkei never recovered from the 1991 crash.  Maybe the other indexes will be the same?  It seems unlikely.  Though the US has its problems, the business reflected in the S&P 500 is global.  Surely the whole world, in the generality, will have to recover eventually, with a few Galapagos pockets here and there perhaps remaining in the doldrums.  How could it not recover?

The chart linked earlier, twenty years from now, will probably look like it does now.  There will be falls, recoveries, and more falls, with a gradual upward trend.  That is how it usually goes.  I’ve not read any convincing reason why this time ought to be different.  Blah blah P/Es, blah blah low birth rates, blah blah tranny story time, blah blah national debt blah blah blah.

We’ve been through two world wars, numerous communist revolutions, various pandemics, 9/11, tsunamis, high inflation, subprime, oil shocks, tech bubbles, and nuclear meltdowns.  The market has always bounced back eventually, which is a reflection of the world bouncing back and business getting back on its feet.  Most likely, we’ll soon be returning to business as usual.

In times of calamity, it’s good to keep things in perspective.  When Rome fell, I doubt those citizens fleeing from the Goths stopped to appreciate that one day it would be a modern, romantic city where the ruins of this ancient world would be visited by eager tourists from places so far away they were totally unknown.  When Hiroshima lay in smouldering ruins, few survivors would have thought that one day it would again be a bustling, pleasant city.  And in the chaotic depths of 2009, few investors realized that they were just beginning the longest bull run in history.

You ought to already have a long-term, diversified plan for your investments.  Stick to that plan.  If you’re so rattled you really feel you can’t resist fleeing, seek advice first.

As Warren Buffet said:

Be fearful when others are greedy and greedy when others are fearful.

I actually got afraid during the recent, dizzying heights, but I was already so deep in bonds I decided to stay put.  Next time it happens, in a decade or so, I’ll follow my quarantine-bloated gut.

 

Follow me on Twitter: @nvladivostok1

 

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7 comments

  1. Gunner Q · March 24, 2020

    The stock market is overwhelmingly the Baby Boomer Pension Fund, long disconnected from economic reality. Better investments: get out of debt, plan for the next crisis, cultivate a backup source of income. Antifragility will give you more peace of mind than the NASDAQ.

    Like

  2. luisman · March 25, 2020

    Reblogged this on Nicht-Linke Blogs.

    Like

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  5. fraterholdings · April 2, 2020

    Interesting read

    Like

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