(This is an update to a communication we provided to clients in October of 2008 in the midst of the Financial Crisis and found it quite appropriate for current times.)
At the most volatile and fearful time of an equity market decline, an investor is left with two choices: a.) Liquidate equity positions and move to interest bearing CD’s or money markets in an attempt to stop the bleeding, or b.) Look at your portfolio for diversification, and if adequate, maintain your position and wait until the panic recedes.
The case for maintaining positions can be made by the market data below. These dates show market lows and market highs over the past 78 years. As measured by the Dow Industrial Average, every market decline (and there have been severe ones) has been followed by gains to new highs. The most recent decline of 54% from 2007 to 2009 was followed by the longest bull market in history. The third column illustrates how long it took to recover from the market low to its previous high.
We feel that current market valuations show a substantial oversold reading that is more a reflection of uncertainty than the quality of companies on the market exchanges. While our country is bracing for the brunt of this pandemic, other countries who have weathered the storm are beginning to emerge and work back towards normal life.
We encourage you to continue following guidelines from the CDC and your local health departments to keep you and your loved ones as safe as possible. We will continue to keep a watchful eye on the markets and your investment portfolios.
The Lesjak Planning Team