|God grant me the serenity to accept the things I cannot change… courage to change the things I can… and wisdom to know the difference…|
The great American theologian, Reinhold Niebuhr, began using the serenity prayer in his sermons in 1934. It has since been adopted in many forms by various institutions and self-help groups. I’ve read Niebuhr extensively, and his “Moral Man and Immoral Society” is a classic on many levels.
I’m beginning this installment with his invocation because it simply states a lot of what’s needed during these most difficult times. The last few weeks have brought us face-to-face with an invisible killer, the Novel Coronavirus, or COVID-19. We all know the history of its origin in the Wuhan Province of China, and have followed its rapid spread. I’m not here to debate America’s anticipation and/or readiness to combat the problem. It’s sadly evident that we’ve been behind the curve from the beginning. Many governors, including Ohio’s own Mike Dewine, have done an outstanding job educating folks about the facts of COVID-19 and installing plans for public safety. Our office has been working on a primarily remote basis for over a month. I stopped having even socially-distanced contact with clients two weeks ago. As a “non-essential” office, we will follow whatever directives are given.
Thursday’s tweet by Treasury Secretary Mnuchin at least removed part of my ongoing angst. Moving the tax deadline to 15 July gives our team breathing room. No April extensions will need to be filed. Folks whose returns are already completed will have an extra three months to pay taxes as well as estimated payments. Retirement contributions are also extended into July. We’re trying to look at the positives here since we’ve never had a spring break during tax season. It’s not as though we can do much while we’re sequestered, but the pressure is temporarily eased.
For my purposes, the serenity prayer concerns the stock market. We cannot change what the market does, particularly in the short-term. Starting today, the New York Stock Exchange will have no human traders on the floor. The plumbing of the market will all be controlled by machines. This may lead to even more volatility on Wall Street.
Everything is news cycle driven at this point, and the algorithms behind program trading are designed to parse each pronouncement. It is vitally important that we understand that wild swings (almost always negative) do occur every once in a while. COVID-19 and the price of crude oil dipping below $20 is a double black swan that no one could possibly have anticipated.
What we can control is our reaction to what’s happening around us. We can try to change things that are under our power, especially with regard to the massive changes in daily life that we’re being forced to adopt. The concept of social distancing in itself is mandatory but difficult.
“Sheltering in place” denies most of the contact and interaction that we crave. We’re being compelled to be more self-reliant. America is being asked to sacrifice for the common good. This honestly hasn’t happened on a large scale since World War II. Thus, the overwhelming majority of Americans are unfamiliar with the concept. Let’s hope that we can work together to solve this crisis.
Although it has largely ceded leadership and control to the individual states, Congress will be instituting a massive economic bailout and subsidy package. The size of the effort will be debatable, but something needs to be done immediately to assuage the fears of Americans who have lost their jobs. We’ll undoubtedly know the details of the program in a day or two. Perhaps this will replace some of the panic with a bit of certainty.
In this time of more questions than answers, I’d like to offer up a few truisms:
*The stock market almost always declines faster than it rises.
*Everybody is comfortable with risk until they start losing money.
*No one ever needs 100% of their money at once.
*The stock market has always rebounded from adversity, including the Great Depression.
*The circumstances of this plunge may be unprecedented, but the drop is not.
*Despite the decline this month, Friday’s S & P 500 price is still over three times the level that it was in March 2009. That’s a tremendous return in an era of extremely low inflation.
*Markets overshoot on the downside as well as on the upside.
*No one ever makes a good decision in the absence of facts or an atmosphere of panic.
In terms of the courage to change the things we can, we should be concentrating on what’s truly most important to us. The personal health and safety of our loved ones should be the top priority, if not the only one. We need to arrive at a decision now. Do we think that science will inevitably win? If not, then our portfolios make utterly no difference whatsoever. If we do, then we have to try to ride out the storm, however long it takes.
The parallel at this juncture is the financial crisis of 2008-9. The massive market declines were swift and powerful. It took approximately seven months for equities to find an official bottom. Investors who fled the market along the way (many close to or at the bottom) never regained the confidence to get back in. The psychology here is similar. Going to cash temporarily lowers our pain threshold. I understand the reaction totally. It’s not easy for me to suffer outsized portfolio losses either. But the point here is that, if America returns to some semblance of normalcy in a year or two, the stock market should follow suit.
I know that you’re hurting. I am, too. My in-laws are aged and quite frail. My wife has the added burden of caretaking for them. Neither Lynne nor I are having a particularly good time now. But we are very strong as a couple, and will make the best of this difficult scenario.
The W3 wealth team will be basically working from home from now until the “all clear” sign is given. Fortunately, technology allows us to do so. Please do not call our office… simply send an e-mail with whatever your needs or questions might be. Operationally, nothing will change.
We’re all nervous. I know that I need a break, but can’t get one right now. I wish that I had a stock of answers for you, but I don’t. My serenity prayer wisdom is to rely on prior history to make assumptions that I hope will be true as time goes on. I’m having a hard time dealing with my own emotions, and cannot be expected to control yours. Please try to make your market decisions from a more analytical perspective and not from cognitive dissonance.
Focus on you and your family. Try to help others if you can. Be loving and kind. Adopt the serenity prayer. Most of all, stay well.
|The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.|
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