Dear Mr. Market:

We are living in scary times, as investors and as human beings in general. With stock markets cratering and the uncertainty surrounding Coronavirus, it’s hard to remember when things were this bad or uncertain. How and when will things get better?

Regarding the market, there are no absolute rules, but it’s generally agreed investors have to fully capitulate before a bear market downturn can find its low point and eventually turn back the other way. The idea is that all the bad news, expectations and fear have to hit their worst point, so there is finally nothing else to drive the market lower. After that, anything remotely positive or even just “not bad” starts the base for the ensuing bull, and the market can begin climbing again.

The dilemma is that no one sounds an “all-clear” signal to let you know when that point has been reached. Think about the low point of the last bear, March of 2009. President Obama was freshly inaugurated (cause for optimism or pessimism, depending on your political leaning). Chrysler, GM, and Ford were near bankruptcy. Unemployment was climbing. A massive stimulus package had just been signed, but no on knew how effective it might be. Investors wondered if their portfolios would ever recover to where they had been. Those were troubling times, but we all know the market turned sharply upward that month and the bull continued for 11 years. It’s all much more clear looking back in the rearview mirror but at the time it was certainly not so.

Stock Market returns 1,3,5, and 10 years after Worst 1 Days Ever

There is no saying what will bring about capitulation with the current market. In our last column we noted how drawn out the 2000-2002 bear was. Things could get worse before they hit their inflection point. But it will come…if it hasn’t already. Yesterday was the third worst day in the history of the stock market and many threw in the towel. We’ve also advised that panic is never a strategy, and keeping your head as an investor right now is absolutely the right thing to do. One cannot change the past or the fact that this event took on disastrous proportions that nobody could have imagined. This is different than a standard bear market in that it’s more like an unforeseen natural disaster but in this case one that is not specific to some other part of the world; it’s truly global and caught the entire globe flat footed.

Human instinct is to seek shelter when danger is imminent, and that gives us the urge to abandon our better instincts. Sell all your stocks! Go to cash! End the pain! This might provide short-term comfort or relief, but assuming you need some amount of growth to reach your goals, you now have the dilemma of when and how to get back in.

We would advise staying the course, while being prudent. Strategic rebalancing can make sense, but not drastic changes to your allocation. If you have a plan in place that you felt good about during the market highs a month ago, stick to it, and revisit it if needed. Heavyweight boxing champ Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” The market is definitely throwing some serious punches right now. How will you answer the bell?

Lastly, we’re seeing two sets of behaviors right now; one group of people is scrambling to buy toilet paper while another is doing whatever they can to buy stocks. Mark our words in that this will be an inflection point and one where your decisions/behavior today will truly impact where you sit 10 years from now.