The coronavirus has been wrecking economies and overloading health care systems around the globe for the past few years and just when it felt like we might be emerging from the pandemic….
Invasions. War. The threat of nuclear strikes.
Will there be a peaceful outcome? Or something worse?
I don’t know. No one really knows. It’s heartbreaking on so many levels.
But with such massively different future possibilities, many investors are wondering what to do…and the answer for most of us is…
Nothing. Or, as the late Bogle stated:
“My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not “Don’t stand there, do something,” but “Don’t do something, stand there!”
We tried to drive this point home in our letter to shareholders during the pandemic titled “Time to Panic“? It’s worth a read, but here’s an excerpt:
“Global markets are experiencing large moves up and down today and many investors are freaking out.
US stocks declined enough at the market open, 7%, to trigger circuit breakers that paused trading.
Investors all over social media are panicking. Because they don’t have a plan.
But you do.
You put in the work over the past decade. You’ve read our blog posts and books, you’ve listened to the podcast, and eventually, you built a plan. And take note, they’re not all the same plan. But at least you have one so that when it hits the fan, like it is now, you’re prepared.”
Our investors have read our old pieces for the past 15+ years that prepared them for something like this. There was the piece on how really big daily stock market moves of 5 to 10% are pretty normal and tend to cluster together, particularly in down trends (“Where the Black Swans Hide“).
We also published a piece that demonstrated what assets helped to hedge these big down periods in stocks (“Worried About the Market?“). And it turns out, the assets that hedged historically (tail risk, bonds, cash, gold, trend) helped in the pandemic too.
You mentally prepared for the fallow periods, because you read the piece that demonstrated many assets can go long periods experiencing measly returns but still be worth investing in (“How Long Can You Handle Underperforming“). You learned to think in terms of decades rather than years by taking the long view after reading “The Get Rich Portfolio” and “The Stay Rich Portfolio“.
Let’s say you’ve read all of these pieces, you’ve listened to the podcast, and you’ve put your plan into place. Congrats! Now you get to sit back, and do nothing. And that’s what I plan to do with my allocation. (Which, you’ve also read about in “The Trinity Portfolio” and in “How I Invest My Money“. Now, to be fair, it’s easy to “do nothing” when you own private assets where you couldn’t do anything even if you wanted to! Here’s a picture of me trying to figure out if farmland went up or down …(actually from a few years ago)).
On the public side it’s easier said than done, and it’s harder to resist the temptation to check your brokerage balance every day. But this market, to me, illustrates the beauty of the Trinity Portfolios. Half the allocation is in a global buy and hold allocation across stocks, bonds, and real assets with tilts to value and momentum. So, if markets rip right back up, I’m covered. The portfolio will also rebalance and keep tilting more and more to the cheap stuff as it gets cheaper (and cheaper).
The other half of the allocation is in various trend strategies, and if markets continue their free-fall down, I’m also protected. Most momentum and trend strategies are heavily allocated to real assets currently.
So, I like to go halfsies in buy and hold and trend, or what I call buy and trend. Frankly, I never want to be “all in” in any outcome, because after all, the future is uncertain. Plus, it’s all automated so I don’t have to think about it.
So, I mainly plan to “just stand there”. I’ve talked a lot about the four quadrants of stock markets, and how when an expensive market flips from an uptrend to a downtrend like now things can get nasty (“Keeping it Simple“). So I’m adding more tail risk exposure too. You can read about this in our recent piece “Red Light”.
But the thing about big market dislocations is that they create massive stress. Emotional, financial, marital, and probably 10 other kinds. And these stresses lead people to act bananas-crazy with their money.
So, let that be your opportunity, and not your downfall.
I hope this helps. And as always, we’re here for our nearly 100,000 investors if you want to talk. But likely you don’t need to, because you prepared for this.
Stay safe and healthy everyone!