While the recent market selloff and underlying factors affecting the economy have been unique, history reminds us that certain principles are worth keeping in mind during any bear market. Below is an excerpt of the letter we sent to our clients and partners on March 20, 2020, within days of the first quarter market bottom. This excerpt includes only two of the eight viewpoints intended to help our clients navigate an economy in turmoil. The full client letter includes all eight viewpoints.
We believe that sharing this letter more broadly gives a window into how we provide long-term perspective to our clients and partners, which is part of our client-focused mission.
If you would like to read the last six viewpoints, please feel free to download our full client letter below. The other viewpoints discuss portfolio positioning and go into greater detail on how our approach helped us avoid many of the impacted industries while at the same time focusing on companies driven by innovations and secular trends. As we describe, a few of these secular trends or evolutionary shifts, such as cloud computing, streaming video, and e-commerce, may benefit from the pandemic.
March 20, 2020
Dear Clients and Partners,
We wanted to reach out to each of you and share our perspective on the current bear market, which is driven by the current coronavirus pandemic. By now you are likely painfully aware that the global spread of a novel strain of coronavirus (Covid-19) is causing unprecedented responses by governments and businesses alike. In short, major parts of the economy are temporarily shutting down as we all hunker down to slow the spread of the virus. This is causing employees to work from home remotely, kids being sent home from school indefinitely, and people of older age and/or with health issues to shelter in place for weeks, if not longer. The phrase of the day that encapsulates our new reality is social distancing. Social distancing will have an economic impact, at least in the short term. The result is a sudden and partial shutdown of many industries, ranging from restaurants, airlines, and educational facilities, among many others. Needless to say, these dynamics will likely create an event-driven recessionary environment that will last as long as these requirements are in force.
Reflecting this near-term reality, the equity markets experienced a dramatic and quick correction that turned into a bear market, with the S&P 500 index now down about 26% from its recent peak one month ago. With this backdrop we felt we should not wait until after quarter end to share our perspective, as we do each quarter. Consider this an early edition of our 1Q20 client commentary. While we are not medical experts, we are professional investors with substantial experience in dealing with equity markets—including multiple bear markets—and want to share our viewpoints to assist you in building confidence in your investments.
In order to make it easier for you to digest our viewpoints we focus on eight main messages, outlined below. We also tried to keep our thoughts here as straightforward and practical as possible. We welcome your feedback and questions, and are available to chat by phone if needed. Our mission is to help you navigate an evolving economy, one that is in turmoil right now.
The overarching message is that we believe our portfolio will survive the current crisis as well as be positioned to thrive over the longer term. We will weather this crisis and encourage you to stay fully invested so you are prepared to benefit when the economy re-opens for business.
1: THIS CRISIS IS TEMPORARY AND WILL PASS - MARKETS SURVIVE CRISES.
While not minimizing the severity of the near-term impact to the economy, a viral outbreak will have its greatest impact over a relatively short period of time. Infections will grow rapidly, peak, and then subside within months. As it subsides, businesses will re-open and the economic contraction will turn back into expansion, and this rebound could be just as rapid, and as unpredictable, as the onset of the virus. This event is measured in weeks and months, not years. Whether you are an individual investor or an institutional investor, remind yourself that your time horizon should be focused over the next 5-10 years. Stay long term.
2: DON’T SUCCUMB TO THE TEMPORARY EMOTIONAL PANIC IN THE MARKETS—TUNE OUT THE SCARY HEADLINES, OR AT LEAST CALL THE NEWS FOR WHAT IT IS: A SHORT-TERM TRAGEDY. REMIND YOURSELF BETTER NEWS WILL COME.
From an investment point of view, it would be a double tragedy if investors reacted to the crisis and market panic by selling their investments at exactly the wrong time. Don’t forget the old adage that missing out on the top 10 or 20 days in the market (over a 20-year period) can reduce your long-term returns (by as much as 70%). The big insight that I want to share is that the big up days typically come right after the big down days! The only way to not be scared out of the market and miss the up periods is to stay fully invested and ride through the storm. And, equally important, remember that markets will move back up before the economy fully re-opens. The only way you can ensure you benefit from a recovery is…our typical refrain: stay long term.
To continue reading the next six viewpoints, please download the full client letter below.
