NWP Monthly Digest | March 2020 | A Rapid Correction
Sometimes, it’s really hard to come up with the right thing to say when you experience a stock market drawdown like we’ve had for the last week. So, let’s just say what it was - a little scary. I know this is true based on the conversations we’ve been having with our clients and in the halls of the Global World Headquarters of Noble Wealth Partners.
We just had the worst week of stock market performance since the Great Financial Crisis and it doesn’t feel good. The Dow Jones Industrial Average was off 12% and the S&P 500 down 11% in a week where everyone started to take notice that the stock market isn’t just a one-way street, and it happened really fast.
We financial advisors spend a lot of our time telling our clients to “step away from the ledge” and “remember the long game” in times like this, but it doesn’t change the fact that it feels like you just got punched in the gut when you log-in and see your balance. We’re very aware that this makes us all uncomfortable, and that’s OK.
Make no mistake, people aren’t worried about the fact that the market just went into correction territory. What makes people uneasy is what they don’t know. What we don’t know is the hard part, and that’s “when will this end?” Anyone who claims to know that answer is trying to sell you something. None of us know the answer.
History and data are the security blankets we grasp in times like these, and that experience tells us that this, too, shall pass. We wrote about this as recently as last month, and that data hasn’t changed.
Historically, epidemics have not had a prolonged impact on investor returns. Going back to 1980, the world stock market (proxied by the MSCI All-World Index) has gained an average 0.4% in the month after an epidemic, 3.1% in the ensuing three-month period and 8.5% six months later, on average (FactSet, Charles Schwab). ~Grant Glenn, Noble Wealth Partners
A little reflection…
This is something we’ve been worried about for quite some time. No, not the coronavirus scare (which needs to be more technically addressed as the COVID-19 scare), but the market needing to correct itself. Clients, friends, and family of the Noble Wealth Partners team know all too well that we’ve been warning of a softening economic landscape for quite some time, and we’ve been preparing for much lower returns in the years ahead.
The stock market just kept shrugging off any number of warning signs over the last year: the yield-curve inversion, manufacturing weakness, a decline in CEO confidence, negative year-over-year earnings reports, decreasing margins, and overall decline in global demand, just to name a few.
Despite the great performance of the stock market in 2019, most of it came from what the professionals call “Multiple Expansion”. Translation: the stock market went up not because the stocks were more valuable, but because people were willing to pay more for the exact same businesses. That’s not sustainable.
The analogy I like to make is that of a forest fire. All of those items we just mentioned are the kindling or the fuel - those dried out branches and leaves on the forest floor. The COVID-19 scare was the careless cigarette tossed out of a car window that sparked the blaze.
You simply can’t predict what’s going to start the market down these paths, which is precisely why we spend so much time preparing our clients for these types of events. It’s why we go through the process of not only establishing our clients’ willingness to take risk, but also stress testing different scenarios for them.
In the days ahead, you are going to see any number of headlines and talking heads tell you what you should be doing with your money. It will be almost universally wrong for everyone. If you have a financial plan and understand how and why you’ve made your investments, and that plan was personally built for you, you’re well ahead of the game. If not, maybe you should reach out and talk to us.
Finally, we leave you with a quote that sums things up very nicely in the wake of all of this…
You would pay your entire net worth for good health if you found out you lost it. So if all you lost this week is money you're lucky. Have a nice weekend everyone. ~Ed Borgato
Our Noble Wealth Pro Tip for March
This month, we step away from our typical personal finance tip. The team at Noble Wealth Partners are not health professionals, and neither are the talking heads at CNN, Fox News, The Today Show, or your local news telecast. Spend some time educating yourself this month on Novel Coronavirus Disease 2019, or COVID-19 at the CDC’s website. Get real information. This is not a hoax, but it’s also not the end of the world. Wash your hands, stay home if you’re feeling sick, and clean surfaces regularly that receive a lot of traffic. And don’t be complacent! Viruses tend to go dormant in the summer months only to rear their ugly head again in the fall and winter seasons.
Things we’re reading and enjoying…
Don’t be Evil: How Big Tech Betrayed its Founding Principals by Rana Foroohar A penetrating indictment of how today’s largest tech companies are hijacking our data, our livelihoods, our social fabric, and our minds—from an acclaimed Financial Times columnist and CNN analyst
SHORTLISTED FOR THE PORCHLIGHT BUSINESS BOOK AWARD • NAMED ONE OF THE BEST BOOKS OF THE YEAR BY EVENING STANDARD
What we’ve been up to…
We moved! And we love our new location at the corner of 14th and Lawrence, right next to historic Larimer Square. While our phone numbers and email addresses haven’t changed, make sure you update your records if you want to send us something via the mail.
1401 Lawrence Street, Suite 1600 | Denver, CO 80202
Getting worried about the cost of college?
Jeff recently hosted a live webinar on the cost of college and how to prepare your family finances for this expense. If you have questions or concerns on how your going to pay for your kid's college, how the FAFSA and the student financial aid process works, or if you are just plain curious how this all comes together, then spend some time educating yourself on the cost of higher education by listening to the replay below.
