March 13, 2020 Letter to Clients

In recent weeks, we’ve seen several major stories in the news, the most prevalent being news of the coronavirus (COVID-19). This is a circumstance where complete frankness is necessary. COVID-19 has provided the catalyst for the market downturn, but I caution our clients from succumbing to fear based on news media headlines. The rapid spread of the virus is certainly alarming and has caused considerable and unprecedented uncertainty around the world. The well-being of everyone in the areas impacted is first and foremost on our minds, however we must also be mindful of the impact of the virus and other events to the markets. I thought it might be helpful to remind our clients where we have been and where we are now.

We witnessed some extraordinary moves in the financial markets this month. On Monday, March 9th, the Dow Industrials lost over 2,000 points, as Coronavirus fears continued to worry investors. At the same time, oil prices lost nearly 25 percent, on news that Saudi Arabia was dropping crude oil prices and raising production as well. Meanwhile, the 10-year Treasury bond yield touched an all-time low of 0.318 percent during the trading session, as unnerved investors looked for some stability.

In times like this, I frequently hear that some find it difficult to stay committed to an investment strategy when fear has gripped the financial markets. But for me, a quick look at recent history helps me keep these events in perspective.

Remember when the trade dispute with China ramped up back in February 2018? In just six trading days, stock prices had undergone a rollercoaster ride on their way to a 10-percent market correction. On February 8, 2018, CNBC reported that the Dow Industrials traveled 22,000-plus points over the course of February’s first full week of trading, due to trade-related fears.

How about the 4th quarter of 2018? On October 10th of that year, the Dow saw an 800-point drop, largely due to rising interest rates and global economic concerns. And who can forget the holiday market trading two months later? It was a breathtaking event as the Dow lost over 650 points on Christmas Eve, then soared 1,000 points the day after Christmas.

In the past few weeks, I’ll admit that I’ve done a few “double takes” at my computer screen, as we’ve watched major swings in stock prices and movements in the bond and crude oil markets. In times of market uncertainty, some investors believe the best approach is to sell. Typically angst, while understandable, drives those decisions and adds fuel to extreme market swings.

While nobody would blame you if this uncertainty gave you a bit of anxiety, please know that I am working diligently with the portfolio managers, strategists and economists as part of actively managing your accounts. Together we are using our combined expertise, experience and research to make mindful decisions on which companies and sectors in which to invest based on sound financials and healthy balance sheets among other factors.

Markets Have the Virus

Right now, markets are reacting to the news because the outcome is unknown. In a way, COVID-19 has “infected” markets all around the world. The extent to which markets are affected will depend on the length, depth and breadth of the impact caused by the outbreak to the global economy. History tells us that during past outbreaks, economies typically experience weakness in the near term as supply chains get disrupted; however, much of the disruption in global economic activity will not be a permanent loss, but rather postponed until business operations and consumer activity normalizes once the outbreak is contained.

Past performance is no indication of future returns, and it’s uncertain whether history is a good teacher in this instance. However, experience has taught me that abandoning sound financial plans over fears surrounding near-term issues is counterproductive to creating wealth. Your financial plan is in place for a reason and is specifically tailored to your individual needs and goals, thus why market indices such as the Dow Jones and the S&P 500 are not an accurate gauge of your individual portfolio performance.

You Don’t Buy Snow Tires in a Blizzard

By working together to develop an investment strategy that fits your risk tolerance, time horizon, and goals, we have been preparing to weather turbulence. When a blizzard hits, the people who already own snow tires are usually happier than those venturing out into the cold, hoping they’re still in stock. In the same way, it’s generally best to make decisions during periods of low market volatility. We’re in the middle of the storm right now.

Investors who panic during a downturn often miss gains early in the recovery as their initial reaction is to get out of the market. As your advisor, it is important that I do not make knee-jerk reactions to market volatility as this can hurt clients’ portfolios in the near-term and long-term. It is understandable that our clients may be concentrating on recent declines. I remind everyone that great opportunities are created in ugly market pullbacks as it creates opportunities for investors to buy low.  A good strategy gives you room for market changes that might see reactions that last a few days – even a few years. Staying the course is often the smartest move, partially because you aren’t reacting immediately to a downturn, and you might benefit from a potential recovery.

Here to Support You

During most volatility, we advise you to “stay the course,” and that generally proves to be the best course of action. In times like this, however, it’s easy to question conventional wisdom. Whatever decisions you’re considering, I’d be honored to support you through them.  Feel free to reach out to me with any questions or concerns and as always, thank you for your continued trust and confidence in our firm.


Steven LePage