This past week we have seen the worst stock-market selloff since the 2008 financial crisis, as the fear of the new coronavirus continues to spread around the world. During a sharp market decline and heightened uncertainty, you may feel the urge to take action. Although we can’t predict when the markets will recover, we believe that bearing today’s risk will be compensated with positive expected returns, as evidenced by the lessons of past health crises, such as SARS and MERS, and market disruptions resulting from the global financial crisis of 2008-2009. Additionally, history has shown no reliable way to identify a market peak or bottom. These beliefs argue against making market moves based on fear or speculation.
In times of heightened uncertainty, it is important to consider the following:
- Reacting can hurt performance. For any market timing to work, you need to be right twice – when to get out and when to get back in. The probability of this double success is very low, as best returns often follow the worst and vice versa.
- Markets have rewarded discipline. We have seen market recovery from many difficult and traumatic events.
Our experience through the events of these past two decades has shown us the rewards of tuning out the market noise and of staying calm and disciplined in our investment strategy.