Fear, Risk, Market Uncertainty and the Need for a Long-Term Plan

Join Senior Portfolio Manager James McFarland for an update on what’s happening in the markets, with the Corona Virus, and a discussion of fear, risk and handling market uncertainty.

James McFarland: Good afternoon everyone. This is James McFarland, Senior Portfolio Manager and Investment Specialist for Oak Harvest Financial Group. Welcome to the March, 6th edition of Stock Talk: Keeping you connected to your money. Chris Perras is out of town today, so I’m privileged to be able to join you all once again. I’m recording this on March, 6th 2020, at 9:30 AM Central Time. It’s been another wild week for the stock market.

The S&P opened up Monday at about 2974, underwent several days of intense up and down action. As of the time of recording, the S&P trades at about 2976, just about flat for the week, and up about 4% off the February 28th lows last week.

This week, the US Federal Reserve undertook its first emergency interest rate cut since 2008, cutting interest rates by 50 basis points. By doing this, the Fed is hoping to boost public confidence, prevent financial conditions from worsening, and cushion the US economy against a global growth downturn. The US jobs report was released this morning, with 273,000 new jobs being reported in February.

With this report, the six-month average rose to 231,000 jobs, the highest since the second half of 2015. Basically what this report tells us is that the US economy, particularly the US consumer is fundamentally healthy and that the economy was actually reaccelerating into this coronavirus situation.

Over on the political front, Joe Biden has taken center stage as the likely Democratic nominee for president, doing very well on Super Tuesday and all but removing the Bernie Sanders risk from the market. The markets view this as a positive development since a potential Sanders presidency would not have been good for equity markets.

A Biden presidency may not carry with it the same positive expectations that a second Trump term might have for many investors, but a Sanders presidency was viewed as uniformly negative. There’s really only one thing that most people are preoccupied with right now, and that’s the coronavirus. This week the corona situation in China continues to improve, but the rest of the world is now having to deal with the virus. California declared a state of emergency on Thursday, Italy and Iran have closed their schools, and many industry conferences and trade shows have been canceled.

However, the president today has signed an $8.3 billion emergency funding bill intended to help combat the virus in the United States. The CDC is now allowing doctors to test anyone with symptoms of the virus. The President said on March 2nd, that he’s asked pharmaceutical companies to speed up work on a vaccine. Asian countries have announced $38 billion in fiscal stimulus related to the virus, and that number is set to rise.

China has announced that the consumer spending in China is starting to stabilize. Interestingly enough, China, the epicenter of the outbreak has seen its stock market steadily trend higher, posting a 5% gain this week. The upward movement in the China’s stock market could be a leading indicator. China’s market led other markets into this situation, and now could be leading them out. It’s a kind of first in first out scenario. In any case, all of this does give us some reason for optimism that policymakers are responding to the situation with measures designed to both bite the virus and support their peoples and economies.

Now, with all that said, we don’t know exactly how the coronavirus situation is going to play out, and we don’t know when things are going to calm down. No one does. If we look at what’s happened in past health crises, such as the Ebola, SARS and swine flu outbreaks, all of which happened within the last 15 years, we see that in past crises, markets declined very similarly to what’s happened over the last two weeks, markets declined about 12% to 13%. Then, those markets regained their highs within six months or less of those declines.

Now we at Oak Harvest we’re net buyers of stocks during the volatility last week, and we’ve been net buyers again this week. We know that when the markets are like this and the world just seems crazy, this is when those emotions of fear and panic can start to creep in, but the truth is, our fundamental bullish view has not changed. Times like this when the market is highly volatile and good companies go on sale is exactly the time that we believe investors have to be buying. Buy low, sell high, easy to say, but when the time comes, it can actually be very hard to do.

What usually happens is that people either sell high or do nothing when markets decline rapidly. Then after the market does recover, and the Dow say, reaches a new high of 35,000. sometime in the future, you’ll hear a lot of people saying things like, “Man, I wish I bought the Dow when it was at 25,000.” Again, easy to say, hard to do. That’s why we, the investment team here at Oak Harvest, are here. As Senior Portfolio Manager, I’m busy every day managing the vast majority of Oak Harvest client portfolios. Every day, I’m looking at our portfolios and making decisions to buy, sell or do nothing.

Chris Perras, our excellent chief investment officer is here every day, diligently working out the firm’s equity strategy and outlook for the economy and for the markets. We’re both here analyzing and evaluating our investment models and our portfolios. I can tell you that we continue to make the investment decisions that we believe are best for our clients, regardless of the market environment. This includes buying when good companies go on sale. I’ll use this opportunity to re-emphasize something that everyone at Oak Harvest, all the advisors, everyone on the investment team, everyone talks about a lot. That’s the importance of your allocation and your plan.

When you sit with us, one of the very first things we’re going to do is talk about your specific goals and your specific risk tolerance. How much risk do you actually need to take to accomplish your goals? How much risk can you handle? Then we’re going to give you an investment allocation based on your specific personal risk tolerance and your goals. Our intent is to help give you the best odds of achieving your goals while taking on only the risk that you actually need to take to achieve them.

Everyone is going to feel fear when the market dips or corrects or goes into a bear market, and when the world just seems nuts, that’s completely normal. That’s what both your advisor and I and Chris Perras and the whole Oak Harvest team are here to help you deal with. When you’re feeling that fear, remember, we’re here for you. Just give us a call if you need to talk it through and get some reassurance. There is a serious difference between fear and actually taking on too much risk in the stock market. Of those two things, it’s the second that we are most concerned with.

Now, to accomplish your financial goals, there is probably going to be a level of risk you may need to take in the stock market to achieve them. After all, it’s the stock market that offers you and me, the everyday average investor, the best opportunities for long-term growth. There’s also going to be a level of risk that you can take in the market while still being able to sleep at night, which is also very important.

For our clients, what we want to do is dig in with you and uncover the hard figures of how much you are putting at risk against how much you need to accomplish your goals against how much risk you can take and still sleep at night. The results are your allocation, your plan. In my view, having the right allocation, the right plan is simply one of the most, if not the most important pieces of the puzzle in building a successful financial future.

We make it a point for all of our clients to try and help everyone take only the risk they need to take in the stock market. There are other asset classes, other investments, other solutions available. They’re all tools, and our job is to use just the right tools for you and your goals and your family and your risk tolerance. If you’re a client, our goal is that regardless of what’s happening in the market, you know that you are taking only the risk you need to take and nothing beyond.

What we’re experiencing now, with the uncertainty surrounding the coronavirus and this shaky market, are an example of why we do that. We want our clients to be confident that even when the market slips, they are not taking undue risks. That their allocations are designed with the knowledge that there are going to be periods when the market declines and with the intent of holding firm throughout. Because sticking to a long-term plan is a great way to increase your odds of a successful long-term investment outcome.

That will bring us to the end of today’s episode of Stock Talk. Thank you so much for joining me. If you enjoyed the show today, please share it around. If you are starting to feel that fear, that worry about the markets, I’d also encourage you to go listen to episode two of my own podcast, The Investor Mindset, which is entitled Do Something. The Do Something episode is all about dealing with those emotional impulses that can appear when the market does look shaky. You can find it on our homepage, oakharvestfg.com, in the Invest Management section, under the Ideas and Insights tab.

If you are feeling fear, I encourage you to stay calm, remember your plan, and remember that together with your advisor, you are invested in the way that is aimed at your goals, without taking on more risk than necessary. If you have any questions or you would like to find out if we can help you with your portfolio, if we can help you put a plan together, give us a call, our number is 281-822-1350. Once again, this has been James McFarland. This has been Stock Talk. Have a wonderful weekend. I’ll talk to you again soon.

Speaker 1: The proceeding content expresses the views of the speaker and it’s for informational purposes only. It is based on information believed to be reliable when created, but any-sided data, statistics, and sources are not guaranteed. Content ideas and strategies discussed may not be right for your personal situation and should not be considered as personalized investment, tax, or legal advice, or an offer, or solicitation to buy or sell securities. Investing involves the risk of loss and past performance does not guarantee results.