Don't get off the train, 2020 edition

On Monday, March the 2nd, 2009 we wrote a blog post entitled "Don't get off the train" advising readers of this blog not to panic and liquidate long-term investments during the severe bear market that was then underway.

The title of that post was a reference to the fact that the market can move very rapidly and with a lot of violence, and that trying to jump on (or off) with any kind of delicate timing is extremely dangerous. The post was written at the very depths of the 2008 - 2009 bear market and global financial crisis, when investors were extremely worried and many were asking us if they should sell and "go to cash" and then "get back in" when things looked better. 

We wrote that this kind of thinking is extremely dangerous, because when the market turns it happens so rapidly that it is shocking, and that the further it moves up the more difficult it becomes (emotionally) for those who got off to buy back in -- often resulting in tremendous losses for those who panic-sold near the lows.

The timing of that advice was extremely note-worthy, in that it was published exactly one week to the day before the very bottom of the 2008 - 2009 financial crisis. The market reached its low on March the 9th of that same year and subsequently rebounded extremely rapidly. In fact, as we noted in another post about one month later, the Nasdaq index had moved up 30% from its lows in the weeks following the March 9th market bottom.

Note well that we have always counseled that both individuals and institutions can only successfully avoid fire-sale situations if they have planned properly for their budgetary needs: the only thing that should ever be committed to equity investment is long-term capital.

Additionally, we must also point out that we have always emphasized very strongly that we do not invest in markets and we do not advise owning market indexes (whether in the form of index funds or ETFs): we own companies which we research very carefully, whose businesses we understand, and which are positioned to take advantage of long-term narratives which may take years to be fully realized. 

We invest in those companies through the inevitable cycles of both markets and the economy itself, for as long as we judge those companies to be led by competent management teams and positioned in front of fields for future growth, and we sell them when those conditions are no longer met. We do not recommend that investors just "buy-and-hold forever" and we certainly do not recommend that investors "just buy the market."

The benefit of our type of strategy is that we are regularly in contact with the management of our companies and able to "take their pulse" as to what is happening in their respective businesses.  That is a process we find invaluable in times like these as they provide us with the confidence that these are solid businesses that are well-positioned to rebound when the tide turns, as it inevitably will!

While we still hold to the view -- as stated in our commentaries over the last couple of weeks -- that the reaction to the coronavirus has been overblown, it is now more than obvious that we are going through a market down-cycle, and it is also now clear that we may also go through an economic down-cycle as well (potentially resulting in a recession).     The good news is that the economy was in relatively good shape prior to the onset of the coronavirus outbreak and the more-recent oil-price volatility, although there will certainly be some sectors of the economy that will be impacted more than others.

Our advice to investors is to remain calm and remain invested with long-term money that has already been committed to business investment -- and to the degree they can we recommend that those who have long-term funds to invest begin doing so now.

There are many examples of investors who sold at the panic-lows in 2009, as well as in 2002 and even going back to 1987, and who never got back in at anything near the prices where they sold, because the snap-back when it finally happened was so sudden and so violent that they missed moves of 25% or more, and then it became emotionally difficult for them to buy back in as the prices continued to go higher.

Now is not a good time to panic.

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