7 days of stock market panic. Whether it was due to the market being overbought, the possibility of a socialist becoming president, that Coronavirus is going to cause a pandemic that will potentially eradicate a large portion of the world’s population (and/or possibly cause a recession), it should not change how you invest. I don’t know whether any of these possibilities are or will become true, and it does not matter in the long run (more on that shortly). If you have a plan and you rebalance into weakness as well as strength regardless of exigent world events, you will be fine. If you stick to that pattern and you add money consistently during your working years (and aren’t a spendthrift), you will be more than fine.
When the market drops 15% in a week (as it did at one point on Friday before recovering), it is hard to ignore. I don’t know if it will fall another 10% in short order like October, 1987 or it will have a sharp rebound like it did a year ago. No one does.
The U.S. stock market had its 15th worst week in 124 years. That includes numerous economic panics, wars, nifty-fifty, dot com crisis, the housing crisis, several flu pandemics, and a host of other seemingly existential crises at the time that are now doomed to history books and the farthest recesses of our minds.
Warren Buffett offers the best explanation of why none that matters in the long run:
Yet, if you are on margin or need the money soon, this week was really painful. If you found yourself panicking about your portfolio, you almost certainly have too much exposure to equities. That makes this a great time to change your allocation going forward, so you don’t learn the lesson during a much greater downturn like ’07-’09.
You will hear lots of financial advisors say: “It’s difficult to time the market.” They are wrong. It’s impossible. I firmly believe the progress that began in 1776 will continue, and that’s all that really matters.
