Weathering the COVID-19 storm together
I am very proud of our clients right now. Even though the COVID-19 pandemic is still evolving and having violent short-term effects on the financial markets and on our daily lives, many of you are hanging right in there with the long-term behavior that is required of successful investors. During the 2008 financial crisis, I was pleased to report that most of my clients stayed with the plan, only to come out that much better when it was over. In 2008, we only had 2 clients let panic get the better of them. They transferred their accounts, succumbed to their emotions, and to my knowledge never participated in the recovery.
During market downturns, it is important to remember that you have not realized a loss unless you actually act by selling securities. When I talk to clients these days they normally say “but Jared, I have lost $_____ amount of dollars during this crisis!”. This framing of the situation is not correct. Your value may have declined, but no loss happens unless you sell. If you act on the urge to sell, not only have you guaranteed a loss, but your opportunity to regain that value disappears. You cannot get that back. Investments held for the purpose of a long-term retirement are quoted daily according to financial markets. The pricing of these assets in the short term are not relevant to their long-term purpose of providing income in retirement.
This reminds me of my favorite quote about investing, from Charlie Munger, who is Warren Buffet’s long-time partner at Berkshire Hathaway. When Munger was asked his thoughts on the 50% drop in stocks during the 2008 crisis, he said this:
“This is the third time Warren and I have seen our holdings go down, top tick to bottom tick, by 50%. I think it’s in the nature of long-term shareholding of the normal vicissitudes, of worldly outcomes, of markets that the long-term holder has his quoted value of his stocks go down by say 50%. In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations”.
Jared Walsh CFP®, CPA
Shawn Goetz, CRPC®
Reservoir Wealth Management