Asking The Right Questions

April 23, 2020

"Worst Unemployment Since The Great Depression"

"Record Deaths From Virus"

"Best Weekly Stock Market Gain In 5 Decades"

If you saw the above headlines you would think you were playing one of those 'which one doesn't belong here?' games we took part in as kids. Yet at the end of last week, those were the headlines around the country – catastrophic economic and health data at the same time US stocks saw their greatest weekly gains since the 1970s. This represents another endless series of examples which demonstrate that near-term stock market movements are simply not predictable (imagine if you had a crystal ball and saw the economic/health headlines in advance and naturally placed a bet against US stocks – you would have been crushed).

Yet investors, commentators and the general public continue to ask the same questions over and over: "Is the bottom in for stocks?" "Will stocks be up today/this week/soon?" And so on. These are the wrong questions to ask. People do so since it is easier than asking – and taking actions on – the right questions, the relevant questions, the questions on areas of life that are far more predictable and controllable.

When challenging times arise, there are often bad outcomes for people, not because of the underlying situation, but due to their reaction to it. This is especially true when it comes to money. So it is extremely important to focus your time and energy on the right questions and the right areas so that you do not fall prey to the situation unfolding around you. Rather than asking about something over which you have zero control and ability to predict – short term stock price movements (which I would define as stock prices over the next year or so), ask yourself first and foremost if you are taking all the right steps to protect your health (eating the right things, getting enough sleep, refraining from drinking alcohol, getting in your exercise, meditating, etc.). As Gandhi said,

"It is health which is real wealth, and not pieces of gold and silver."

This is no truer than today. That said, your fiscal health is also very important. It is easy to spend your time listening to commentators say things like, 'If the DOW goes above 27,000 it will confirm an uptrend, but if it breaks down below 21,000 it will be telling us it wants to go lower' in response to a question about where the markets will trade in the near term. Layman's translation: 'I have no idea where the stock market will trade, but to make sure I'm not wrong on national TV, I'll tell you that if the market is up then it went up, and if it is down, then it went down.' What is harder to do is to look very closely at your spending, your cash levels, and your budget. These are things over which you have a large degree of control and with smart decisions, will allow you to get from here to there. If you are not sure on how to proceed and are paralyzed with uncertainty or fear, work with a professional who can inject a dose of calmness and rationality.

Another question which is asked repeatedly is 'when will things get back to normal'?

Whether on the health, economic, and/or market fronts, a better way to look at it is to set an outer range. You should assume things won't get back to 'normal' for about 18 months (when most of the world's population is vaccinated). Plan for that. Accept that. Don't fight it. Perhaps the market will recover long before given that it is a forward-looking mechanism. Rather than being fixated on day to day stock price movements, just accept that there is likely going to be a lot of ups and downs over the next 18 months, with a recovery over time (which is consistent with most bear markets). Once you accept this, it will relieve a lot of stress and mental/emotional time that can be dedicated to other things that can impact your life far greater like health, relationships, and controllable personal financial matters.

On the issue of getting back to 'normal' - to the way things were - you need to accept the fact that the world is constantly changing. The question you should ask yourself is not when things will get back to 'normal', but rather are you prepared physically and more importantly emotionally to deal with the inevitable changes? Do you have a growth mindset rather than a fixed mindset? Can you embrace change with a positive attitude? While typically not as dramatic as our current situation in terms of speed and severity, change is constant in life. Post 9/11, many things in society changed (obvious ones being things like security procedures at airports) and we adapted as a society. Technology creates constant change in our world, sometimes good, sometimes bad. A decade ago, the number of car crashes and subsequent injuries from phone induced distracted driving was virtually nonexistent. Now nearly 400,000 people a year in the U.S. get injured (and many die) simply from staring at a piece of plastic (AKA a phone) leading to distracted driving and an accident. Of course, the technology of smart phones has led to positive changes as well, but we don't think twice about the number of deaths from smart phone related distracted driving since we have emotionally adapted to this negative change.

It is important to accept the facts that: 1) many things will be different in the future (they would have been different regardless of the virus), some good, some less so, and 2) you will not be able to predict let alone control much of the change that is going to take place. That is not to suggest you should just throw your hands up and give up. Just the opposite: let go of things you can't control or predict and focus on things you can control and predict. For example, if you eat healthy and exercise, you will lead a higher quality life. Similarly, if you look closely at your expenses, you will be in a stronger position financially once the world is vaccinated which is the ultimate 'cure' to the virus situation.

Social distancing has led to many feeling more isolated than ever. Yet it is during challenging times that we can more than ever benefit from those who have deep experience navigating crises. Even the average pilot can get you from point A to point B when the skies are sunny and there is a tail wind. But to maneuver through an intense storm requires both extensive expertise and a mental make-up conductive to dealing with extreme conditions. At Coastwise, we are here to assist you in navigating your financial journey in good times and bad. Feel free to reach out to us with any question or area where you could use an extra set of eyes to ensure you are making the right decisions for the near and long term.