Why Now is a Time for Concern, But Not Panic

The market is officially in a bear market. And for some investors this is a brave new world. Just one month ago, the market was surpassing new highs virtually every day. The 10-year plus bull market showed no signs of slowing down.

However, in what seems like a blink of an eye, everything has changed. One of the strategies investors use to profit from bear markets is to get ahead of one. That’s one reason why this bull market is so unsettling. Some investors may have done some end of the year rebalancing. But for many investors the beginning of 2020 was not the time to be taking money out of the market.

For the economy, the cure is tough medicine

The underlying cause of the bear market is the real concern. The coronavirus is a puzzle without an easy solution. And the difficult solution, as prescribed by the medical community, is a medicine the economy is not going to like.

Social distancing will be one of the most remembered phrases of 2020. Flights canceled. An entire industry (the cruise line industry) has ceased operations. The world of sports has come grinding to a halt. Casinos, bars, movie theaters and restaurants are all either closed or operating in a significantly diminished capacity. Retail shopping is all digital for the foreseeable future. And all these industries, and the workers that are finding themselves out of work, will need substantial economic assistance.

But I thought you said now was not the time to panic? I did. And this is the first step believe it or not.

Get as much information as you can

In any difficult market situation, the unknown is always worth than the known. This is because as investors, we can deal with the known. The market gyrations of the last several weeks have been largely due to investors being unsure of the unknown. And whenever that happens, the reflex is to sell (a flight to safety).

That’s why as more citizens are tested for the coronavirus, and yes, even as more are diagnosed with the coronavirus, it will eventually become just another data point for investors instead of the closely watched metric that it is at this moment.

And, by staying on top of the news (good and bad), you can avoid making panicked decisions. Which brings me to my second step.

Avoid analysis paralysis

Just as in a bull market, it’s possible to overthink things in a bear market. After a while, even on the busiest news day, there is nothing “new” to digest. At some point, it will be time to step away from the news and consider a plan of action.

Maybe that plan, for now, is to sit on the sidelines. Maybe it’s to nibble at a few undervalued stocks. Whatever your plan is be sure to execute the plan based on your risk tolerance.

Some of the tried and true strategies don’t apply

Invest in treasuries is one of the strategies you hear for profiting in a bear market. But the 10-year Treasury note has a yield below 1%. You can’t just flee to international stocks either because the coronavirus is a global pandemic. Every major country is being affected in one way or another.

In this sense, it’s good for stocks because investors who are committed to staying in the market really have nowhere better to go if they’re looking for some form of growth. And that brings me to my last point.

Remember why you invested in a particular company or sector

Another reason to get more information is that there are many excellent companies whose stocks are getting punished as part of the broad market selloff. The questions that every investor has to ask are:

1. Is this company’s core business really affected by the coronavirus? Meaning after the virus concerns abate is there a reason to believe that the company’s sales will be harmed? Think of stocks like Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN). These are great companies that you could buy for significantly less than what investors were paying for them 30 days ago. Apple is saying that despite the virus taking a direct hit on its Chinese supply chain, they foresee being fully stocked with iPhones for the 5G models coming out at the end of the year. Amazon is hiring workers (at a higher hourly rate) to ensure that the company can keep up with demand during the crisis.
   
   
2. For the companies that will receive financial assistance, what was their balance sheet like before the crisis? I’m not saying now is the time to invest in airline or hotel stocks, but these stocks will be among the ones that should come back when consumer and business travel picks back up. If a company was in solid financial shape before the crisis, it should be fine afterwards.

Remember, this too will pass

Depending on your experience in the market, that may sound unbelievable. But the market will come around. And when it does, history proves that the investors who exercised caution, but not panic, are the ones who receive the biggest benefit. Investing is a long-term strategy. If you keep your focus on that, you’ll get through this bear market. We all will.