A Little Guide Post

March 26th, 2020

I hope everyone is well.

How long does this last?   No one can tell you that, but history does provide some examples – each different – that can help you understand that there are options other than a ‘V’ bottom.

Here is some guidance to help out:

Below are four major market downturns that are frequently studied because of their brutal nature.   They each have different characteristics, but this data simply measures the month of the market high, and how long it took to regain that high mark.

Date of Peak     Peak Value       Recovery Date                       Period

Sept 3, 1929           381.17                1954  (Dow Jones)              25 years

August, 1987        337.88                 July, 1989  (S&P)                 23 months

March, 2000       1,553.11               October, 2007 (S&P)           7 years, 7 months

October, 2007    1,576.09                March 2013 (S&P)              5 years, 7 months

The events of the past month have brought major markets down faster than ever, and the past three days have represented the fastest ‘bounce’ ever.   Each of these unusual events will undoubtedly be causing an emotional roller coaster.   Please be calm and get used to it.

I put out the data above, because it is unlikely that the markets have begun a steady climb upward to their old highs.    The more likely scenario is that there will be many months of economic damage to work through causing further significant (if not so dramatic) moves in the market and some of them may take prices lower again.

Telling others when to buy or sell investments is a great way to lose friends.   Please don’t think of this as advice.   Be cautious.

It is unlikely that the economic damage has been completely factored into anyone’s assessment and that means that any prices of investments are not yet based on reliable measures (book values, revenues, debt levels, profit margins, growth rates, all of the common elements used to value securities will be less reliable for two or three quarters at the very least).   Put simply, you should expect prices for individual securities to fluctuate substantially for some time to come.  After a 30% drop, some may be undervalued, but the biggest risk is that they are overvalued.

[The featured image is from the front of Teatro Massimo (Opera House) in Palermo, Italy.   A little bit of the world’s beauty to hopefully bring some comfort as things get crazy.]


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