In August 1974, a French street artist stepped on to a high wire strung illegally between the two towers of the World Trade Center. New Yorkers looked up in awe as Philippe Petit appeared to dance back and forth across the wire for 30 minutes, a quarter mile up in the air.
In 2008, a curious interviewer for the New York Post asked Petit “Is it true wire walkers aren’t supposed to look down?” Surprisingly he answered: “It’s a legend… it doesn’t bother me. But, it is treacherous on a high wire to change your focus point and suddenly look down.”
For the last 10 years or so, investors have been on solid ground. Apart from a few brief moments of volatility, the stock market had gone nearly straight up, supported by low interest rates and low taxes.
Now, with the coronavirus coming out of nowhere to seize up the world economy, the ground has shifted. In the last few weeks, world stock markets have experienced unprecedented swoons. If you look down suddenly – vertigo!
For the past few years we have been observing that we are likely overdue for a recession given that they tend to come around every 7-9 years. This has helped mitigate the shock of the recent market decline. However, as we sit at home watching the news, and in a few days open our March statements, we will again be tempted to “change our focus point and suddenly look down”. Based on our many conversations with you, we know you are fighting to keep your balance and resist that temptation.
In moments like this, when we are passing over a particularly scary bit of ground, how do we avoid the temptation of looking down suddenly? It’s deploying the good habits that experience has taught us from past crisis. Your financial outlook is not based on how your portfolio performs over one month, quarter or even year. As we said in our note earlier this month, financial planning exists in order to defend against the “what ifs” caused by unpredictable, unprecedented events. Your probability of success and the achievement of your goals is based on staying consistent with your savings, investment plan and spending.
Yet, as Mr. Petit said, it’s a myth that we should not look down altogether. To be prepared for the turbulence likely still ahead we (and the White House) need to be realistic. This week, there seems to be a light at the end of the tunnel with the coronavirus as we hear news reports of significantly more testing and possibly new drug therapies to protect the people most at risk. However, there are 2nd and 3rd order consequences to this event that will surely follow. Business has ground to a halt, unemployment will spike, bills will go unpaid, tax revenue will fall. These are the things we can expect to hear about for the next 6-12 months even after the immediate challenge of the coronavirus subsides.
What is Longwave doing?
Honoring the principal of staying the course, we don’t take portfolio changes lightly. However, volatility does present opportunity. First, we are taking advantage of the market drop to sell out of legacy portfolio positions in a tax efficient way. This will help position Longwave portfolios be more consistent, and nimble to best participate in the market when it improves. To do this we are keeping an eye on potential market drops to rebalance back into stocks. During previous recessions we also saw temporary upward spikes as occurred last week. We are also watching for these as potential opportunities to get defensive while we dig in for the turbulence ahead. You can expect to see trade confirmations and the corresponding activity in your accounts.
What can you do?
Many of you are saying that staying at home is having the unexpected effect of helping your bottom line and have been asking about reducing your monthly withdrawal or increasing your month contributions. With travel and other lifestyle expenses out of the equation for the time being, you’re likely finding yourself with extra funds at month end and we can take advantage of the increase savings/decreased spending by adjusting your monthly distributions. This allows us to stretch out your savings for longer which is a lemons into lemonade benefit we’re happy to take advantage of.
While we know that this will pass, this knowledge doesn’t always help in the moment. What does help is remembering that we’re all the same people we were a month ago and will be a month from now, except that we’re now drawing on our reserves of patience, kindness and community. While we don’t know when, we know that recovery is inevitable. One day soon, we’ll go to our favorite restaurant again, book our next fabulous vacation and most importantly, return to our daily lives and habits. Longwave is here for you and will continue to be.