In today's market, people are asking the following questions:
Why did the stock market crash today?
How to buy a certain stock?
How do I find a financial advisor whom I can trust?
These are all very good questions. However, the first two questions are very tactical and will not yield longer-term results while finding a good advisor will surely make a difference.
In the May live market update call, we shared two key hypotheses driven by our investment models:
Markets could remain elevated into H1 2020. However, there is a good chance that the bear will re-assert itself; again increasing the volatility.
There are bigger fundamental shifts happening in the markets in bonds, stocks and other asset classes
As we see a renewal of market volatility, it is important to revisit the above hypotheses, and reflect upon the following key questions based on one's financial circumstances:
Growth investors with a longer-term horizon:
If you are heavily invested in growth stocks and they start going down like 2000 bear market and only 10% of them come back up in 10 years of time, how much time value will you lose and how much financial strain will this cause?
We wrote a detailed article on the expensive nature of these growth stocks (here)
For pre-retirees:
For decades we have been conditioned by the declining interest rates and increasing bond prices to the point that people now have bonds in their portfolios not for the interest rate but as a diversifier. What happens if the bond portion of the portfolio starts going down? How much loss could the portfolio incur?
We wrote a detailed article on the bond market (here)
For regular investors:
In a dynamic environment where news drives short-term volatility and there are many variables to consider, what considerations will drive your overall investment decisions e.g. tax implications, gains protection, virus implications?
Should you divest and risk missing out on gains; or stay invested and be exposed to the downside?
These are important but difficult questions to ask and are further exacerbated by the recent behavior of the financial markets where risk assets have gone up in the face of economic, geopolitical, and health uncertainties. This is where it is vital to have hypotheses based on time-tested indicators and a risk-management framework that ensures alignment with the broader themes. Our investing models have outlined key parameters where these hypotheses will fail and the associated action plan. Please feel free to reach out with any questions regarding your personal situation, overall markets, or our investment management approach in these unique times. We have been having multiple 1:1 conversations over the past few months on these topics.