The S&P 500 fell about 35% from its late February high to its late March low. Since hitting the low, it has gone back up by 25% but is still 17% below the February high. Question: Are you encouraged by the partial rebound and hopeful for more in the future? Or are you still upset that the market and your net worth sold off and won’t be happy again until it recoups its losses? Similarly, new unemployment filings are at record highs. If and when this trend reverses itself and companies start to hire again, will you be hopeful when the trend is upward or unhappy until the unemployment rate reaches its previous lows?
I believe most people fall in the category of being hopeful if the trendline is upward, even if things in the recent past weren’t so good. People don’t like the sense of continuing to fall, but they are ok once they have fallen and the situation stabilizes when they head back up again. They don’t have to reclaim the previous heights as long as they are moving in the right direction from their own perspective. If my belief is true, then optimism should return more quickly than expected and perhaps as quickly as the Coronavirus led to the shutdown of the economy. Once a few jobs reappear and maybe a few restaurants reopen, even perhaps on a limited scale with restrictions in place, I believe we will collectively be hopeful about the future even if it is perhaps not as good as it looked even 60 days ago. I realize I am venturing into the realm of Behavioral Economics in which I have no training other than personal experience and a couple of books I have read. Yet, I am an optimist, and so I am hopeful that others will share my optimism.
With respect to investing, the trick will be not to get too far over your skis and be too optimistic. Make sure you temper the level of optimism you might have with a sense of reality. In other words, go ahead and buy, but try to make sure the price you pay is reasonable. Use my advice or that of another trusted financial planner or investment manager to judge if you are jumping in too deep too soon. Conversely, if you are more of a Debbie Downer, run your thoughts by your advisor to see if perhaps you are too gloomy or if your gloom is justified and fits with your investment goals. As a whole, the stock market looks more to the future and future earnings potential than it does to the past. Use this Coronavirus situation to think about if you also look toward the future.