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Don’t Panic. Be Patient.

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By Dan Suzuki, CFA Deputy Chief Investment Officer, Richard Bernstein Advisors

The last Quick Insight recommended that investors prepare for ongoing volatility, which could come with lower lows for the major stock indices. The fundamentals are typically the ultimate determinant for when the market troughs, but as fundamentals have yet to even seriously deteriorate, improvement seems distant. While the global economy has clearly screeched to a halt, we have yet to experience the extent of the second- and third-order effects of the coronavirus on the economy, which are the subsequent worsening of job losses, investment, defaults and confidence. 

But do not panic. One of the worst detriments to long-term wealth accumulation is panic selling. Investors typically panic buy at market tops for fear of missing out, and they panic sell at bottoms because they fear they will lose all their wealth. Neither are prudent strategies. It is worth remembering that someone who invested right at the 2007 market peak and experienced the worst bear market in the post-World War II era, would have recouped their investment in less than five years if they had stayed invested and continually reinvested their dividends. 

Be patient. Everybody is always itching to get into the market at the bottom. Very few actually ever do. As noted previously, investors are typically met with numerous head fakes throughout bear markets. But many insist on buying early so that they “can be there at the bottom.” Yet history suggests that it’s better to be late than early. The table below shows the returns for the full 18-month period encompassing the six months before and the 12-months after the market bottom. We compare the hypothetical returns of an investor who owns 100% stocks for the entire period (“6 months early”) with one who holds 100% cash until six months after the market bottom (“6 months late”). In general, it has been better to be late than early. Not only do returns tend to be greater when you invest “late,” but more importantly, you’ve never had negative returns in this strategy. When investing “too early,” the magnitude of the drawdowns at the bottom often more than offsets the initial rally off the bottom (nearly a third of the time).

To learn more about RBA’s disciplined approach to macro investing, please contact your local RBA representative: www.rbadvisors.com/images/pdfs/Portfolio_Specialist_Map.pdf.

Dan Suzuki is registered with Foreside Fund Services, LLC which is not affiliated with Richard Bernstein Advisors LLC or its affiliates. 

Nothing contained herein constitutes tax, legal, insurance or investment advice, or the recommendation of or an offer to sell, or the solicitation of an offer to buy or invest in any investment product, vehicle, service or instrument. Such an offer or solicitation may only be made by delivery to a prospective investor of formal offering materials, including subscription or account documents or forms, which include detailed discussions of the terms of the respective product, vehicle, service or instrument, including the principal risk factors that might impact such a purchase or investment, and which should be reviewed carefully by any such investor before making the decision to invest. RBA information may include statements concerning financial market trends and/or individual stocks, and are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. The investment strategy and broad themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information contained in the material has been obtained from sources believed to be reliable, but not guaranteed. You should note that the materials are provided “as is” without any express or implied warranties. Past performance is not a guarantee of future results. All investments involve a degree of risk, including the risk of loss. No part of RBA’s materials may be reproduced in any form, or referred to in any other publication, without express written permission from RBA. Links to appearances and articles by Richard Bernstein, whether in the press, on television or otherwise, are provided for informational purposes only and in no way should be considered a recommendation of any particular investment product, vehicle, service or instrument or the rendering of investment advice, which must always be evaluated by a prospective investor in consultation with his or her own financial adviser and in light of his or her own circumstances, including the investor’s investment horizon, appetite for risk, and ability to withstand a potential loss of some or all of an investment’s value. Investing is subject to market risks. Investors acknowledge and accept the potential loss of some or all of an investment’s value. Views represented are subject to change at the sole discretion of Richard Bernstein Advisors LLC. Richard Bernstein Advisors LLC does not undertake to advise you of any changes in the views expressed herein.

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