It should not create panic selling or operating in concert with the herd. Short term volatility creates opportunity for positive movement forward. But in six months? 12 months? 18 months? They’re going to be back in business and return to normal. Disney or Carnival Cruise Lines or United Airlines, and plenty of others in relatively similar industries, are currently being oversold because of short term issues. In fact, unrelated to the lecture, the team was underperforming according to their average and will tend towards returning to that mean. The coach will give them a big lecture in the locker room afterwards, and the team will probably perform better the following night. Now this won’t happen, given all the sporting event cancellations, but let’s say a sports team wildly underperformed in a game tonight. Just like each of us, stocks and outperformance always revert to the mean, the average. I’ve bought them well below their long term averages or run rates. But over the long term, I largely just ignore it.Ĭontrary to, it seems, many others, I have bought some good stocks over the last few days. Think of the short term stuff as a quick opportunity. That doesn’t mean I can’t take advantage of, without trying to second guess the market, short term potential. Because more often than not, a big drop today precipitates a small uptick tomorrow. So if there’s a big drop tomorrow morning, which there has been a few times this week, maybe tomorrow afternoon I’ll be thinking of buying. We will return to normal, maybe a new normal, and when that happens, airlines, amusement parks, cruise lines and other stocks will rise back to their longer term averages. They’ve been beat up because of the nature of COVID-19, which by definition is finite. There are some great stocks at the moment which are, in my humble opinion, significantly undervalued. In more industry specific terminology, if people are selling, then it’s time to consider buying. If people are zigging, then it’s time to consider zagging. Don’t fall into the trap that a younger, more inexperienced Aaron used to.
That’s exactly the opposite of the recipe you’d want. While what’s happening is certainly interesting, does it necessarily necessitate me changing my strategy and panicking? The answer is no.įrom experience, those times when I have, I’ve sold at the bottom and bought at the top. My time horizon is 10, 15, 20 years out from what’s happening today and tomorrow. Not that they’ll immediately go to the shredder, but by and large I will ignore them and put them away. What they’re not is “invest this week, make money by the end of this week and then get out.”Īs a case in point, I’m expecting to receive my quarterly statements in a couple of weeks. That’s how they’ve been scoped, if you will. They’re designed to compound your interest over time, to produce a longer range return. They’re, by definition, medium to longer term instruments. They’re hour to hour, day to day, even week to week. We’ve seen some rapid growth in stocks that provide work from home tools, such as Zoom, and rapid drops in industries like tourism and travel.Īll of this is, in the greater scheme of things, on the micro cycle. Not just in this time of high volatility, but in shall we say “average” times as well. Given these two principles, the respectable rate of return and “The Wisdom of Crowds,” let me share with you two investment strategies, two philosophical underpinnings of action, that may prove fruitful. And what I like to call “The Wisdom of Crowds” is profound… albeit it does overreact. It always amuses me how the overarching markets overreacts to almost everything, overreacts positively, overreacts negatively. Keep in close mind that you should try to not be a member of the herd. Over the long run, things pan out to a respectable rate of return.
So my immediate advice, as it relates to investing, is keep your head, don’t panic. One thing I’ve learned over my decades in this space is that volatility can also equal opportunity. I’m speaking of individual stocks and other financial instruments. One follows the other with no particular rhyme or reason.Īll of it. Huge drops, and not quite so huge but still significant upticks. It’s the second V I want to opine on for a moment. March 2020 seems to be brought to us by the letter V.
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