I don't buy individual stock, but if you do, I will be willing to bet that you'll get another shot at Disney at a much cheaper price. Full disclosure, my husband and I are 52 and 51 years old and have been concerned since the end of 2019 that the market was overvalued by probably 10-20%....pre-pandemic. We, like many others, had incredible returns over 2019...25-29% in our respective investments. Our allocation at year end was 85% US equities, 11% international and 4% bonds. Instead of pulling completely out of the market at that time, we moved everything into Vanguard's VBIAX, essentially their 60 stock/40 bond fund in mid January. The most conservative allocation we'd ever set up.
We were also paying close attention to the news about this virus and wondering if we should get out altogether. Around February 20th...the market really started to react to the reality that we would not be spared, but still, the news wasn't dire. Then on February 25th, a day after the Dow dropped by around 1,000 points....I heard a woman named Nancy Messioneir from the CDC. It was just a recording of a call she had with reporters. I was out running errands and listening to the news. Something she said during that call was so alarming to me that I pulled over.
She said, "The American public needs to prepare for major disruption to our daily lives. It’s not so much of a question of if this will happen anymore but rather more of a question of exactly when this will happen." She said that cities and towns should plan for “social distancing measures,” like dividing school classes into smaller groups of students or closing schools altogether. Meetings and conferences may have to be canceled, she said. Businesses should arrange for employees to work from home." “We are asking the American public to work with us to prepare, in the expectation that this could be bad,”
I called my husband immediately, and he put sell orders in for everything. Because it's all mutual funds, we didn't get out until the close that day, but because we'd moved to a balanced fund, our portfolio was down just 4% from the market high. Obviously now that we're out, it's nearly impossible to decide when to get back in, but I'm not buying that this market has bottomed.
It makes sense that certain company's stocks may have bottomed. Everyone got slaughtered, and so some of the rebound is traders buying individual companies that are going to be just fine and some of these stocks were definitely on sale. It also is rallying because it looks like the NY metro area is peaking as far as infections. That's...great news. It's also being pushed higher by traders who shorted the market and are now being forced to cover their bets. And finally, it's rallying because the Treasury and Federal Reserve are doing more than has ever been done in the history of this country to prevent us from going into another Great Depression.
But this is almost exactly what happened during the Great Recession....very similar trading pattern. But no matter how much the Treasury and Fed are doing here, incredible, historic damage is being done to our economy. There will be a massive wave of defaults and bankruptcies. That's just going to happen. The stimulus money is taking too long to get to individuals and Main Street....it's barely trickling out. By the time it gets to many of these small businesses, it will be too late for some of them to make it. And finally, even though most Americans will remain employed, we're going to have very high unemployment for the next year or more. And Americans who have kept their jobs are likely going to change their behavior for quite awhile as we come out of our "lockdown" mode. We're all likely to be very tentative with our wallets for quite some time.
When I think of all of that, and now with the market down just 20% or so from the highs....well, the market was 20% overpriced before all of this. It won't be until all of the economic carnage is really understood that we see the actual bottom of this market. However, the market will turn higher before the worst of the economic fallout is understood. So...our plan is to dollar cost average in on the next leg down and continue to do so until we're fully invested back into our balanced fund. Currently we're in Vanguards' US treasury fund. And even that kept me up for a couple of nights...until the Fed stepped in and backstopped the treasury market. Definitely stressful times for all!
