One of the points I made at the last workshop is that the stock market goes through cycles. It goes through bull markets, then those bull markets transition into bear markets, then the bear markets transition back into bull markets, and the cycle starts all over again. It is one massive roller coaster. I said back in January that best-case scenario we were due a bear market because the bull market cycle was overextended and looked as if it were done or best case scenario in the final innings of a bull market cycle.
You might be able to see a bear market coming. You rarely know the catalyst. Of course, this time around, it is a pandemic.
Bear markets go through a 3 part process. They start with the creation of uncertainty. The uncertainty began with the Coronavirus spreading through China. Markets began to take notice of it as it began to spread to other countries. Slowly panic began. As grocery stores became empty, airlines shut down, everyday life as we know it was changing, fear grew. Many people blamed the media for the onset of the panic. After all (you have heard the arguments), more people die from the flu, and the numbers don't even register to warrant such drastic measures.
The media is just reporting what it is seeing. The media isn't all of a sudden being sensational. They have always been sensational. You could blame social media - however, that is another story. It is the cycle. The problem is that panic feeds upon panic. What fuels that fear is the extreme panicky declines in the stock market and the aggressive moves made by the Government. Because it begs the question - What are they seeing that has them so worried? The reality is that if you don't get aggressive about it before the public health crisis occurs, you lose control of the situation. The problem is that the measures taken to get out in front of it are feeding on the panic. It is all a vicious cycle until you see the number of cases peak.
Somewhere, a crisis develops in the bear market cycle. We won't know how bad that part is until we see the results health-wise, how long this lasts, a number of companies that went bankrupt, how bad a recession we get, the downside of government intervention, the total disruption of life as we know it, etc.
What am I trying to say?
This is all part of a stock market cycle. There will be another bull market cycle when this is over. The Coronavirus is the catalyst this time around, just like the financial system was the catalyst during the financial crisis and a technology bubble the catalyst during the early 2000s. Truly to be a long-term investor, it is not about staying invested in the long-term. It is about understanding that there is a vicious cycle the stock market goes through. At some point, the market will get ok with this risk, and buyers will come in. I don't foresee that being anytime soon. This emphasizes the importance of understanding the cycle and having a plan B investment plan to go along with your plan A.
During Thursday's webinar on the current situation, I will be talking about how to create a plan B investment plan. To sign up for it, go HERE.