Building Wealth During Coronavirus: Day 10 - No Hopscotch Today!

March 27, 2020

My kids played some hopscotch today. I hope you're not.

This market has a lot of people making poor investment decisions. One minute they think the global economy is going to zero and then after just a day or two of big upswings they think the bottom must be in. They're jumping in and out like my kids in the driveway with chalk on a summer day.

Right now there are a lot of emotional market-timing investors who don't understand the devastation they'll likely create to their own wealth. You might even hear them talking about it at work. They're the ones constantly changing their 401k allocations and getting stock tips from Reddit.

You see, most retail investors have limited availability to get in and out of markets quickly, never mind to actually time markets on any given day. It can take 1-3 days to get the proceeds of an investment sale, so investors can be stuck on the sidelines when critical gain opportunities are missed. Think of the investors who thought they were smart selling on Friday, avoiding Monday's drop, but then missing massive upswings for the past three days. Then to climb back in now at higher valuations, in a vicious cycle of gambling and chasing short term results at the expense of long-term wealth.

For those trying to time a bottom in the market after this rally, Andrew Adams CFA, an analyst at Saut Strategy, said it very well when comparing this market to the financial collapse of 08/09. He said: "The initial “low” ended up seeing about a 25% bounce very quickly but that was just as quickly given back and the low was retested later in October. Then that led to another ~20% bounce into November before a subsequent drop and a new low was made. The market rallied almost 30% into the new year but sold off into what was ultimately THE low in early March."

No alt text provided for this image

I'm not trying to tell you whether or not a bottom has been established, no one knows that. What I am saying is jumping in and out in a ferociously volatile market like our current one is a fools errand. You need to allocate your capital based on your goals and execute strategies based on your needs, not the daily whims of the market.

So take a deep breath, review your investments and strategies relative to your own personal needs and then get back to living your life.

Short-term gambling is not worth long-term pain.

-Tim Golas, Partner @ Spurstone - Architects of Executive Wealth