Since our last communication, global actions to prevent the spread of COVID-19 have escalated. We are left to process some powerful images and headlines: empty March Madness stadiums, suspended NBA season, closed national borders, stranded Cruise Liners, “ghost flights” in Europe, a rare Oval Office address, unprecedented moves by the Federal Reserve, and world renowned celebrities contracting COVID-19.
These images and headlines are understandably and rightfully alarming. We are encountering a novel virus that can live in its host for an extended period of time, appears to spread rapidly, and presently has no cure. The threat feels increasingly real as it hits closer to home and begins to impact our daily lives. In some ways, this tragedy brings us renewed perspective. Last night, the ACC Tournament announcers reflected publicly that basketball just didn’t seem to matter at the moment. We couldn’t agree more.
As investors, however, it is important to note that fear is amplified by a very natural behavioral bias called the recency and vividness bias – the more recent and the more vivid something is, the more likely we are to believe it will last or occur again.
While we are not able to predict what the impact of the virus will ultimately be, we do know that psychologically, most humans will be inclined to project the current path and worsening state into the future; and thereby overreact.
We are investors who seek opportunity to buy good companies at inexpensive prices. Speculators try to predict the future and anticipate what other speculators will do with respect to buying and selling. A recent article by Jason Zweig of the Wall Street Journal, summarizes our perspective on investing versus speculating quite well. If you happen to have a subscription to the WSJ, you can find the article at this link. Otherwise, here are some highlights:
“The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices…The speculator, on the other hand, cares mainly about anticipating and profiting from market fluctuations.”
“The primary reason many individuals fail as long-term investors, Graham said in 1972, is that ‘they pay too much attention to what the stock market is doing currently.’ Intelligent investors, he insisted, don’t need superior intellect, training or expertise. Instead, intelligence consists of patience, independence and self-control.”
We are here to help our clients invest and exercise this self-control. While it is exceedingly painful to watch market values decline on screen, the goal of equity investors should not be to avoid volatility or loss, but to weather it and capitalize on the opportunities it creates. Historically, equity investors could expect to see declines of more than 30% at least once every 5 years. It has been over 11 years since we have experienced a drop of this magnitude. While the cause of these declines is typically unpredicted and unusual, the declines themselves are not.
So here is what we are doing:
In taxable accounts, we are looking for opportunities to offset gains that were realized earlier this year with some losses, and to reinvest at least a portion of those assets into attractively valued securities so we retain exposure to the equity market in the event of a bounce (unless otherwise instructed by you).
We are looking for opportunities to purchase the stocks of companies that we believe offer significantly attractive prices (that we will be glad we bought in the future).
We are considering advancing the timeline of planned Roth conversions now that clients can move more shares at lower prices.
We will continue to communicate with you openly as developments occur and our outlook evolves. We will steward your assets responsibly as if they were our own. As always, the entire Alpha Omega team is here for you whenever needed.
Alpha Omega Wealth Management
Craig Forbes, CIMA®, 804-955-1601
Clay Hilbert, CIMA®, 804-955-1602
LeAnn Mitchell, 804-955-1603
Clement Teden, 804-955-1604
Chris Milligan, CFA®, 804-955-1605
Everett Reveley, CFP®, AIF®, 804-955-1606
Bill Noftsinger, 804-955-1607
Elizabeth Wiertel, 804-955-1610
Shenandoah Valley Office:
Holly Ruff, CFA®, 804-955-1612
Carl Lind, CFP®, 804-955-1614
Eric Fitzgerald, CFP®, 804-955-1615
Please remember to contact Alpha Omega Wealth Management, LLC (“Alpha Omega”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Alpha Omega effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available for your review upon request.