Investment Update: March 12, 2020
As mentioned in past Investment Updates, we took measured steps last month to position our portfolios for market weakness although the situation has obviously gravitated to panic selling. This week, we have been rebalancing our portfolios back into the equity markets. Specifically, we rebalanced on Monday and Wednesday of this week. Today, we increased our portfolio weightings to equities and fully rebalanced our portfolios.
Example: We desire a position to equal 5.00 % of our total portfolio. The price decreases and it is now 4.00 % of our portfolio. We will purchase an amount equal to 1.00 % to maintain our desired 5.00 % weighting. Please see our Investment Update of February 28th included in this email string. As our chosen custodian Charles Schwab was the first to introduce zero commission trading, rebalancing is very effectively achieved.
As noted in our March 9th Update: “Our expectation is that traders will fight to hold the area of 23,550 with a level of 21,700 being the next area of panic selling. Both levels provide an opportunity to rebalance portfolios and enter the market”.
The Dow has closed just below our target area of 21,700. Typically we would view today as a “flushing of the pipes” and would like to see some buyers come back into the markets although it would likely resemble a roller-coaster with ups and down until the markets get a better feel for the full economic impact beyond the first half of the year. A certain level of follow-on selling is possible but this would likely be another level of panic sellers rounding out the market drop.
The Dow is made up of 30 of the largest stocks to represent a cross-section of our economy. The S&P 500 is somewhat broader but still dominated by the same stocks in the Dow. Our target area on the S&P is another 5% to the downside but these are only watch areas.
Panic is irrational and short-term which makes it difficult to analyze the markets rationally with a mid to long-term outlook. As Portfolio Managers our role is to do just that – maintain an understanding of investor psychology including panic selling and computer algorithms feeding our markets as well as anticipating the cycle of an event. This moment in history – the Coronavirus and its effect on the markets had a beginning, it will have a middle or a peak and it will have an end. Our economy and our nation are strong enough to weather this storm.
Regardless, we strongly believe that when the markets recover, and they will, we can achieve these levels and more. We are not trying to pick a bottom but simply execute a plan of action to weather the storm. Let us not be too quick to forecast a prolonged recession nor its corresponding market performance when compared to other periods in history. More on recession fears and market performance in another Affinity Capital Market Update.
We encourage you to reach out to us with any and all questions or concerns. Thank you for your faith in us as we navigate this period of history together.