Our Thoughts

4 Fresh Perspectives on Market Madness: (Financial) Self Care for Trying Times

By: S. Alexis Grason

On a scale of 1-10, how was your day today? 

Mine started out at a solid 10. But these are unsettled times, and things got bumpy as I juggled my financial planner day job with my brand-new role as a home school teacher. Nothing went according to plan. 

I set out fully organized: calendar hyper blocked, day planner carefully arranged, kindergarten schedule printed out, with worksheets, books, and crayons all lined up. After pausing for my moment of morning Zen to journal about gratitude and daily intentions, I was ready to dig in. 

It wasn’t long until my well-laid plans went off the rails: 

  1. Meeting ran over. 
  2. Bright kindergartener finished work early. 
  3. Same clever kindergartener got bored. 
  4. Market was down. 
  5. New time-sensitive emails popped up. 
  6. Kindergartener got bored again. 
  7. Tasks came back to me, and now I was the bottleneck. 
  8. Market still down. 
  9. Discovered an inefficiency and revised the system in place. 
  10. Observed the sunlight beaming in on where I had been sitting inside for hours. 
  11. Market still down 
  12. Intrepid kindergartener still bored.

And the list goes on…. 

The Market is Not Immune 

Daily routines are hardly the only disruptions these days. Clients tell me the COVID-19 pandemic has turned well-thought-out investment strategies into a scary roller coaster ride. People hear advice to stay the course, but angst tempts them to do otherwise. 

Liz Ann Sonders, investment strategy guru at Charles Schwab, recently sorted through some key points about current market craziness to provide some perspective: 

Emotions Affect the Market Too

One way to measure a company’s well-being is through valuation—a ratio between the stock price and company earnings (price/earnings or P/E). The number produced by that ratio is called a multiple. 

Sonders notes that although valuation is traditionally thought of as a “fundamental” indicator, it can just as easily be a sentiment indicator. She points to the investor euphoria that drove people to pay sky-high multiples in late 1999 through early 2000 and the despair that fed investors’ unwillingness to pay even single-digit multiples from late 2008 into early 2009. 

The Usual Rules Don’t Necessarily Apply Right Now 

uncharted territory Company earnings are traditionally viewed as the driver of stock prices, and the two often closely track each other. But they can also lurch in opposite directions, as was the case on March 23 when the S&P 500 P/E hit its low. Although earnings estimates were also on a downward trend, they were still significantly higher than the P/E. Soon after, however, P/E surged while earnings plunged. 

These unpredictable variations and daily shifts make valuation analysis “somewhat futile” right now, according to Sonders. As a result, a record number of companies have suspended guidance to Wall Street analysts. The market is in uncharted territory, with the virus dictating the length and magnitude of its economic impact. 

There are Some Silver Linings to the COVID-19 Clouds 

One possible positive side effect of all the uncertainty is a strengthening of the trend away from “short-termism” when valuing a company. Sonders cites a Harvard study that concludes a focus on short-term metrics attracts transient shareholders, increases share price volatility, and links to higher capital cost and lower return on equity. The study found that earnings guidance given for less than a year was consistently deemed irrelevant in evaluating a company’s prospects. 

Another positive point to consider is the historical advantage to investors of sticking with a prudent strategy and resisting the urge to lurch in and out of the market as it inevitably moves from bull to bear and back again. This chart demonstrates the benefit of a steady hand over the last 40 years. 

Financial Planning Starts with Human Connections 

My disrupted day also revealed some silver linings. I talked to at least three clients. We caught up on what is going on in their lives and how they are weathering the current storms. Each family has a different story, and sharing our struggles and triumphs is how we grow together now. 

Yes, we discussed markets and the economy. The pandemic may disrupt 2020, but life plans are still in place, and people are living their plans with a long-term view! We may need to make some short-term (and maybe intermediate term) modifications, but we are still in this…together. 

We remain focused on 20-40-year retirement plans, portfolios to protect them, and scenarios to remain on track. We are talking through how we factored “bad timing” or negative 30% returns into our modeland how course corrections may still be necessary. Far from hiding behind rose-colored glasses, we are out in front, taking the steering wheel with both hands to navigate this terrain together. 

FJY’s planners have always given clients the space to voice woes and worries and even express your biggest fears. Then we take a step back and put your concerns into the context of a sound financial plan. What needs to change, if anything, from a short, intermediate, and long-term perspective? Can we make some lemonade out of the current crop of lemons (tax-loss harvesting, cherishing extra time with family, actually buying low, selling high)? 

At the end of the day, the most important point is that we stay connected, so clients remain in control. You take the lead in living your life—rough days, amazing days, and everything in between. 

These are the conversations that help you hold steady through a crisis. This is what financial planners do. 

Oh, and by the way, I got the kindergartener new workbooks, puzzles, and FaceTime dates to feed her imagination while sheltering in place!