BSW Market Update

March 12, 2020

Investment markets around the world declined sharply (-10%) yesterday. Stocks were down. Oil was down. Gold was down. Even the safe-haven of bonds were down. This is unusual and suggests indiscriminate selling. Indiscriminate selling is both irrational and one element of capitulation.  No one can call market bottoms (or tops).  Anyone who claims to do so is either lying or delusional – or both. But we do know that fear, panic, surrender and (ultimately) capitulation is needed for markets to find a bottom and begin the Market Cycle of Emotions anew.

Why now? Why so fast? A few reasons, from my perspective. First, high-frequency and algorithmic trading now dominates trading volumes. High-frequency trading now accounts for more than 80% of daily trading volume, by many estimates. This is speculation, not investing, and it serves to exacerbate volatility and the speed of market moves. Second, technology (aka smart phones, robo-advisors, trading platforms, etc.) has both empowered and hamstrung individual investors. Individual investors can now carry a device (their phones) that literally and figuratively has an app with a bright red “Sell All” button – to the terrible detriment of most investors. This further drives up the pace and rapidity of market moves. Lastly, the 24-Hour News Cycle, which goes hand-in-hand with technology/smart phones is designed to create a sense of crisis and urgency to “do something.” Unfortunately, much of the media is designed to sell advertising, rather than inform – and apocalyptic headlines are irresistible click-bait.

“This time is different.” and “It’s never been this bad before.” These are two of the most expensive phrases uttered by investors. Stay confident that we will get through this. Calm and fear are both highly contagious.  Your goals did not change today – or over the last 15 days.  They remain the same and will always be so. Locking in permanent losses today to “go to safety” in an asset class that yields nothing is a surefire way to be unable to pursue your dreams tomorrow. The impacts of this virus and its impact on the life and health of so many is tragic. But, sadly, we have seen these panics before – and in every case we have overcome them. And when we do, the headlines will change. Restaurants will be packed with people “getting back out.” Airports will be brimming with people taking that trip they put off. Shipping lanes will be choked getting inventory to starved pipelines. And new services and technologies will be deployed to address this and future crises.  Optimism is the only true realism. It’s the only worldview that squares with reality and the historical record. Be optimistic, friends, for this too shall pass.


David Wolf, CEO