March was the worst month for the stock market in years. The market low was 18,592 on March 23rd. At that point, the market was down 36%*, making this the first Bear Market we have experienced since 2008. By definition, a Bear Market is a drop of 20% in the stock market. The stock market had a nice bounce back in April recovering more than ½ of the first quarter’s loss. Through the end of April, the market was down 15.67%**.
This is a good time to remind everyone that your accounts with me are investment accounts, not a bank account. As such, by definition, this is a long-term investment. We don’t panic, we ride it out, and eventually things will get better. We just don’t know how long this will take, but the market will rebound. April is proof of why we don’t panic. Had we sold, you would have locked in a 36% loss and missed the 50%+ recovery.
As many of you are aware, I prefer to “buy on the dips”, not when the price is going up. You may have noticed a lot of buying in your portfolio when the market was pulling back in March. Here is how this works. Let’s say your cost basis for security XYZ is $85/share. When the price of Security XYZ drops below $85/share, we have a buying opportunity which will reduce your cost basis correspondingly. This strategy only makes sense if we consider your accounts with me to be a long-term investment. If we can lower your cost basis for security XYZ down to $80/share and the price of security XYZ ultimately goes up to $95/share, I increased your Gain from $10/share up to $15/share. As you can see, every time I can lower your cost basis for any security, you will ultimately be rewarded.
I have been doing this for 39 years and this is the 4th Bear Market I, and many of you, have experienced: October of 1987, Early 2000-Late 2002 (the bursting of the dot com bubble), Late 2007-Early 2009 (the great recession), and now the Covid-19 virus. In my opinion, the market recovery in April was due to the optimism generated by work on a vaccination and a cure for the Covid-19 virus. Great companies such as Johnson & Johnson, Pfizer, and Gilead Sciences have promising developments in these areas. Now, the bad news: The market was down 622.03 (2.55%) on Friday, May 1st. Optimism is only going to carry the recovery so far. Again, in my opinion, the market cannot fully recover until the Government mandated shutdown ends and people go back to work. I expect we are going to see continued market volatility for “a while”, which brings us back to the previous paragraph: If the market pulls back again, we have additional buying opportunities.
Please call me if you have any questions or would like to discuss your portfolio.
* DJIA closing prices of 28,868 on 1/2/20 and 18,592 on 3/23/20
** DJIA closing prices of 28,868 on 1/2/20 and 24,345 on 4/30/20.