Bulls take the stairs, bears take the elevator

At the start of 2020, our investment accounts surpassed 550K and I began to daydream about an early retirement.  Our asset allocation had gotten a bit out of hand with our 90% stock / 10% bond portfolio and I sold around $50,000 worth of equities to get into bond funds.  I had a big smile on my face when I checked our portfolio on February 19^th and saw this:

When I checked our portfolio on February 27^th, that big smile turned into a frown after seeing this: 

Our net worth took a bit of a tumble all of a sudden.  For those of you that enjoy watching the stock market regularly, you’ve probably noticed that the markets contracted ~8% over the last 2 weeks (at one point the market dropped ~15%).  Of all the reasons the stock market could have experienced a pullback, the coronavirus (COVID-19) seems to have struck with little warning. 

S&P 500 returns over the last 6 months

I first read this fun post on Bogleheads on February 5^th, 2020 where user CnC shared that he was going to time the market by moving some stocks into bonds.  China had begun to quarantine whole cities and pausing their economy.  Over time, I’ve seen many of these types of posts on Bogleheads, where a user will announce that they are calling the top of the stock market, selling all of their stocks and going into bonds or cash equivalents.  The trend over the last few years is that these market timers end up sitting on the sidelines and missing how fast the markets recover. 

There has suddenly been a surge in public hype and fear.  While I do not actively try to follow the news, it’s hard to get away from hearing constant updates about this new virus.  Many people are getting sick and some are dying.  My neighbors and coworkers can’t stop talking about it.  Entire industries have been put on hold over this virus scare.  Flights are being cancelled.  Conferences and musical festivals have been cancelled.  Movie filming and movie premiers have been cancelled.  One continuing education conference I was scheduled to attend in March has been cancelled.  Many business activities have come to a halt.

My mother called me a few days ago in a state of panic making sure I was always washing my hands, and advised me to avoid shaking my patients’ hands as well.  My mom has been hunkered down in her home and will only head to the grocery store and back, masked up and wearing surgical gloves while she’s out.  I go to Costco every 1-2 weeks to stock up on everyday items.  On my most recent visit, Costco was completely sold out of many basic items such as toilet paper, paper towels, hand sanitizers, and bottled water.  There is a new level of hysteria courtesy of the news media.  The fear is palpable. 

Investors are definitely spooked.  The markets have been ending up mostly in the red over the last 2 weeks with significant volatility along the way.  Some stocks in certain industries have been getting hammered, such as airline, cruise, and hotel stocks.  The overall market will be down 3% one day, up 2% the next day and then down another 3% the day after.  The stock markets hate uncertainty, and reacts wildly in response.  Losing money, even if on paper, hurts.  In 2 weeks I’ve seen our portfolio drop by over $52,000!  It’s rebounded some since then.

The famous investor Warren Buffett once said that it is wise to be “fearful when others are greedy and greedy when others are fearful.”  Is it time to be greedy or is it time to be fearful?  Is the coronavirus the fuse that lights the fire for the upcoming stock market crash and global recession?  Or will this new pandemic burn itself out like other similar viral scares (SARS and MERS) of the past?  While many countries such as the US, Italy, South Korea and Iran are just starting to see the effects of the crisis, new infections in China (the epicenter of the outbreak) seem to be declining.  If one can imagine this coronavirus spreading as a storm, then we can see that this storm started in China and has moved on.  This storm too shall pass. 

Stock market pullbacks like this test our chosen asset allocations and behavioral weaknesses.  No one knows what the future will hold for this virus, our local/global health and/or the stock markets.  What this recent market drop has taught me is that our asset allocation of 90% stocks and 10% bonds is too aggressive.  I never used to get too worried about drops in the stock market when our portfolio balance was at 100K.  Things are different now that our portfolio balance is over 500K.  When this whole ordeal first started, we took some money and moved it into bonds before things really got bad.  We now have a more conservative asset allocation of 60% stocks and 40% bonds.  As the stock market has been dropping, my bond fund values have been surging.  While stock market rides can be turbulent, bond funds smooth the ride.      

The market has lived through many setbacks including recessions, September 11, 2001 attacks, the dotcom bubble, 2008 housing crisis and more - and has always come out reaching new all time highs.  Time in the market has always proved to be a better strategy than timing the market.  I’m no expert but my guess is that we will probably have a rocky (volatile) few months followed by a quick market recovery as the coronavirus burns itself out.  Or who knows, the shit may hit the fan and our world’s situation devolves into social and economic collapse.  In any event, we will continue to invest through the market downturn by dollar cost averaging our contributions and regularly exchanging bond funds for stock index funds.  We’ll continue to live a purposeful and happy life, wash our hands frequently and try to avoid touching out faces.

I'll continue to update our financial progress over time.  Here's our portfolio balance today:

Here are some great articles to read regarding stock market crashes and more level headed responses:

Read about Bob, the world’s worst market timer:
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

JL Collins on major stock market crashes: https://jlcollinsnh.com/2012/04/15/stocks-part-1-theres-a-major-market-crash-coming-and-dr-lo-cant-save-you/

Mr. Money Mustache’s take on the current situation:
https://www.mrmoneymustache.com/2020/03/03/coronavirus-stock-market/

The White Coat Investor on market timing:
https://www.whitecoatinvestor.com/should-i-try-to-time-the-market-friday-qa/

Here's a bonus fun discussion with Reddit users commenting on uplifting news regarding the COVID-19 outbreak: https://www.reddit.com/r/AskReddit/comments/fezt5a/what_is_some_uplifting_news_about_the_covid19/?utm_source=share&utm_medium=ios_app&utm_name=iossmf

Here's a look at how the S&P 500 has performed over the last 50 years:

The recent pullback looks like a tiny blip on this chart.