Volatility is the Price to be Paid for Opportunity

We hope you and your loved ones are safe and healthy.  Last week, one of our clients said she doesn’t feel stuck at home, she feels blessed to be safe at home.  These are our sentiments as well, even though we miss seeing our clients, our teammates, and our friends and family.

Every crisis is unique and yet they all share certain attributes.  In the end, it doesn’t really matter what causes stock prices to move lower, in every case there comes a point where the price of a stock becomes separated from its value.  During times of panic many good stocks fall too far and we believe these periods of extreme volatility can create attractive opportunities for long-term investors.

During a crisis the price for a stock is heavily impacted by market sentiment, news flow and liquidity.  Currently, all three of these factors have moved stocks lower.  On the other hand, the value of a company (and therefore its stock) is derived from the anticipated cash flows over the lifetime of the company.  Currently, cash flows and profits will be greatly impacted over the interim as sheltering at home creates a short-term shock to the economy and uncertainty over how long this will last pushes stocks up and down day by day, hour by hour.

Stocks and mutual funds we have wanted to add to for a while are now much cheaper and we believe there are good buying opportunities for long-term investors.  These are companies with strong balance sheets, little to no debt and leaders in their industries.  We feel confident that three years from now many of these stocks will be trading much higher.  But here is the rub:  these stocks could trade much lower over the short-term as well.  Knowing when the market has bottomed is an exercise that can only be done successfully in hindsight.  The stock market bottomed in March of 2009 during the Great Recession.  The drumbeat of bad news did not let up until the summer of 2009, four to five months after the bottom was in place.  If you waited for good news to invest in 2009, you would have missed a very sharp rally.

We are not market timers, but we do rebalance portfolios when markets are up and when they are down to try to use market volatility in our clients’ favor.  We will continue to rebalance portfolios into stocks over time, always staying within the risk profile established for each client.

Please remain patient and have confidence.  We have a plan to manage through this difficult time to take advantage of the opportunities out there, but there will be a great deal of noise you need to tune out in order for you to be able to ride this out.  We are here for you and encourage you to call or email us with any questions or concerns.

Be well.

The Bond&Devick team