The secret to making better investment moves when markets are in turmoil: Morning Brief

Sam Ro

·Contributor

Mon, Nov 2, 2020, 2:55 AM5 min read

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Monday, November 2, 2020

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You don’t have to panic if you have a disciplined plan

The stock market got slammed last week.

The S&P 500 (^GSPC) fell 5.6%, the index’s worst week since March.

For investors, it can be extremely unsettling to watch your account balances shrink so quickly. And unsettled investors often make ill-informed, rash decisions as their instincts become biased. And for that reason, it’s critical to have a well-thought-out plan for these uncomfortable scenarios.

An investment plan typically includes a long-term strategy, but often also includes room to make shorter-term tactical moves to exploit near-term opportunities.

As UBS CIO of Global Wealth Management Mark Haefele wrote just before last week’s selloff: “Election (and fiscal) uncertainty may continue to add volatility leading up to the 3 November election, offering entry points to establish long-term positions.”

It was notable because he was saying that the following two weeks (yes, two weeks) could come with a significant selloff, in which case the move is not to panic. The move is to buy.

Back when Haefele wrote that note, we knew of a bunch of things that could exacerbate market volatility in the near-term: already-high expectations for earnings and GDP; short-term uncertainties and longer-term risks tied to the U.S. elections; much needed fiscal stimulus that continues to be put off; COVID-19 infections on the rise; and increasingly bullish equity positioning.

While markets are never guaranteed to do anything, it certainly shouldn’t have surprised anyone to see stocks take a hit. Indeed if you consider the history of the stock market, then you know you should always be ready for a big, scary stock market selloff.

And so as markets tumbled, Haefele followed up late Wednesday advising clients to use the volatility as an entry point.

“We find that clients who stick to a disciplined financial plan through all market conditions outperform,” Haefele said in an email to Yahoo Finance on Friday.

“First, it's important for clients to maintain enough cash on hand to meet short-term needs. That prevents the need to sell potentially high return assets — such as stocks – during periods of falling markets. Second, it's important to avoid panic selling, which can also mean crystallizing losses and missing out on the bounce back in markets. Finally, you can take advantage of volatility to step up your purchases and gain exposure at better levels.”

Of course, no one is suggesting that the market will or must start rallying from here. And not all financial plans are about buying.

Maybe you’re expecting to retire this year and you don’t have time to recoup further losses to your portfolio, and so you sell. Or maybe you’re already all-in on the stock market, and your best move is to do nothing. The details always differ.

But many folks aren’t thick-skinned and level-headed enough that they can see their stock portfolio sink 5.6%, and then make a decision that isn’t informed by panic. At least a little bit.

And indeed, panicking is a horrible investment strategy that results in missing out on much of what’s historically been an upward trending market. So if you’re going to be in the market for years to come, make sure to have a plan.

“Historically, the best strategy has been to put capital to work in markets as soon as it is available,” Haefele wrote on Wednesday. “However, for investors seeking to avoid the risk of bad timing, averaging into markets in a disciplined manner (i.e. with a set schedule) can reduce the cost of missing out on gains. Continuing to invest through periods of market weakness means investors can enter at more attractive rates.“

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Economy

9:45 a.m. ET: Markit US Manufacturing PMI, October final (53.3 expected, 53.3 in prior print)
10:00 a.m. ET: ISM Manufacturing, October (55.6 expected, 55.4 in September)
10:00 a.m. ET: Construction Spending month-over-month, September (0.9% expected, 1.4% in August)

Earnings

Pre-market

6:30 a.m. ET: Clorox (CLX) is expected to report adjusted earnings of $2.32 per share on revenue of $1.76 billion
6:40 p.m. ET: Marathon Petroleum (MPC) is expected to report an adjusted loss of $1.71 per share on revenue of $18.30 billion
6:45 a.m. ET: Estee Lauder (EL) is expected to report adjusted earnings of 90 cents per share on revenue of $3.5 billion
7:30 a.m. ET: Wingstop (WING) is expected to report adjusted earnings of 34 cents per share on revenue of $64.13 billion

Post-market

4:00 p.m. ET: Diamondback Energy (FANG) is expected to report adjusted earnings of 36 cents per share on revenue of $713.05 million
4:00 p.m. ET: Skyworks Solutions (SWKS) is expected to report adjusted earnings of $1.52 per share on revenue of $842.41 million
4:05 p.m. ET: Mondelez (MDLZ) is expected to report adjusted earnings of 63 cents per share on revenue of $6.49 billion
4:15 p.m. ET: PayPal (PYPL) is expected to report adjusted earnings of 94 cents per share on revenue of $5.42 billion
4:15 p.m. ET: AMC Entertainment Holdings (AMC) is expected to report an adjusted loss of $4.96 per share on revenue of $128.13 million