This Too Shall Pass

This Too Shall Pass

by Bo Billeaud on March 12, 2020 The All-Weather Investor

“What has been will be again, what has been done will be done again; there is nothing new under the sun.”

                                                                                                                                                                                  Ecclesiastes 1:9

These words of wisdom, penned by King Solomon more than 3000 years ago ring as true today as when they were written.  Here are a few of the pandemics which the world and U.S. have experienced in recent history (post WWII – not a complete list) –

There was the “Asian Flu” in 1957–58 that caused about 2 million deaths globally and caused 70,000 deaths in the US.  There was the “Hong Kong Flu”, 1968–69, that killed approximately one million people worldwide, including about 34,000 deaths in the United States.  Then there was the “H1N1 Flu (Bird Flu)” in 2009 – 10, which caused about 12,469 deaths in the United States.  In all cases of these pandemic scares, there was a meaningful short-term drop in the market, followed by recovery.

While every market downturn is unique in its beginnings (and end), here are a number of such (non – “pandemic”) downturns – outside of recessions – I’ve personally gone through over the last forty years.

  • From 1987, from August to October, stocks declined by 38%, in response to (really) nothing in particular except a change in investor psychology.
  • In August 1998, stocks declined by 20% as, 1) fears of an emerging market financial crisis, coupled with 2) a hard drop in global oil prices, took hold of reason for a brief period of time.
  • On 9/11, following the terrorist attack, markets were actually closed for six days. When they reopened the next week, immediate panic selling pulled down stock prices by 15%.  Once that initial panic settled out, recovery began.
  • In August 2011, stocks again declined by roughly 20% as the credit rating of the U.S. was downgraded.

With all of these examples of market panic, different though they were, one thing they shared in common was this – they came, and then they went.  They all ended sooner rather than later, and the inexorable upward trend of the American economy and stock prices resumed its upward trajectory.

I believe what we can learn from the history of general market panics is this – In real time, they scare the **** out of you.  It seemed like we were all doomed.  In retrospect – we weren’t.

It would be foolish and irresponsible to suggest that we or anyone knows with certainty the final outcome of this current episode.  I can say however, history has shown that more than likely, “this too shall pass”.

We’ve made some modest portfolio adjustments over the past few days that we believe will be beneficial to us, long term.

As of this morning, our All-Weather balanced accounts were off by roughly 6%.  With today’s market activity, we could find ourselves off by possibly 8 or 9% through the end of this day.  On a relative basis our All-Weather allocation is working as designed, as the broader financial markets are down by upwards of 20% or more.

Because our model is economically-based, it is not designed to pick up unexpected events such as this.  We do, however, hope to account for these unexpected events through the balanced All-Weather design of our portfolios, which at this moment, is saving the day.

If you feel you need to speak further about this situation, please let us know.


For more information about Billeaud Capital Management and our offerings, please click here

 


About the Author

Joseph “Bo” Billeaud is the founder of Billeaud Capital Management. After earning a BS in Chemical Engineering (University of Louisiana, 1979) and while working in industry for seventeen years, Bo developed the market risk-control models and investment philosophy that undergirds all BCM portfolios. Since effecting a formal career change in 1996, Bo has helped BCM grow into a respected asset management and financial planning firm currently overseeing $400+ million dollars for individual, corporate, trust, retirement and 401(k) accounts…. Read more.