The Right Perspective
The Dow closed below 20,000 for the first time since January 20th, 2017, the day President Trump was inaugurated.
After setting a closing record of 29,551.42 on February 12th of this year, it has since lost every gain since Inauguration Day on fears of the COVID-19 (Coronavirus) pandemic – closing at 19,898.92 as of the closing bell on Wednesday. In just a little over a month, the Dow has shed 33% – decimating portfolios, 401k’s and IRA’s in its path.
Members of the mainstream as well as social media, aren’t doing anything to stop the bleeding. That’s not their intention. They’d rather stoke the fire because they know panic sells. Someone running down the street screaming with their hair on fire will draw a lot more eyeballs than someone just taking a stroll.
Fear Mongers in the media are the only ones making money in this halted economy by monetizing eyeballs and clicks through manufactured hysteria.
While the media monetizes and politicizes COVID-19, cooler heads are preaching calm to weather the pandemic. Surviving the outbreak of COVID-19 will require us to remain calm. Think long-term. Everything is going to be fine.
The number of new cases in Wuhan, China – the epicenter of the pandemic – is now falling.
In the meantime, there are simple measures every person can take to stay safe and to avoid contracting and spreading the virus. This will require that we not succumb to panic, which will make a serious situation even worse. Knowing the facts and remembering what experts have been preaching about staying safe will increase all our chances of survival.
The same advice for surviving COVID-19 can be applied to surviving the current economic storm.
Unfortunately, Wall Street is custom-built for stampedes, and it’s nearly impossible to curb impulsive behavior that results in a mass panic – especially when the media is fueling the fire. The problem lies with Wall Street liquidity, which promotes quick judgments based more on feelings than logic and enables snap decisions at the click of a screen.
In a time of crisis, panic can spread like wildfire. If the herd starts heading for the exits, you can’t blame investors for going along to avoid being trampled.
Unfortunately, when the dust settles – in the aftermath of mass hysteria as in the case of COVID-19 – and the body count is assessed, it’s usually a bloodbath. The result is what we’ve experienced in the last month – a 33% death dive in the Dow.
Smart investors stay calm because they see the big picture.
There are two types of investors that stay calm while everyone else panics. On the one hand, there’s the seasoned investor like Warren Buffett who has been around the block doesn’t follow the masses over the cliff because he doesn’t invest in the short-term like nearly every other investor. His strategy is different from the Main Street investor who speculates – relying on the rise and fall of stock prices to make money.
Warren Buffett doesn’t speculate. His gains on Wall Street don’t depend exclusively on the rise and fall of stock prices.
That’s because he typically invests in dividend stock companies that provide a fixed income even in a time of crisis. Warren Buffett sees the big picture. He’s been around the block enough to know that the stock market will be back and will eventually claw back all it has lost in the past month and will continue to appreciate as it has consistently done in the past.
Besides Warren Buffett, there’s another class of investor that doesn’t panic in the face of disaster. These investors avoid the Wall Street herd by not playing in the same sandbox. These savvy investors are short on Wall Street and long on long-term alternative investments – of the type that provide consistent cash flow with the opportunity for appreciation and preferably backed by a tangible asset.
By investing with a long view, these savvy investors have a thousand-foot view from the top and can see beyond the current crisis to the green pastures that lie ahead. That’s why they stay calm.
Like Warren Buffett, they’ve secured a reliable income stream that will help them weather the storm, and as long as they remain calm and cling to their principles, they know they will not only survive the storm but prosper and grow wealthy.
So while Main Street investors have shed more than 33% of their portfolios, passive income investors continued to collect their profits from productive businesses, energy and agriculture ventures, and commercial real estate.
Wall Street’s liquidity not only fuels speculation but, too, often enables investors to act on their slightest whims. Sophisticated investors avoid liquidity. They don’t want an escape hatch or want their fellow-investors to have an escape hatch. If there’s no exit, there’s not one for investors to head to. With investors saved from themselves, nobody panics in a crisis. By staying calm, they can weather any storm.
Private investments offer sophisticated investors what Wall Street can’t – the type of illiquidity that not only shelters them from market volatility, but that also allows their assets to germinate and grow.
Long-term investments with lockup periods of 5-12 years prevent investors from acting on impulses and panicking from disasters like COVID-19.
Moreover, savvy investors understand that to maximize return on investment in a passive income alternative; management must be given time to execute its business plan.
Savvy investors know that in the long-run, cash flowing alternatives deliver some of the best risk-adjusted returns of any investment class. Investing long-term allows the law of averages to play out.
The investors who stay calm and don’t panic will be the ones who emerge from the COVID-19 crisis unscathed.
Sticking to sound principles such as investing for income and in the long-term are not only essential for survival during tumultuous times but also for accumulating long-term wealth.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.