March 15, 2020
The Case for Calm (WEIL's Covid 19/Corona Virus Response)
The expanding COVID-19 pandemic—and the resulting extreme volatility in the stock market—has made many people understandably nervous (if not outright frightened) about their investments. Given our experience and long-term view on investing, however, we remain determined to mostly “stay the course” with our diversified investment portfolios.
Here are a few considerations underlying our resolve:
US banks are well capitalized (almost the best they’ve ever been) and can readily inject liquidity into the economy. This contrasts sharply from what we saw during the 2008-09 financial crisis. Unlike 2008-09, banks today are well positioned to make more loans and sustain economic activity during tough times.
Thursday, the Federal Reserve injected a nearly unprecedented amount of lending support into the banking system, which should mean small and large businesses needing loans will be able to get them.
The US government is considering implementing short-term stimulus measures which should benefit individuals and small businesses.
Unemployment in the US remains at historic lows; household debt is at historic lows as a percentage of household income; and individual savings rates are up. US consumers are not (on average) over-leveraged as they were in the 2008-09 financial crisis. More people are reasonably prepared to handle a temporary economic slump.
Oil prices, a major component of long-term inflation, are declining. Historically, lower energy prices stimulate the economy. Lower transportation costs lead to higher disposable income for consumers as well as higher profits for businesses that need to ship goods. (And it may be that breakthroughs in renewable energy will benefit consumers long into the future.)
US interest rates are at historic lows, and low rates make it easier for firms and individuals to borrow to cover shorter term cash needs. This may not be such a good thing long term, but for now the rates are mitigating, not aggravating the economic situation.
The bond market has mostly rallied as the stock market has fallen, so investors with diversified portfolios have benefited from the ballast that bonds have provided.
Many of the active mutual fund managers in our portfolios have a history of upgrading the stocks in their portfolios during periods of volatility (buying stocks that they always wanted to own, but may have considered out of their target price range).
While potentially severe and consequential, the pandemic is today a shock to investors more than a shock to the economic system. In 2001, airlines and the hospitality industry suffered dramatic losses following the attacks of 9/11, but other sectors of the economy continued to function. (And, eventually, the airlines and hospitality sectors returned to “normal.”) Just as the terrible events of 9/11 caused the economy to slow down without bringing it to the verge of systemic collapse, it appears the disruption caused by COVID-19 may, likewise, be selective.
For clients who have scheduled monthly withdrawals from their WEIL-managed accounts, we made a management decision in January of this year to raise extra cash in those accounts to cover future draws. On average, we raised cash equal to approximately 10 months’ worth of withdrawals in client accounts by selling down stock mutual funds at what turned out to be relatively high prices. As a result of this action, we can satisfy most clients’ monthly withdrawal needs for the balance of the year without having to sell any securities.
We are not doctors or epidemiologists, but we are listening carefully to the doctors and epidemiologists; and what they are telling us leads us to conclude that COVID-19 is probably not dramatically changing the world for the long run. The bottom line is that the global economy is still on a long-term upward trajectory, our firm is well prepared, and we should all be able to weather the disruption caused by this serious event.
We do not sell in a panic market. It would have been unwise in 1987, in 1990, in 2000, in 2007; and we believe it would be unwise now. Given the challenges of effective market timing, especially in volatility like this, we don’t try to sell on the way down and buy back on the way up. We know things may get worse before they get better, but we are here, watching the economy and market conditions and managing your portfolios.
We should also tell you that, given the rising concerns regarding the spread of the COVID-19 virus and what it will mean to the productivity of our operations, we as a firm have made and are continuing to make significant investments in technology and contingency planning and are well equipped to work during periods of crisis, such as this. Our team is actively reviewing and revising our operating practices as this situation evolves.
Some steps that we have taken, and are taking, to safeguard our employees, partners and clients include:
We are implementing heightened cleaning procedures and have increased our use of hand sanitizer, disinfectant wipes and other germ-killing products in our offices. We are strongly encouraging our employees to adhere to CDC-recommended protocols on hygiene. We have on hand (but are not yet using) masks and gloves as potential additional precautionary measures.
We are encouraging employees who are older, have underlying medical conditions and/or compromised immune systems to work remotely whenever possible.
We will require employees who are ill, believe they have been exposed to the virus that causes COVID-19 or live in a household with someone who has been exposed to the virus to self-quarantine and work remotely for a minimum of 14 days or as long as CDC protocols recommend.
We have “virtual private networks” (VPNs) installed on company laptops to ensure that key members of our team can access our network and work remotely, as needed, while at the same time securing client data. We have been using these VPNs for quite some time and they are functioning well. We are working to install VPNs on the balance of our staff’s laptops to ensure that our entire team can access the network remotely as needed. • We cover our phones remotely as needed so that you can reach us even if the offices are closed unexpectedly.
We are limiting domestic business travel as much as practicable and have no business-related international travel planned. We are not aware of any employee’s plans for personal international travel and will impose remote working requirements if we believe that an employee’s personal travel poses a potential threat of the spread of the virus.
We will update the Business Continuity Plan page of our website (which can be found at https://www.cweil.com/business-continuity-plan) as needed. You can always find important contact phone numbers and email addresses there.
As always, thank you for your confidence and trust in us. We hope that you and your families remain safe and in good health. We know watching account values decline can exact a mental and emotional toll. So please, call us at (858) 724-6040 any time with questions or concerns.
Robert Gaan, CFP® – Lead Advisor
Information contained in this publication is obtained from sources believed to be reliable; however, no representation as to accuracy and completeness of this information/data can be provided. Data used may be based on historic returns/performance. There can be no assurance that future returns/performance will be comparable. Neither the information, nor any opinion expressed herein, constitutes a solicitation by us for the purchase or sale of any securities or commodities. This publication and any recommendation contained herein speak only as to the date hereof. Christopher Weil & Company, Inc., with its employees and/or affiliates, may own positions in these securities.
All investments involve risk, including the risk of losing principal. It is vitally important that you fully understand the risks of trading and investing. All securities trading is speculative in nature and involves substantial risk of loss. Further, the investment return and principal value of an investment will fluctuate; Upon liquidation, a security may be worth more or less than the original cost. Past results do not guarantee future performance.
Investment in mutual funds is also subject to market risk, investment style risk, investment adviser risk, market sector risk, equity securities risk, and portfolio turnover risks. More information about these risks and other risks can be found in the funds’ prospectus. You may obtain a prospectus for CWC's mutual funds by calling us toll-free at 800.355.9345 or visiting www.cweil.com. The prospectus should be read carefully before investing. CWC's mutual funds are distributed by Rafferty Capital Markets, LLC—Garden City, NY 11530. Nothing herein should be construed as legal or tax advice. You should consult an attorney or tax professional regarding your specific legal or tax situation. Christopher Weil & Company, Inc. may be contacted at 800.355.9345 or info@cweil.com.
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