2020年2月28日星期五

Three Reasons Not to Dump Stocks in a Panic

Palm Beach Daily

Chaka’s Note: The markets are tanking on fears the coronavirus could become a global pandemic. Since February 19, the S&P 500 is down a whopping 10%. And on Monday and Tuesday, it suffered its worst two-day sell-off in nearly five years.

When the markets are bleeding red, it’s easy to panic sell. But that’s absolutely the worst time to dump stocks.

That’s why we’re rerunning Daily editor Teeka Tiwari’s must-read essay on how you should deal with this crisis.

There’s no one better at following long-term trends than Teeka, who believes we are in a long-term secular bull market. And below, he explains why you should ignore the noise and focus on the big picture.

Three Reasons Not to Dump Stocks in a Panic

By Teeka Tiwari, editor, Palm Beach Daily

It’s the worst outbreak in years…

According to the World Health Organization, the coronavirus has infected over 82,000 people around the world… and killed an estimated 2,800 people.

More than 78,000 of the infected are in China alone – the epicenter of the virus.

Chinese officials fear the disease will become a pandemic without drastic measures. So it’s put large swaths of the world’s most populous country on lockdown.

The entire market is taking a beating. And one hard-hit sector is the travel sector. For instance, American Airlines and Norwegian Cruise Line are down over 20% since Monday.

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We expect many more companies to report similar declines… And that’ll rattle U.S. markets – at least in the short term.

The human effects of this disease are very real… and I don’t want to minimize them. As investors, though, we have to look at the outbreak’s economic impact.

If it becomes an out-of-control global pandemic, U.S. stocks could easily drop 20% or more. The question you have to ask yourself is: Do I still want to own stocks with that type of potential risk in the market?

In this essay, I’ll show you why the answer to that question is yes.

Three Reasons to Stay in Stocks

If you’ve been following me, you know I’m bullish on stocks…

Back in 2014 – when the current bull market was just five years old – I told a group of investors that a rare event would kick off a massive run for the ages.

I had a lot of skeptics at the time. But since making that outlandish prediction, the market is up nearly 77%.

 

And now, two other tailwinds are combining with this rare event to keep this bull run going for at least another 10 years.

  • Demographic change: The rare event I mentioned is something I call the Golden Ratio. It happens when the number of people in the 35–49 age bracket grows larger than that of the 20–34 age bracket.

It makes sense when you think about it. Most people in the 35–49 age range are earning a lot more money at their jobs, and they’re spending more to support their families. That’s good for the economy as a whole.

I won’t go into all the details… but when the Golden Ratio is in effect, GDP grows faster, corporations make more profits, and the stock market rises faster. And according to Census Bureau projections, the median age of Americans will rise significantly between 2020 and 2050, as the number of older people surpasses the number of younger people.

  • Disruptive tech: Technological innovations will increase corporate profits and lower consumer costs across the board. And it’ll lead to an explosion in productivity. For instance, the government reported productivity of American workers increased 1.7% in 2019 – the fastest annual pace in nine years. And the vast majority of these productivity gains are due to advances in technology.

Five technological drivers I’m watching closely are: Blockchain, DNA sequencing, robotics, artificial intelligence, and new modes of energy storage. These disruptive forces will transform the economy and create an explosion of stock market wealth.

  • Monetary policy: Since the 2008 Great Recession, central banks have injected $11 trillion of liquidity into the global economy through money printing (euphemistically called quantitative easing, or QE). Trillions of dollars of easy money have fueled stock buybacks and overall asset inflation.

The Fed alone has expanded its balance sheet more than 10% since September 2019… Before this week’s sell-off, the S&P 500 was up about 11% over that span (see chart below)…

Look, I’m no fan of money printing. But I also learned a long time ago to never fight the Fed… It’s proven it’ll continue to do whatever it takes to keep the economy booming.

So instead of fighting the Fed, I look for ways to benefit from its policies. And the best way to take advantage of its crazy money printing is to buy high-quality stocks.

Stay Rational

I always urge my readers to stay rational. And right now, we need to be very rational about the coronavirus situation.

Scientists aren’t sure about the exact cause of the disease… if they can contain it… or if they can develop a cure.

All we can do is prepare ourselves. And that means understanding the outbreak could lead to more market volatility.

So don’t be surprised if you see drops of 10%, 15%, even 20% in the coming months as global markets sell off.

We’ve seen this happen before in 2013, with the MERS outbreak, and 2003, with the SARS outbreak. Markets dropped as much as 6% and 14%, respectively.

But also understand any drop will be temporary.

My research suggests you still have about 10 years left to make money from equities.

So as long as my three tailwinds – the Golden Ratio, disruptive tech, and QE – remain intact, you should stay in stocks and forget about timing a drop that may never happen.

Let the Game Come to You!

Teeka Tiwari
Editor, Palm Beach Daily

P.S. Because of my track record, I’ve been called America’s No. 1 investor. And like my outlandishly bullish call in 2014, today, I’m going to put my track record and reputation on the line, once again

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Like what you’re reading? Send us your thoughts by clicking here.

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Palm Beach Research Group
55 NE 5th Avenue, Delray Beach, FL 33483
www.palmbeachgroup.com

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