Reasons to Buy, Reasons to Sell, and Reasons to Stay Put

Friday, February 28, 2020 |

This past week, markets have fallen approximately 12% as of Friday morning. The market sell-off was triggered by worse than expected coronavirus data which led to the market correction. While the argument can be made a correction was warranted, the speed and magnitude was likely exacerbated by algorithmic traders, highly levered hedge funds being forced to unwind their long stock positions, and retail investors (mostly in mutual funds) liquidating their holdings en masse, among other reasons.

We wanted to focus on what these rapid declines mean to investor portfolios by looking through our lens of buying, selling, and holding.

Reasons to buy

  • You are a long-term investor who can handle the short-term volatility in your portfolio in pursuit of superior long-term gains and a slightly overvalued market has now reached P/E multiples in line with a fairly valued market.
  • You have a funded emergency account and a bond/cash alternative portfolio that you can draw from if the equity markets take some time to rebound.

Reasons to sell

  • If a market decline of another 12% would prohibit you from sleeping at night.
    • We can’t look into our crystal ball and say that the market will rebound on Monday or it will continue to decline. But if a rapid decline in your portfolio is affecting other parts of your life, then considering a partial sale of your equities might be the right option. Typically in the long run, a small change in allocation now will not substantially affect your lifestyle in 10 years and beyond.

Reasons to hold

  • Correctly timing the market is extremely difficult to do once, let alone twice. If your strategy is to sell now and try to buy at the bottom, you need to be correct twice (when you sell and when you buy back in). With hindsight as an advantage, an investor trying to time the market has already been wrong once if they did not sell prior to Monday, February 24th.
  • You have a bond/cash alternative portfolio that you can draw from to meet current expenses without selling your equities.
  • You are a long-term investor who doesn’t need to make withdrawals from your portfolio to meet current living expenses in the near future.

Remember that if you currently have a 70% Stock, 30% Bond portfolio, you most likely haven’t experienced the same losses being broadcast on the nightly news. If your risk profile, long-term goals, and objectives have not changed in the past week, our suggestion is to not change your investment allocation today.

This blog post was a collaborative effort between the author and Nate Creviston.

The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss.