Yesterday, my local CostCo sold out of Charmin in 15 minutes.
My cognitive capacity is so lit up I can’t remember my daily calendar.
Stress makes us stupid.
#1 – execute my strategy, made before the current crisis
One of the nice things about following a rebalancing strategy is you are very likely to have sold (a little) at the peak. My pre-crisis rebalancing happened January 4th and I sold enough to cushion the psychological impact of recent declines.
I rebalanced on Monday and again today.
Limit down opens => phew!
#2 – lean into fear
Since 2014, my portfolio assets have been 60/40 in equities/bonds. For the last six years, I’ve expected bonds to get hammered by rising rates. It didn’t happen. Been wrong the entire time but it didn’t hurt me.
For my long-term capital, I’d rather use a 90/10 strategy (90% in equities). The trouble is getting there. I have zero confidence in my ability to pick the right time to shift. So I created a re-weighting strategy based on VTSAX/SP500.
A simple rule: as the market moves from 20% down to 50% down, I will rebalance equities upwards from 60% to 90% of portfolio holdings.
Today’s rebalance moved me to 63/37. The 63 is held 42/21 VTSAX/VTIAX.
Simple to execute => each time, I rebalance I check the %age off the peak, if we’ve set a new low then adjust the equity weighting upwards. Otherwise, steady as she goes.
This simple strategy is not easy to do => either I want to rush more money in (FOMO) or hold money back (plain old fear).
#3 – real estate
When your neighbors are stocking up on TP in preparation for the end times… it’s generally not a good time to be selling real estate.
What about buying? Real estate prices respond much more slowly to feelings/sentiment. At the last downturn, local real estate didn’t “get cheap” until 18-24 months after the crisis.
I suspect we’re going to see the residential market stop dead for a few months.
After that? I have no idea.
#4 – family
My family has been watching me stock the house for three weeks. They were amused but now we are ready.
I’ve been reassuring the kids they are going to be OK. There’s a lot of fear around.
At school, our youngest heard that “old people” were dying. She took me to one side and asked if I was going to be ok => Yes, Sweetie, I’m going to make it.
That said, a finance background is useful for understanding the impact of compounding. Our state saw a 33% increase in positive tests today. Keep that going through the end Spring Break and we will have 4,200 positives in 16 days (from 44 at Noon today).
Notwithstanding an absence of positive tests in Boulder County, I’m going to start home schooling on Monday. A significant burden on myself but a small price to slow the spread.
#5 – community
Will Colorado’s experience follow Italy, Hong Kong or Taiwan? I don’t know.
What we know for certain is there will be a large, sudden burden on the lower end of our communities. Consider giving a sizable donation to your local food bank.
We also know we will save lives by staying away from each other.
#6 – immunity
Something simple, but not easy, for readers of this blog => cut your training in half.
Take your program, cut it in half and watch what happens with the infection rate in your state.
If your state is on a log-scale infection rate then it will become apparent far more quickly than any fitness loss.
Your immunity will get a boost from this change and you’ll preserve all the health benefits from exercise.
#7 – cash, debt and leverage
If you have an emergency fund then this would be a good time to make sure it is liquid. I have three-months expenses sitting in my checking account.
Not willing to lean into the market downturn? Consider using surplus cash to pay down debt.
If the downturn persists then do you know what can ruin you? There are many types of leverage => I’ve written about this a lot.