April 9, 2020
In my ongoing examination of the psychology of the market, I am disappointed to say that we have moved firmly backwards on the ‘investor emotions’ chart to the Denial phase.
Through intervention in the markets, the government has removed all of the fear that would normally be associated with a serious and significant market event like that caused by COVID-19. Without that fear, there is very likely to be a longer bottoming process and the damage will almost certainly be greater.
Imagine for a moment you are on a battlefield, and it’s the commander’s first battle. As the enemy approaches, he commands his troops to open fire with everything you’ve got, and all of the ammunition is thrown at the problem. All of it.
The US government has thrown about $6 trillion at the market problems caused by COVID-19 in the first month of this outbreak. It is likely that there will be issues for 6-12 months further, but the big guns are firing at will. The enemy hasn’t even crested the hill yet.
Unless this turns out to be a minor economic blip, there is a lot more pain to come during the remainder of 2020 and probably well into 2021. If you are an investor, it is probably wise to stay clear of making any new investments until there is real fear in the market.
Of course it is wise to consider that the bottom is in, and many financial gurus are saying just that. If you believe that (and the subordinate belief, that things will get back to normal soon), then spread out your investments over many months to dollar cost average. There is a good chance that the market will moderate in the days and weeks ahead. It is not statistically possible for it to rise by 3-5% every day forever.