​Many have asked me why the stock market is doing relatively well, while the economic numbers keep getting worse. There are several reasons for this phenomenon so let’s review a couple things that are going on.
 
High unemployment. The unemployment numbers are off the charts, which would normally indicate tough times ahead.  However, consider this issue from an investors’ point of view. In conversations with various business owners I am hearing that many companies are having a difficult time retaining employees because in many cases, the CARE act offers more in unemployment benefits than an individual was earning when they were working. When government gives incentives to not work, they artificially inflate the unemployment numbers. At the present this incentive only lasts 16 weeks. Since Wall Street investors are usually looking further than that into the future, much of this unemployment number has been discounted in their evaluations.
 
The second aspect of growing unemployment is more ominous for employees but potentially good news for investors. One of the biggest costs of running most businesses is labor, which can reach 50-70% of operating expenses. I had a good conversation this week with the owner of a large accounting firm and was surprised to learn that many of their clients, especially restaurants, have actually increased profits, (on lower revenue) because they have been doing curbside pickup only. If you spend $100 in a restaurant dining room, you will take up space and require service individuals such as waiters, bussers, hosts etc., to care for you. If you order online and pick up your meal you will still pay $100 but have eliminated most of the employees. You have also increased the number of meals that can be sold, with the establishment no longer limited by room size.
 
I expect that just about every business manager in America is using this crisis to ask themselves, “How can we operate with fewer employees?” This kind of thinking tends to lead to greater innovation, higher efficiency and ultimately more profits. It’s good news for investors but not so great for employees.
 
Another reason the “market” is doing well compared to the news is because of what actually makes up the stock market. Wall Street does not trade in small businesses. Even a small cap company generally has a minimum value of about $300 million. Investors are betting that even if there are massive business failures, the large Wall Street companies are more likely to survive, and even benefit as they pick up extra market share from the weaker ones that fail.
 
These are a couple of the reasons why Wall Street investors seem a bit disconnected from the pain on Main Street at this time. If you are an investor, these realities are valuable to know and consider. Look for companies that can reduce staff, and look for innovative firms that will help them to do so. And if you are an employee, use this time to improve your skills and increase your value to an employer.

​Last week I took an essential business trip to Colorado, which resulted in my booking a room at a well-known national hotel chain. As I approached the hotel I saw there were no cars in the parking lot. The place, which had only opened in the past six months, was a complete ghost town. My first inclination was to assume the booking website had made an error in allowing the reservation, but I saw an operating TV in the lobby area so I walked up to the door. The automatic door opened, revealing the completely empty lobby. I rang the bell, wandered around, even called the front desk and watched as the phone rang continuously with no one arriving to answer it. I concluded that the place was in fact vacant.
 
Not willing to give up I opened my phone app for this chain and proceeded to check in online, even receiving a digital key for my assigned room. Now it was really starting to feel eerie. But with key in hand I grabbed my day pack and went to find my room. Suddenly, an out-of-breath young women came out of the stairway, apologized for her long delay, and asked if she could help me. She said she had been upstairs cleaning a room and that she was in fact the only employee, and only other person, on the premises.
 
When I returned for sleep later that night there was just one other car in the parking lot. It was a strange feeling staying in this 250 room hotel. The next morning I looked out my window at another empty hotel across the street. It was a local family brand, also clearly struggling and with an uncertain future.
 
When I told my story to a friend he commented that he was glad he didn’t own stock in that hotel chain. As I pondered his comment the following thoughts came to mind. 1 – The current crisis has devastated the travel and leisure industry. 2 – The crisis will end. 3 – The best capitalized companies are most likely to survive at the expense of weaker competitors. 4 – If I can find those survivors this could be a great investing opportunity.
 
Investors want to buy low and sell high, right? What could possibly be lower than a completely empty hotel? So long as it is ultimately able to stay in business, I estimated this was actually a great time to take a serious look at its stock. Using this same investing theory there are many other areas of the economy to consider as well. Many businesses from energy to manufacturing and even healthcare, are operating at or near the bottom of their capabilities, and yet they provide products and services that the world needs. Look around those industries and find the players you believe have the staying power to be the survivor when this is over and you may find that today offers some of the best investing opportunities you have ever seen. 

As a financial advisor and a pilot, I consider myself a good risk manager but I can’t hold a candle to my wife. She has given birth to seven children. She told me that if you can survive pregnancy and childbirth, you can do anything. I believe it. With each child I have seen Launa make a conscious decision to put her very life at stake, to create another. She considered the benefits of having another child, weighed it against the physical, emotional and financial risks, and made the decision to move forward.
 
Our lovely family would not exist without her willingness to risk so much, so that we all could enjoy so much more. Politicians and others today, paralyzed by fear, could learn a lot from mothers like Launa about having the courage to press forward.
 
America was built on risk taking. King George III offered economic and military “safety” but those early colonists knew better as they weighed the risks against their bold and wonderful desires for freedom.
 
As we face yet another American crisis, our stomach for risk and our resolve for freedom are being tested. We have sacrificed much in this battle against a frightening enemy. It was good we did because many lives were being lost and something had to be done. As the crisis grew, additional risks appeared. Nations shut down and economies were closed creating the risk of a global economic collapse. Millions of people have lost their source of income and if something doesn’t change, the homelessness, despair and suffering will reach staggering numbers. Many now fear the cure more than the disease.
 
It may seem trivial to be discussing investing, but successful investing is critical to human survival as well. Some face the reality that if the virus doesn’t kill them, running out of money may. Many are seeking financial safety, but where they are looking may be just as risky, or even more so. As I evaluate the current situation, I am seeing some opportunities, and risks, that investors should be considering. One risk that cannot be ignored as we plan our next steps is inflation.
 
Politicians are spending unconscionable amounts of money, flooding the economy with dollars (dare I call them counterfeit bills?) that will have long lasting implications. You can’t just dump 4-8 trillion dollars into the economy without devaluing the dollars already there. Those seeking the perceived safety of cash and bonds may be walking into an inflation trap once the economy begins to recover. Real assets such as real estate and stocks have traditionally been a hedge against the erosion of the dollar. I believe a key “risk-managed” decision in this endless money printing environment is to realize that every new stimulus phase increases the risk of a future inflationary storm hitting your savings.
 
Understand, like the colonist before us, there is no real safe-haven option, so we must choose our destiny and manage the risks. We can do this. After all, about half of us have given birth – so we can do anything.

​An investor came to me for advice this week saying, “I spend all day long watching every show, joining every webcast and following every analyst I can find, and I’m still confused and don’t know what to do.” I responded that if I did the same thing, I wouldn’t know what to do either. 
 
I get tired of analysts blabbing all day long about what is happening and what to expect while displaying their graphs and market recovery curves, as if they know anything. They talk about resistance and support levels, which are by design, conveniently moving targets that assure the analyst will always have work tomorrow. The fact is that no one knows where the market is going tomorrow or next month and anyone who pretends to know is either a fool, or has fools for followers.
 
That may sound harsh but consider this. If you had a system that could predict with any level of accuracy, (anything over 51% would work) which way the market is going in the short term, what would you do? Would you hire on at an investment firm for an $114,000 salary – the average for analysts. Or would you keep your graphs to yourself, mortgage your house, borrow from your in-laws, and become a billionaire in just a couple of years by applying your secret? The reason analysts take the salary is because they can’t forecast the future and they know it. As the great investor Peter Lynch said, “Charts are great for predicting the past” as well as “If you spend 13 minutes listening to analysts, you’ve wasted 10 minutes.”
 
I often gain perspective from the story of Rip Van Winkle. Rip fell asleep when the country was struggling under King George III. He awoke 20 years later to a free and prosperous country, having peacefully slept through the American Revolution with its terrible fear, suffering and sacrifices.
 
I equate some of todays panicked investors with recent shoppers who were hoarding toilet paper as the crisis began. Were the winners in the battle the ones with the bloody noses, proudly leaving the store with their case of TP, or the ones who were quietly at home because they had enough stored up before the crisis began? If one thing comes from this crisis I hope we learn to slow down a bit and plan better. Is your portfolio setup in such a way that if a crisis hit, you would still be able to sleep peacefully while others are running around in panic trying to find answers?
 
I am a firm believer in attempts to maximize returns by careful planning and regular adjusting of investments. But I also believe that when a crisis arises, the winners will not be the ones who spend long hours watching analysts with their walls of mostly useless graphs, but the ones who were already well positioned before the crisis began. The latter will enjoy a much better sleep while the world panics around them. If not this time, be that investor next time.

​Not long ago I wrote that according to statistics from the Department of Labor, over half of all financial advisors had never experienced a bear market first-hand. I can safely set that statistic aside now. This crisis has been quite an education for investors and their advisors. Based on some younger financial advisors who have reached out to me recently, they are finding that a bear market looks a lot worse in real life than it did in a college textbook.
 
In training, pilots are given a series of emergencies and taught to follow a checklist in order to obtain a positive outcome. Training can simulate the physical conditions of a crisis, but unfortunately it can never simulate the accompanying fear. In a real emergency, emotions can overwhelm a pilot and cause him to forget to follow his checklist.
 
This was impressed upon me by my initial flight instructor who unexpectedly turned off the plane’s power in flight. Initially I panicked, not knowing what to do. The instructor held his hand out to indicate calm as he said, “Take your time. From this altitude you can glide for 25 minutes before reaching the ground.” Knowing that I had time, I calmed down and carefully reviewed the engine-out check list which guided me to a safe outcome.
 
During the stock market crash of ’08, there were many who panicked and gave up on investing entirely. I also knew several financial advisors who left the industry. One told me he couldn’t take the stress of it, so he opened a small retail business. Ironically, his business is now closed due to the virus. You cannot escape life’s emergencies, so the alternative is to adjust how you react to them. Are you going to panic each time and make unwise decisions? Or do you have a personal checklist to refer to as you carefully review your options? You almost always have more time than you realize to make a good decision, as I counselled another panicked advisor who contacted me this week.
 
When the virus hit, the stock market began an almost uncontrolled decline. Now as the news mitigates a bit, emotions are driving it back up at almost the same rate. On both occasions, investors and advisors rushed to make decisions, feeling they had to act quickly. Like my flight instructor, on the markets’ way down last month I raised my hand and encouraged calm. Now on the way back up I am raising it again. Take the time to think this through.
 
Easter is a time to celebrate peace, made even more peaceful by our current confinement to our homes. Take this opportunity to consider your personal life’s checklist, and then make thoughtful decisions accordingly. There is always time to make a good decision. Use that time wisely to carefully consider your next moves, and your financial and emotional life will both be better off for having done so. 

​My copy of the masterpiece, Dante’s Inferno, is in Italian, so I will attempt to translate into English the sign that hung above the gates of hell in that poem. It said, “Leave behind all hope, you who enter here.” To Dante, the loss of hope was the loss of everything.
 
I thought of that poem during a call from our son Jayden. He is currently serving a two year church mission in England. Normally he spends his days out among the people. For several weeks he has been quarantined in his apartment, allowed to leave for only one hour per day. Jayden is 19 so imagine how a teenager might respond to being indoors 23 hours a day with no video games or movies and a very limited selection of music. Add in the current world health crisis and being in a foreign country away from family, and you can imagine how stressful it could potentially be.
 
Yet, when we spoke to him he was just as happy and optimistic as he has always been. Jayden has always looked for the good in life and in the midst of a world crisis, he is still finding it. He is finding new joy in reaching out to people by phone and through social media, people who are appreciative of his concern as they endure their own isolations.
 
I realized as I was listening to him that the world of the future, the one that is being molded during this pandemic, will be much more his world than mine. The immediate health risk of the virus more directly affects older generations, but the longer term social and economic effects of the crisis will likely have a greater effect on the younger ones. In light of this, it was refreshing to see that Jayden’s vision of the current and future world remains filled with hope and optimism.
 
After our conversation I wondered what investing advice I could share with my readers. Even though it may not fit into any textbook financial strategy, my message would be one of hope. Jayden has always lived with the belief that nothing good comes from being negative. No happiness results from complaining.
 
Our country has faced many disasters and we have a 100% track record of overcoming them. Let that sink in for a minute. We have also come out of each of them stronger, better, and with a brighter future. I have full confidence in maintaining our perfect record as we overcome and then emerge from the current challenge.
 
As an investor it is useful to note that in past economic crises, it is usually true that things begin to turn around just when they seem at their worst. Thus the Wall Street axiom, “Sell the rumor, buy the news.” In other words, the time to sell is when it looks like it might be bad. The time to buy, is when it is bad. Don’t be one of those investors who gives up hope just before the new day starts to dawn.
 

​As of this writing, the DOW average has just climbed through 22,000 on hopes of a massive government stimulus package. The stock market is acting like the crisis is over. Just a couple weeks ago investors panicked as the DOW average was falling through that same number. It is a testament to the irrational emotions that often drive investing markets that 22,000 looks a whole lot better on the way up than it did on the way down.
 
It has been surprisingly calm in our office for the past month with most calls coming from people looking to invest more at lower prices. Some of our clients are also asking when we plan to reinvest the cash we have been holding. During these volatile times, it pays to keep a couple of valuable principles in mind.
 
First, remember why it is you invest. I like to keep things simple so let me describe the process as it might look for most Americans. When you retire from the workforce you will need monthly income. You start with Social security payments and any pensions you have. If this isn’t enough (it usually isn’t) then the purpose of your retirement savings is to cover the shortfall. I will call that goal #1. It’s wonderful to have a lot of extra money to leave the kids but the most important thing is to cover any monthly income that you need. Everything else is icing.
 
So as you design a portfolio, and then in retirement as you begin to draw on it, you must always keep your #1 purpose in mind. If you do so then investment decisions, especially during difficult times, become easier. This is why we teach people to create a cash flow machine that has a likelihood of being able to weather storms. Long term markets take care of themselves, but in the short term you need income.
 
The current storm may last a while so the focus should be on #1, being able to maintain cash flow.  Hopefully you won’t have to unload depressed stocks to do so. When people ask about investing more money at these lower levels, our first response is to verify that they can satisfy #1. We want to make sure they are not investing cash that might be needed months from now to continue those monthly checks. It’s nice to have cash that allows you to take advantage of cheap stock prices, but do not use cash you might need to satisfy #1. It won’t be worth it if this thing drags out.
 
Point two, before you jump on the hot-market bandwagon, is to remember what caused this crisis. Congress is spending trillions of dollars to reduce the damage and ease the suffering, but those dollars will not solve the problem. Rising markets are tempting, but if they rise without a real solution to the initial problem, then wisdom dictates we wait until a solution begins to appear. 

​I can’t remember a time in my life when I didn’t run a business, and every business taught me valuable lessons. Like many others my age, my first business was a lemonade stand at the age of six, which I shared with two of my siblings. I learned a lot in that short-term business, most notably that I didn’t want to deal with any more partners.
 
When I was studying at the university, I took a night shift job driving a snowplow for a janitorial firm. I saw so much potential that I bought a truck and started my own plowing service. Snow plowing is a very unique business. You only work about 20 days a year, yet for the other 345 days you still have maintenance, truck payments and the other operating costs that go into running a business. When it snowed, business was booming. I used to call those snowflakes “white gold” because when they were falling, businesses were desperate to find someone to clear them away, and happy to pay the cost.
 
If you were to evaluate the value of a snowplow business, the only way was to look at multi-year revenue reports. Weather is fickle and the business revenue was 100% dependent upon it. If you tried to value the business from May through October it would have no value, since there would be no revenue. If you valued it during a heavy three-day storm when the trucks were running 24 hours a day and customers were desperate for your services, it would appear to be extremely valuable. But neither approach would give an accurate view.
 
Today the investing world is obsessed with the possible effects of the corona virus, and rightly they should be. The virus is shutting down production facilities, limiting travel and restricting trade. Most businesses will suffer greatly reduced revenues while this situation plays itself out. Since stock prices are tied to revenue, the markets are understandably volatile, and it is normal that prices are going down in a time of much uncertainty.
 
As investors it is our job to calculate the value of the companies in which we invest. But in times like these we need to be careful we are not valuing a snowplow company based on the summer months. It would be even more foolish to value the same company during the 20 days of snow. Neither period accurately reflects the company’s true revenue stream.
 
The present question for investors is whether the corona virus crisis will affect a companys’ long-term prospects. Will it materially affect their 3-10 year revenue projections? Because it is along those timelines that most investments should be made. If you believe as I do that this is a temporary issue which will likely rapidly rebound when the fear begins to subside, then now may be a good time to consider accumulating a few shares, while fearful investors are dumping them. It may be a hot summer, but my own business experience teaches me that the snow will come again. 

​All my life I have loved to fix things. I was never content letting someone else do it. I had to do it myself. At age 7 when my gas-powered airplane wouldn’t start, I put my little brain to work. I knew it needed fuel, air and battery in the right quantities to start. I just needed to figure out which one was off. I soon had it flying again. At 17 years old my Ford Pinto wouldn’t start. Same problem, same solution. Throughout my marriage there has been a similar theme. Call for help? Ask directions? Not going to happen. My wife, sometimes frustrated, knew I was determined to fix it myself.
 
I am an American. I am blessed, sometimes cursed, with that amazing spirit that I can do anything. I can fix anything. That’s what Americans do. It is what we have always done. 
 
It’s now 2020 and our nation has built the biggest and baddest economy the world has ever seen. This economic engine is unstoppable. Then suddenly, without warning, it sputters. We clamor for a solution. Fuel? Air? Battery? What is it missing? What is wrong? The problem, the roadblock, the obstacle is so tiny we can’t even see it. A little virus has clogged our engine and it frightens us. We demand a solution because we are Americans, and we can fix anything. We always have. 
 
Fear of this virus has sent Wall Street into a bear market, the sixth in my career, and people are asking what to do. The best action is taken long before a bear market hits. If your portfolio has suffered losses anywhere near what the Dow Average has done this month, and I mean even half of it, then you were unprepared. Assuming you were well allocated, what do you do next?
 
March 12th gave us a clue. On that day stocks, bonds, U.S. treasuries, gold, even Bitcoin were all down.  It was a remarkable day for future textbooks to analyze. It was the day the investing world stood still with nowhere to flee. So what is a red blooded, “I can fix it” American investor to do? We insist on an answer, but there wasn’t one on that day.
 
Our American nature demands solutions, but sometimes, on some days, there isn’t one. This won’t be easy advice for Americans, it goes against our nature, but, assuming you entered this bear market prepared – take a deep breath, relax, and wait. Tomorrow or next month, an opportunity will surely come. We can’t fix everything. Some things just need to fix themselves. This virus will cause its pain, upset lives, and run its course. Then it will end. The stock market damage has not been caused by the virus, but by fear. When you see fear begin to subside, that will be your opportunity to start reinvesting the cash you have set aside just for times like these.
 
Some days, the best thing to do, the wisest thing to do, the most profitable thing to do, is nothing.
 

​Several years ago I began writing columns on computer generated trades, and more recently on the new Robo Advisor platforms. I have mentioned there are pros and cons to allowing computers to make your investment decisions. On the “pro” side, computers may remove emotion from the process. Emotions have damaged many investor portfolios. Although, one could argue that since computers react to market movements, which are often emotion driven, then in some ways the unemotional computers are acting on emotions. Another Pro for the computers is the ability to react quickly. They are always ready, having no other purpose than to look 24/7 for triggers that demand a trade be placed. They are never out on the lake while disaster is happening in the markets. The downside of that is that sometimes patience in investing is a virtue.
 
On the “Con” side, computers cannot analyze non-data sources like a human. An example happened in our office several weeks ago when we decided to move some money to cash as we anticipated the potential negative impact of the new coronavirus spreading in China. As humans we saw a risk rising. A computer knows nothing of any virus and only makes decisions in reaction to what it sees happening in the various markets. The computer would have to wait until the virus news actually impacted some data, then decide what to do about it. In so doing it becomes reactive rather than proactive. As the computer reacts it moves markets more, causing other computers to react. As the reactions escalate it can resemble a bunch of dogs chasing each other’s tails. Thus, you can see why we keep hearing “Biggest single day gain/loss in market history” on the nightly news. Plan on hearing that a lot going forward.
 
I don’t think investors should be particularly concerned about volatility for volatilities sake. It is the nature of the new computer driven investing systems that we have created, and it is here to stay. It is more important to stay focused on the real long-term drivers of the markets and assess how they might affect your portfolio over time. For example, do you believe the current news (virus in this case) will have a significant effect on corporate profits, and for how long?
 
The computer age has created new opportunities for investors. Computers are very quick at making decisions based on data, but their trading speed and algorithms can make them susceptible to over-reacting. The wild market swings they create might open investment opportunities for human investors who have an ability to understand the news beyond the numbers. These swings could potentially give them a chance to add some bargain priced stocks to their portfolio, or on the upside, take profits on some holdings. I do not suggest investors engage in daytrading as that is a very dangerous investing practice. But I simply want to point out that with some common sense you might find ways to enhance your long term portfolio during times of oversized computer-generated volatility.