Investor Column | Stay the course and follow the money when investing during pandemic

I have spoken with many investors over the past few months. Many of the conversations have gone something like this: I sold everything when the pandemic hit. Now I have big regrets as the market is much higher. Who would have thought?

And another: The rising stock market is only because of a few stocks. Yet another: We have great gains but are worried about the ifs, ands or buts regarding the upcoming election. Should we sell?

These comments reflect one of the costliest mistakes’ investors make and that is trying to time the market. It’s fools’ play to attempt, yet investors continue to do so.

New research from Morningstar clearly shows the importance of having a good “asset allocated” investment plan and keeping with it during times like these. It is crucial to be prepared to weather market corrections to be a successful investor.

I would like to share some information regarding presidential elections provided by Blackrock:

• Stocks have continued higher regardless of the presidential party. This information looks back to 1926.
• Stocks have historically performed above average in presidential elections years. In actuality they perform better in years with no presidential or midterm elections.
• Stocks, on average, perform better in election years where the incumbent wins reelection. (13.4% vs 9.3%).
• Stocks tend to produce stronger performance when the White House and Congress are controlled by the same party. This happens about half the time.
• Investors tend to build cash positions in more in election years than non-election years. This year that stockpile is even higher with the pandemic. There are trillions of dollars on the sidelines.

Follow the money. It has to go somewhere and with trillions on the sideline when it moves it will move big. There, as always, will be a lot of debate and discussion about what the effect of all this liquidity will have on the markets and economy. Inflation, deflation, crashing stock markets or soaring ones will be topics discussed ad nauseum over the coming months.

Looking back to late 2008 and early 2009, we had a similar situation. There was a lot of cash on the sidelines and the pundits were calling for investors to “sell all bonds as rates would certainly rise.” The stock market will crash. Sell all stocks. Deflation will occur. Blah, blah, blah.

In reality none of that happened. Interest rates declined and the stock market rose. Those who had knee jerk reactions (see pandemic seller above) and sold everything were once again incorrect.

Being smart and patient is prudent when investing. Investors made changes to portfolios over time to reflect the challenge of declining interest rates. At no time were smart investors out of the market.

As for the investor concerned about the narrowness of only a few stocks leading the market, we have just finished the best August in 34 years according to Bloomberg. Think that was only the mega tech companies that went up? Think again.

According to Bloomberg, their basket of stocks that benefited most from stay at home rose 9%. At the same time the “reopening” stocks increased by 16%. Of the 10 best performing companies in the S&P 500 for August, four of them were airline, cruise ship or casino operators. Each of them was up more than 23%.

Professional advice does help. Morningstar found that only 2% of investors with professional advisors made changes to their portfolio year to date while 16% of self-directed accounts made changes.

As always, how you allocate your assets, based on your risk tolerance, is the most important driver of your returns by far. Market timing as we can see is a sure way to poor performance. It’s time “in the market” not timing of the market. Security selection is the third leg of investing. That also in not nearly important as asset allocation. By the way over the last five years, (U.S. stock index up 10.7%) approximately 50.5% of individual stocks lost money while only 7% of U.S. stock and ETF’s did so.

If you are out of the market and wish to get back in try averaging in over a period of months.

Michael T. Doll, A.A.M.S. is an investment planner with Harbor Financial Services, can be reached at 941.896.2473 or at mtdoll@harborfs.com. This is the view and/or opinion of Michael T. Doll and not necessarily the views and/or opinion of Harbor Financial Services, LLC an SEC Registered Investment Advisor, whose main office is located in the state of Alabama.