Attorneys are not stock pickers and personal and anecdotal experience informs me that attorneys are not a reliable source of any investment advice. Nevertheless, we have many clients who have much of their wealth concentrated in just a few stocks and in a highly volatile market that can be a very dangerous thing. Truth is, that while there are some positive signs that the current pandemic may begin to recede, history has also taught us that this kind of illness can often strike in waves. Moreover, we don’t really have an assessment of the economic damage done or a clear path to recovery.
The chart above is the year-to-date performance of the Standard & Poor’s 500 Index (S&P 500). I refer to it because it is much broader, but less well known than the Dow Jones Industrial Index. You pick your index, but the story here is that after falling off the cliff in early March, stocks have clawed their way back to March 12 levels based on favorable news about hospital admission rates. The risk here is that the virus infection rate surges a second time or moves on to other places in the U.S. That may prompt a second sharp decline.
Again, we are not investment advisers, but if you are highly concentrated in one stock, prudence may dictate that you protect yourself from a second cliff fall by being more broadly invested. Even though it means accepting a lower price for what you do have. Obviously, all of this is a function of a larger picture. One thing seems clear; companies with strong cash reserves will weather the storm better than those without. Some businesses have prospects for a good bounce once a recovery emerges. Others (e.g., airlines, cruise lines, leisure) are going to have to claw their way back. The point is that while you are stuck at home, it may be a good time to chat with your financial adviser about how to balance a portfolio. One thing is clear; our decade long sleigh ride of market increases has ended.