So far, we are a few weeks into a market correction that has swept across all asset classes including stocks, bonds, metals, real estate and really anything that is bought and sold. When fear hits the marketplace, most investors want to sell and move to cash. This is very understandable when you see that relatively conservative investments are being sold all around you. Those people who have a good amount of cash or liquidity, typically will step in and buy these assets at fire sale pricing. If the investor is fully invested and has no liquidity there is really no room or cash to purchase these assets. When the selling pressure outweighs the buying, we get more downward action in whatever market we are trading. US equity markets are coming off a three-day rally that has alleviated some fear and created some computer-generated buy programs. My opinion is that we may retest the lows or somewhere near the lows that we had seen a couple weeks back. If we do test those lows and hold, that creates technical chart pattern that is very bullish. Nothing is guaranteed, whether it be a chart pattern or statistic when it comes to the capital markets. However, there are certain patterns that markets typically follow in times of distress and elation, and all it really does is to really help us understand potential market behavior and direction based on past scenarios.
Unfortunately, as human beings we want to buy when the markets are high and sell when the markets are low based on human emotion. As an active portfolio manager there are situations, I can take advantage of and some I can’t. For instance, stocks that trade in high-volume have options contracts attached to them where we can move our positions around hedge or regain some potential losses. The corporate bond market does not have options attached or liquidity that allows me to move money around to try to repair positions where we are behind. If the client is locked into managed mutual funds with no additional liquidity it becomes very difficult to try to repair those positions and gain any ground. In other words, you must wait it out. That is why as an active manager, I rarely if ever use managed mutual funds in a client’s account.
In my opinion, we are going to continue with lot of volatility in our equity and debt markets as well as metals, real estate, oil and gas and anything bought and sold. If you are managing your own account, don’t become paralyzed, stay active and don’t commit too much capital to any one area. Having enough cash is not a bad thing. Also, know that we have seen markets react like this in the past, as scary as it is, look at the positive aspects of the opportunity to improve your portfolio for the future.
If you want to explore doing business with MHP Asset Management, we can video-conference, DocuSign and operate electronically during these difficult times.
