REPUBLISHED FROM: Morgan Stanley
TO CLIENTS AND FRIENDS
A SIMPLE CONCEPT
Behavioral economics. This is a relatively new expression for something we have been doing for many, many years. It's basically reacting to events with your emotions. We've preached in our memos ever since you've become our clients: the emotions of fear and greed. These last several weeks have displayed 'behavioral economics' in spades. Volatility. Heavy, scary, selling. Heavy joyful buying. I believe that movements in markets of all kinds can be 80% emotion and 20% reality. And reality is not necessarily what you read in headlines. Headlines are for getting your attention, not necessarily for giving you the right message.
Of course, the headlines right now and the heavy selloff, starting on Monday accentuates this emotional pull on markets. And after many years of major bumps in the market's road, you still feel it in your gut. It doesn't take too much for anxiety and fear to give us a little nudge into panic. Warren Buffett has commented many times on his view of heavy selloffs. He has always viewed them as an opportunity to find bargains. We feel the same. And this time is no different.
In the world of investing, there can, and often is, scary news on a daily basis: China trade, targeted terrorists, Corona virus… all unsettling for short term thinkers. We try to own businesses, not stocks and we try to strategize around the trading of 'headline readers' and short term thinking. We like to get down to basic, simple thoughts about complex subjects. What do we think of markets now, specifically stock markets?
We have had one big reason for the recent rush to new highs: cheap money, interest rates close to record lows. We have many retired clients who need income, cash flow, to sustain their good lives without undue worry. Traditional safe conservative havens, like CDs, money funds, US Treasuries, all produce meager yields, indeed, the lowest yields in history. Most of our clients cannot maintain their lifestyles on 1½% yields.
There has been a phrase that "When the Chinese get a cold, the whole world sneezes." This underscores how much globalization makes the world much smaller.
This is what you're seeing in this selloff. I have worked, as I've often said, through at least five real panics in the stock market. This is bordering on another one. In every case, you should have been a buyer of stocks, not a seller. In our opinion, as long as rates are at record lows, we will slowly be accumulating blue chip companies with dividend yields in excess of 3%, and many paying higher than that with, we feel, eventual capital appreciation as well. As Santa would say, "We're making a list and checking it twice."
We do continue to underscore the fact that we own for ourselves the same names we accumulate for you. We eat our own cooking.
Again, I am going back to another China reference, the old Chinese curse, "May you live in interesting times." We hope we can help guide you, in these interesting times, to a common sense plan that can give you all some peace of mind.
Maybe the coming of spring will help as well.
John D. Spooner– Financial Advisor
The Spooner Group at Morgan Stanley
The views expressed herein are those of the author and do not necessarily reflect the views of Shoffner & Associates or Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
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