Broker Check

"Welcome To Normal"

March 04, 2020

What is normal?  Of course, I’m not referring to the small town located in the middle of Illinois where the campus of Illinois State University resides, and where you’re bound to notice the “Welcome to Normal” sign that greets every visitor as they enter into town.  I can’t help thinking of our clients every time I think about that “Welcome to Normal” sign.  Particularly after the rough week the equity markets had last week.  

As I took phone calls/emails from a number of our clients last week who had questions, regarding the recent volatility, and the effects of the COVID-19 on their investments, I kept reflecting back to the Welcome to Normal” sign that I’ve seen so many times.  Last week’s market malaise was more normal that anyone would like to admit. 

Last weeks’ normal volatility comes on the heels of 2019, where many of our clients saw returns in their portfolios in excess of 20+%, in an environment for which I would make the case of being more abnormal than normal. 

Normal, doesn’t have feel, it doesn’t have an identity, it’s just there.  When there is disruption like we had last week to “normal” you can be sure that fear mongering is usually not far behind.  That’s exactly what you got last week:  Fear mongering.  As I’ve done so many other times in my writing to our clients, I write from the perspective of Data and not one of Narrative.   In the never-ending battle between these two behemoths of Data vs. Narrative, the financial journalists, mainstream media, and even financial entertainers most often take the to the dark side, and report on narrative rather than data.  They would rather jump on the bandwagon of narrative, rather than stand on the firm ground of data.  Of course, in the end, it matters not to them which bandwagon they jump on, your financial goals and objectives are of no consequence to them.  Their singularity of purpose is simple:  To get you to buy into the fear, because your goals don’t matter to them.

Normal has no place in the world of fear.  And last week, was normal – 2019 was not.

In 2019, it didn’t matter what the investor held – large companies, mid-size companies, small companies, international companies, emerging markets, and even bonds, they all came out positive.  It was one of those rare years where every asset class was firing on all cylinders.  Our friends at J.P. Morgan tell us that in 2019 the worst one day intra-day movement of the S&P 500 index was -7.0%.  To put that in proper perspective look at this:


What you’re looking at is the maximum drawdown of the S&P 500 in every year since 1970, and the average is -15.7% (intraday high to low).  Last week the S&P 500 Index declined 11.4%. Guest what – We’re right here in this chart, in other words – this is normal, not abnormal. 

While I have no earthly idea as to if last week was a recent bottom to the equity market or if we have further to fall, and that’s not the point of my little diatribe here.  It’s to simply point out, that while scary, what happened last week will go down in the annals of stock market history, as a “normal” week.  I would never try to lesson your anxiety about the everyday normal, but sometimes scary day-to-day (or week-to-week or even month-to-month) movements of the equity markets, I would simply have you focus on the data and not the narrative. 

According to the World Health Organization, as of 3/2/2020 the number of active cases of COVID-19 now stand at 40,813, down from a peak of 58,747 on February 15th.  In other words, that’s a drop of 30% in the number of new active cases in the last few weeks.  Active cases are important to track, because active cases are how the contagion spreads.  That’s a statistic that isn’t likely to be reported, because it doesn’t fit a fear based narrative. 

Unfortunately, in the current times we live in, where narrative can spread quickly and easily, it’s getting easier and easier for investors to hit the panic button on accomplishing their financial goals.  When the narrative shifts your focus from your long-term financial goals, to the short-term day-to-day, week-to-week, or even month-to-month normal, but sometimes scary volatility of the equity markets, you put your financial future at risk.

If you’re going to look at any charts, I’ve prefer you look at this one:


Because in the end, you’ll find that volatility in itself isn’t itself a threat to your future financial goals. Likely investor’s future financial goals are put at risk by their own hand in pushing the panic button, by making the fatal mistakes of drastic changes to their financial plan, which consists of well thought out investment strategies that are designed to weather any short-term narrative that the media would love to sell you.  Narrative causes investors to confuse activity with results and one does not necessarily lead to the other.


While it’s certainly “normal” to feel the anxiety and stress from the bursts of volatility that equity markets often produce, understanding and managing those perfectly “normal” human emotions can ensure that you remain on track with your financial goals, in uncertain weeks, like we’ve just experienced.