Investing

A guide to surviving market panic.

It’s been a rough week, to say the least.

In addition to overall concern about the coronavirus pandemic, stock markets crashed, bond yields shrunk and gold — sturdy, reliable gold — gave up some recent gains. Bull markets died, bear markets took their place, and a global economic recession suddenly became a very real possibility.

What’s more, so- called circuit breakers on the Toronto Stock Exchange were triggered twice this past week after sudden drops in stock values.

Simply put, all hell broke loose.

With that in mind, we present an investor’s guide to surviving a market panic.

Should you panic?

You should not.

“That always leads to bad decisions,” Norman Levine, managing director at Toronto- based Portfolio Management Corp., said. “Emotions are your worst enemy.”

Stocks sometimes go down, but some investors may have forgotten that since they have been mostly going up since the global financial crisis more than a decade ago.

“Market drops are an unavoidable feature of investing,” a report this week from U. S.- based brokerage Charles Schwab Corp. stated.

In other words, don’ t panic.

Okay, I’m merely concerned. How much lower could markets drop?

Everything can technically go to zero, but that is highly unlikely to happen here. Governments and central banks are already giving the global economy shots of adrenalin and pumping billions of dollars into financial markets.

Still, Canada’s main stock index this past week shed more than 20 per cent of its value. Although stocks ticked up on Friday, they rose nowhere near the rate at which they earlier fell, underscoring the old investing maxim that stock prices tend to take the escalator up, but the elevator down.

Toronto- based money manager John Zechner noted that the market dropped roughly 45 per cent from its top to its bottom during the global financial crisis a decade ago.

“I don’t think we’re nearly in as bad shape, or going to be there, economically,” he said.

Yeah, but how long will this rough patch last?

It could be a while. The average event- driven bear market in the United States lasted nine months and resulted in declines of 29 per cent, according to a recent report by investment bank Goldman Sachs Group Inc.

Clearly, investors are most freaked out by the spread of COVID- 19 and the economic repercussions stemming from the outbreak. None of the previous event- driven bear markets that Goldman Sachs noted were prompted by a virus or occurred at a time when interest rates were as low as they are today.

“This could raise the concern in markets that there is less room for an effective policy response,” the report stated, so there may need to be some more positive signs before things truly start looking up again.

“The market is in a process of pricing in a global recession,” Canadian Imperial Bank of Commerce economists Avery Shenfeld and Benjamin Tal said in a note on Friday. “While the process is not over yet, if the virus has dealt its worst blow by the third quarter, markets might then look ahead to an economic recovery of some sort in 2021. That could leave room for equity markets to reassess beaten- down sectors.”

Should I be buying the dip then or selling?

That’s up to you. Some people living off their portfolio right now may have to sell. Others may be in a position to buy.

At any rate, shares of most companies have become cheaper over the past week. Unless society collapses (and if it does, stock- picking may be less of a concern than, say, finding water), businesses will still be around in some form.

Montreal- based wealth manager Lorne Steinberg on Friday noted that every so often there is “a black hole of fear and uncertainty,” after which investors are left wondering why they weren’t buying stocks.

“I’ve got a chance to buy those great businesses that looked expensive months ago that are cheap now,” he said. “Here’s my opportunity. What am I waiting for?”

Does it matter if I’m younger or older?

Where you’re at in life should have some bearing on how you invest. Younger people have a longer period of time over which to earn money. Older people have a shorter window.

“If you’re a younger investor who is saving and investing for a distant goal, then this market turbulence is not terribly important,” the Schwab report said. “If you’re near retirement, then having a financial plan is more important than ever. At this stage of life, it is vital to understand how much risk you can stomach, both emotionally and financially, in any market environment.”

I’m still a little unsure, so should I just buy gold or another safe haven?

Investors in past stressful times have flocked to so- called safe havens such as gold, government bonds and defensive equity plays including consumer staples, utilities and dividend-paying stocks.

“We believe demand for gold could prove in favour again in 2020 with the fears of COVID-19 ( a. k. a. coronavirus) ramping up,” National Bank Financial analysts said in a note on Friday.

But all those safe havens have been rattled around during the recent market turmoil, so Steinberg is favouring dividend- paying stocks.

“When things were high, we held cash,” he said. “When things are low, I’m bullish.”