As the market's wild ride continues, SMI executive editor Mark Biller offered advice about staying as steady as possible in your investing approach on yesterday's MoneyWise Live from Moody Radio.

To listen to a portion of the program, click the play button below — or, if you prefer, scroll down for the transcript.

(And for more radio appearances by members of the SMI team, visit our Resources page.)

MoneyWise Live, with hosts Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT. 


Transcript

Steve Moore:  So what should you do when investing seems like flying through a storm? Kingdom Advisors president Rob West sits down with investing expert and good friend Mark Biller to find out how to navigate through that turbulence.

Then we take your calls at 800-525-7000. I'm Steve Moore. Advice for a stormy stock market — that's next right here on MoneyWise Live. (theme music ends)

Well, Rob, I don't know if Mark Biller has his pilot's license, but he is the executive editor at Sound Mind Investing — and the word on the street is, he only will fly first class.

Rob West:  (chuckle) Something something tells me that's not accurate. Mark Biller, good to have you with us, my friend.

Mark Biller:  Thank you. It's good to be back.

Rob West:  You've flown coach a time or two, I'm sure — right?

Mark Biller:  (laughs) Yeah, pretty much exclusively, actually. I'm not sure where that one came from.

Rob West:  You never know. You never know. Well, let's stay with our "pilot" analogy here for a bit. You're the perfect guy to help us keep our investments "in the air." So why don't you give us a bit of an overview, perhaps a recap if you can do that, of the market conditions over the last couple of months and help us understand what's been going on and how we can really analyze that and understand it.

Mark Biller:  You know, I think that everyone kind of has an idea that things have been really wild in the markets lately. But people who haven't been following it super closely may not really understand that what we've seen over the last few months has been as wild as anything in at least a decade — and really probably going all the way back to the 1929 crash, in that period. You know, it's truly incredible to think that stocks hit their all-time highs exactly three months ago today — that was February 19th. So everything that's happened has been jammed into this compressed three-month time span.

So here's a real quick recap of that. You know, first and foremost, the headliner was the stock market falling into a bear market faster than it ever had before. So the typical definition of a bear market as a drop of at least 20%, and the market got to that point twice as fast as it ever had before — 1929 had been the prior fastest and this was half the time that it took in 1929. And then just as suddenly after the market had bottomed out at a 35% loss, that plunge reversed violently. And we've had this massive rally now erase a huge portion of those losses over the last eight weeks.

So today where we stand, the NASDAQ stock index — which we don't talk about quite as much as like the S&P 500, but the NASDAQ is where all the big tech stocks are housed — and that index is only about 5% below its all-time highs. The S&P 500 index, which is a little broader, is down a little over 10-maybe-12% — so the bounce back has been huge.

A couple of other highlights: You know, early on in the panic there was big trouble in the bond market — and then at one point even us Treasury bonds were struggling to trade. And that's really what drew the Fed in, because when Treasuries are having trouble, the Fed's got to step in 'cause the Treasury market is usually the deepest and most smooth part of the whole financial system. So the Fed had already cut interest rates by 1%, but when the credit markets started seizing up the Fed unleashed a barrage of liquidity measures — really unlike anything any of us have ever seen before. Some of that was kind of controversial — like buying high-yield corporate bonds, which they've never done before.

But the Fed's response along with that response from the U.S. Government, which included, of course, the direct payments to individuals, expanding unemployment benefits, massive loan programs to businesses and other stuff like that — you know, it's been a huge combined response. And by all indications, they're not done yet.

Rob West:  Talk about what the real objective is there, Mark. I mean, is it really at the end of the day about keeping the markets functioning properly and keeping businesses pumped with cash and propping up the consumer? I mean, is it just a matter of keeping everything working like it should?

Mark Biller:  Yeah, I mean the answer there is going to depend on who you ask because, you know, the Fed may give you one answer and other people may believe a little differently.

In theory, the Fed is trying to keep the economy moving forward as much as possible and so forth, and they will say up and down that they are not targeting the financial markets specifically — but this isn't our first go-round. We saw the same exact playbook in the 2008 financial crisis. In a way, it's kind of nice that they have a playbook, having been through this once before, because both the Fed and the federal government were able to reach for that playbook and do things really quickly this time — much faster than last time, 10 years ago.

But the flip side of that is, it's no secret what the end result of those actions was a decade ago. And that was that a huge amount of the liquidity and stimulus that came out of the government and the Fed ended up in the financial-asset markets and produced, not the inflation on Main Street that everybody was looking for — 'cause 10 years ago everyone said, "They're borrowing like crazy, they're spitting out all this new money, surely we're going to see inflation." And we never really saw that in the Main Street numbers. The man on the street, our prices that we're paying for things, really didn't see that type of big inflation. But where we saw the inflation was in the asset markets. So the stock market just took off coming out of 2009 and never really looked back. We had this huge long bull market in stocks and other financial assets.

And so you'd have to kind of be burying your head in the sand intentionally to say, "Well, we're doing all the same things, but we're doing more than ever — and where is that likely to have an impact?" Well, the first place you'd have to look is where it had an impact last time, which is the financial markets. And sure enough, that has been the response of the financial markets since [the Fed and the government] really said, "The gloves are off, no holds barred, here we go." The stock market has rallied immensely since then and financial asset prices have been going up.

Rob West:  The other crazy element of what's been happening in the markets is the oil market. Talk about the action we've seen there, and why we're seeing that.

Mark Biller:  That was really the kind of the final exclamation point on just the wild things that were happening early in the financial markets. And we had a situation, I guess it was about a month ago now, where the oil price went to a dramatic negative number. So it actually traded as low as $37 — negative — per barrel, which means that there were actually people who were paying $37 to take a barrel of oil off of their hands because they were not in a position to be able to take physical delivery of that oil.

And that was a combination of, you know, the shutdowns globally, just crushing demand for oil at the same time that Saudi Arabia and Russia were in a little spat, along with our shale producers here in the States. So there was way too much supply, almost no demand, and all of the storage was full, so there really wasn't anywhere to put this oil. And that led to this really crazy situation with negative oil prices.

Now, that quickly reversed and oil prices are back up to a little bit more normal 30-ish dollar-per-barrel range. But it just shows the extreme volatility and just the weird second-order effects of some of what we've seen in the financial markets

Steve Moore:  Talk about "whipsaw" — that's exactly what we've seen. And who knows where it'll go, right? So that's why we believe that a long-term approach typically is the better approach, correct?

Mark Biller:  Yeah, for sure. You want to have a plan. We always talk about having a long-term plan. And, boy, this last three months, this has been just the perfect example of why you want to operate from a long-term plan.

That said, there is something to be said for risk-management — and there's nothing wrong with your plan accounting for really volatile periods and potentially pulling back some risk during those periods. I mean, we've done that ourselves with some of our strategies at Sound Mind Investing.

But you don't want to be operating without a plan because in these types of markets like we've had, if you're not operating from a steady long-term plan, you're going to be blown around by the emotions of the moment. And that's where people really get into trouble because then they sell — maybe everything, or way more than they should — and they've got no plan for how to get back in. That's a totally different situation than potentially de-risking a portfolio a little bit as things get volatile, with a plan that's going to force you back in if the market surprises you and goes back up the way it has.

So again, we always bring it back to that long-term plan, and this really is a great example of why.

Rob West:  Mark, we've got just about a minute left. You know, we've been talking about the market, the choppiness, all the Fed action, of course, the uncertainty around reopening our economy, and still the lingering questions regarding what's going to happen through the summer and into the fall and winter with COVID-19. So, sum up for us today how we should be thinking about our investment strategy.

Mark Biller:  Yeah, I think that the big picture thought here, Rob, is if you're going to invest over many decades, you're going to have to weather a number of these bear markets. And these periods like we've been in are always characterized by uncertainty and fear — and that's why it's so important to have a long-term plan.

Rob West:  That's exactly right. Hey, thanks for joining us, Mark. SoundMindInvesting.org — check it out. And we'll look for you again.

Steve Moore:  And we'll be right back. Stick around.