“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

That quote, attributed to various humorists (including Mark Twain), seems especially appropriate right now. At a time like this, it’s important to discern what is really true. Since one of SMI’s goals is to simplify the complex — focusing on what you need to know rather than all there is to know — let’s take a look at what we know for sure that is certainly so.

We know that the world, and as a result, the markets, have been in turmoil because of the fast-moving COVID-19 pandemic. After setting a new record on February 19, it took a mere 16 trading sessions for the S&P 500 to enter bear market territory (a decline of at least -20%), making it by far the fastest switch from a bull- to bear-market in history. Previously, such a fall had taken an average of eight months!

We know that people feel the pain of loss more acutely than the pleasure of gain. So, given the speed and magnitude of this sell-off, it wouldn’t be surprising if you’re feeling some pain right now. All investors are.

But here’s what else we know — reassuring rock-solid truths from God’s Word and important lessons from market history.

Timeless truths from God’s Word

  • We know we need not fear. “For God has not given us a spirit of fear, but of love and of power and of a sound mind” (2 Timothy 1:7). 
     
  • We know God is always with us, always for us, and always loves us. “See what great love the Father has lavished on us, that we should be called children of God!” (1 John 3:1)
     
  • We know God is aware of our needs and promises to provide. “…your Father knows what you need before you ask him” (Matthew 6:8).  “So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ For the pagans run after all these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well” (Matthew 6:31-33). 
     
  • Come what may in the markets, we know that God’s Word teaches us to be patient, to take the long-view. “Steady plodding brings prosperity; hasty speculation brings poverty” (Proverbs 21:5). 
     
  • And we know God has a purpose for every trial we experience, using it to mold our character and draw us closer to Him. “Therefore, in order to keep me from becoming conceited, I was given a thorn in my flesh, a messenger of Satan, to torment me. Three times I pleaded with the Lord to take it away from me. But he said to me, ‘My grace is sufficient for you, for my power is made perfect in weakness’” (2 Corinthians 12:7-9). 

Lessons from market history

Investing is far from a perfect science, but we can learn from the past. Here’s what we know from previous bear markets.

  • Every crash has unique causes... The COVID-19 pandemic-induced sell-off is different from the Great Recession of 2008, which was different from the bear market of 2000-2002.
     
  • ...but every crash generates similar investor responses. Investors fear falling markets, and when people panic they make bad decisions. When fear drives people out of the markets, fear will tend to keep them out of the markets until long after the inevitable recovery has begun.
     
  • Every crash reminds us that it is crucial to have a plan. Such a plan, developed at a time of market calm, should include reliance on rules-based investment strategies and a “market events” statement where you commit to what you will do, or not do, at a time of market stress.

So far, some aspects of the rules-based strategies most SMI investors rely on have worked great. Others haven’t worked as well as we might have hoped. Dynamic Asset Allocation has been a lifesaver, moving a portion of many SMI members’ portfolios out of harm’s way three weeks before this bear market began. Upgrading 2.0 narrowly missed triggering at the end of February. In hindsight, we obviously wish it had.

That said, if your plan calls for following these strategies, don’t overcomplicate things with thoughts of going off-script! Follow the strategies as they call for specific action. They were designed to respond to bear markets — at the beginning of them, such as we’ve experienced over the past month, but also the middle and eventual end of them. As hard as it is to imagine right now, at some point we’ll need to transition the other direction toward getting more aggressive again.

One of the great lessons from history, vividly depicted in this month’s article, The Enduring Optimism of an Investor, is that scary, market-moving events happen somewhat frequently — yet through them all, we know the market has continued its “constant jagged climb” higher.