Covid-19

'Panic-selling right now is a really bad idea'

Financial adviser brings historical perspective to current crisis

By Doug Cantwell
dcantwell@taosnews.com
Posted 4/1/20

During his 27 years in business, financial adviser Billy Knight has weathered Black Monday [Oct. 19] in 1987, the invasion of Kuwait in 1990, the Asian financial crisis of 1997, the bursting of the dot-com bubble in 2000 and the recession of 2008-09.

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Covid-19

'Panic-selling right now is a really bad idea'

Financial adviser brings historical perspective to current crisis

Posted

During his 27 years in business, financial adviser Billy Knight has weathered Black Monday [Oct. 19] in 1987, the invasion of Kuwait in 1990, the Asian financial crisis of 1997, the bursting of the dot-com bubble in 2000 and the recession of 2008-09.

"Only those who panic-sold suffered irrecoverable losses," he told clients in a March 18 statement. "History shows that markets always recover. We will get through this."

Knight was referring to the current response to the COVID-19 pandemic, which has prompted brokers and investors to "stop the bleeding" by dumping stocks and equity funds on a global scale, usually reinvesting the funds in safer, more stable bonds or money markets.

That said, Knight readily acknowledged in a March 23 phone interview that this is a scary environment. "We're in completely unknown territory, in terms of where COVID-19 is taking us. But I will say that the Fed[eral Reserve] governors have injected a ton of different programs into the market - many of them today - though it still hasn't stopped many from selling out of fear."

Is it true that all the gains registered by the Dow Jones average since the current administration took office in January 2017 have been lost?

"It's actually more than that right now," said Knight. "We're down about 35 percent overall."

He mentioned Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, who had appeared on CBS's news program "60 Minutes" the night before. As former assistant secretary of the treasury for financial stability who had overseen the TARP [Troubled Asset Relief Program], Kashkari talked at length about how long the recovery from the 2008 recession took - but also about how much they'd learned from it.

"They're not going to let that happen this time," Knight said. "The recovery is going to have to come back quickly."

He added that one reason the Fed governors are taking strident measures is that the usual prudent portfolio mix of 60 percent equities and 40 percent bonds is not providing the stability that diversified holdings usually do.

Areas of the marketplace that investors typically regard as safe, such as short-duration and municipal bonds, are also being affected this time, he said. "There's really no safety net that people can run to and put their money. I think selling in this environment will turn out to be a huge mistake."

Now that Congress has passed a $2.2 trillion stimulus package, Knight added, it probably won't take 10 years for people to recover as it did after the 2008 recession. "Hopefully, it will be more like two to three years before people get whole."

Weren't the markets due for a correction anyway when all of this happened?

"Absolutely," Knight said. "In January, we were way overvalued. My expectation would've been 10 to 15 percent, which is considered a normal correction. But 35 percent, where we are now, is way beyond a normal correction."

He noted, however, that most investors are still ahead of where they were before the 2008 recession because of the substantial gains realized in the stock market over the last decade.

Knight attributes a lot of the current market crisis to a lack of leadership and transparent communication coming from the White House.

"They need to say things that will calm the situation," he said, "but they also need to tell us what's really going on instead of changing their story every other day. Most people have not been believing what they're hearing out of Washington, and that has really exacerbated the situation."

As a financial adviser, Knight said he would have taken measures if he'd had any inkling of what was really going on in January. "But we weren't getting accurate information, so like everyone else in our industry, I was just thinking this is a 10 to 15 percent correction, which is healthy for the markets - until the second week of March, when everything really got out of hand."

"But this won't last forever," he said, "and we'll come out of it a better nation, a better world."

"At this point, however," Knight reiterated, "unless you need your funds in the very immediate future, selling into this is a big, big mistake in my opinion."

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