The Only Thing To Fear Is Fear

The Only Thing To Fear Is Fear

On Monday, October 26, 2020, a headline on MarketWatch.com read:
It’s been years since investors have been this fearful of a stock market crash, Nobel-winning economist warns.
 
In the article (paraphrasing an article in the New York Times), Robert Shiller, a Nobel Prize-winning economist and Yale professor, cautions about the dangers of investing in the top-heavy stock market right now that he considers is at high-risk for a crash.
 
Here’s his advice for dealing with the market conditions:
 
“No one knows the future, but given the general lack of investor confidence amid a pandemic and political polarization, there is a chance that a negative, self-fulfilling prophecy will flourish. 
 
​​This highlights the importance of being well diversified in asset classes – including Treasury securities, which are safe – and not overexposed to U.S. equities now.”
 
I agree and disagree with Robert Shiller. I agree that the market is insane right now and that investors should stay away.
 
Why is it insane? Because it’s a tale of two investors:
 

  • On the one hand, you have the millions of newbie Millennials investing for the first time and with reckless abandon. With no one to take care of but themselves, they’re treating the stock market as their personal slot machine, with a penchant for high-risk high-reward stocks and strategies like penny stocks, bankrupt companies, and call options.
  • On the other hand, you have the traditional investors – ones that have invested in mutual funds, index funds, and 401(k)’s.

 
As Millennials took over the markets following the crash in March in the early days of the pandemic, what the traditional investor saw was the stock market climbing and climbing to unprecedented heights even though the underlying economy was still stagnant – marked by high unemployment and sluggish growth due to lockdown measures and social distancing from COVID-19.
 
Experts are predicting that once the market can no longer sustain the over-bloated stock prices, Millennials will reverse course and start selling off – taking the rest of the market with them.
 
I agree that the market is going to crash. I don’t agree with Shiller on how to mitigate it. He says to diversify into safe assets like treasuries.
 
Currently, the 10-year treasury yield is 0.85%. Experts are projecting inflation to fall within the 2.1 to 2.3 range for 2020. Putting money in something “safe” like a treasury that’s going to be swallowed up by inflation is a terrible idea. It’s not a strategy for moving forward and moving forward is the approach investors should take when the market is filled with fear.
 
You’re probably wondering why I titled the article, “The Only Thing to Fear is Fear.” ​​What I’m trying to say is when others are fearful and jittery, it will serve no purpose for you to go along with it. I’m saying to be very afraid of this mindset. Don’t let fear dictate your investment approach.
 
When investors are fearful, the natural reaction is to retreat. They withdraw from the market and sit on their hands.
 
Here’s why I don’t agree with that approach: Sitting on your hands erodes resources, which will eventually run out. You should be playing offense not a defense in an uncertain market.
 
In a 2010 Harvard Business Review article titled “Roaring Out of Recession,” researchers found that during the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies they studied fared particularly badly. ​​They went bankrupt, went private, or were acquired.
 
​​But on the flip side; surprisingly, 9% of the companies didn’t simply recover in the three years after a recession – they thrived, outperforming competitors by at least 10% in sales and profits growth.
 
The difference between the companies that faltered and the ones that flourished? The companies that thrived post-recession did not go into survival mode!​
 
That was the difference between the companies that failed and the ones that thrived.
 
The companies that faltered went into survival mode, making deep cuts and reacting defensively, and watched their companies deteriorate like a starving castaway on a life raft floundering in the ocean.
 
​​These companies that either stagnated or failed offer a lesson to the rest of us. Limping through uncertain times makes it hard to recover or worse, digs a hole you can never climb out of.
 
What about the companies that thrived?
 
​​The companies that thrived all had two things in common:
 ​

  • They were flexible, ready to adjust, and willing to change.
  • They kept their focus on the long-term.

 
For those willing to adjust, may now is an ideal time to invest offshore. If you’re jittery about economic uncertainty and social unrest in the United States, what do you have to lose from looking offshore for your next investment?
 

  • Offshore investing offers multiple benefits ideal for investing in a downturn or in uncertain times.
  • Investing with a long view and investing for the right trends in the right foreign market can offer investors a consistent, long-term source of cash flow and growth shielded from equities volatility and domestic turmoil.

 
Why do I think Belize fits the bill for a good offshore investment?
 
Because it’s trending in the right direction as a top tourist destination in the Caribbean with significant room for growth in the cash-flowing vacation real estate segment.
 
On top of its explosive tourism growth (temporarily slowed by COVID-19 but projected to resume in 2021), Belize offers many benefits its neighbors don’t offer including:
 

  • A stable government.
  • An English common law legal system.
  • A dynamic economy.
  • English is the official language.

 
The stock market may be scary right now but there’s no need to be scared.
 
Those who emerge and thrive from uncertain times are those who think long-term and are flexible in their investment strategy and approach. 
 
Fortune favors the bold so why not consider offshore investing in a stable market like Belize for your next venture?

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John Turley

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