Why did the market have its fastest drop in history?

Tue, 03/31/2020 - 8:13pm

Karen Arbutine & Eric Reinhold Discussing the Current State of the Stock Market

 

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After selling his clients out days before the quickest drop in the history of the stock market, Eric discusses the current state of the market.

Eric comes with a wealth of experience in the business and industry and I would love for you to meet Eric!

 

 

Eric Reinhold, CFP®, APMA®, MBA
Vice President / Financial Advisor
Ameriprise Financial Services, Inc.
Ameripriseadvisors.com

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Video Transcript:

Hi, Today I have the pleasure of talking with Eric Reinhold, he's a certified financial planner, and he is going to talk to us about his recent book that he published, The One Thing and how to keep your wealth in the market. Eric, I read your book and thought it was awesome!

What happened? The biggest drop ever and the quickest drop ever. What happened?

Well really everybody seems to be focusing on the coronavirus (Covid-19) as the impetus for this drop, but really there are three different things. First, I would like to describe it as a double black swan. In the financial services world, the black swan is referring to something that is an unexpected event that no one knew was going to happen. What we had first of all was obviously the coronavirus (Covid-19), it was over in China. But it was quickly followed up by an oil crisis, which was really Russia and Saudi Arabia both trying to maximize their output, driving prices down. So, all of a sudden oil goes down from 50 a barrel to 20, which in the US, you think great thing! My gas is going to be cheaper. While it impacts the US in a big way because we produce barrels at about 40 dollars so at 20, companies are going to lose business, go out of business, so forth. So, that was really the second one.

The third one, that a lot of people aren't focusing on is really a credit crisis. There are a lot of highly leveraged hedge funds, that all of a sudden with prices dropping they're trying to sell is putting pressure on bonds to be able to come up and they are selling good assets out of their funds. And so there's kind of a log jam on the credit side which the treasury has tried to back-fill by saying hey we'll keep funding, we'll support and they're throwing billions and trillions of dollars towards that issue. So, all those converging together caused this huge drop in the stock market. From a high back on Feb 20 - well Feb 12th of $29,500 - over 10,000 points.

 

And where are we at now with your current portfolio of clients? What type of advise are you giving them? Or, what have you done for them moving forward during this?

Well, this has been a thing where experience helps! I go back to I've been through, this is my fourth major bear market. The first one, I was actually a senior at the Naval Academy, and economics major their in the late 80's - 1987 Black Monday a fall occurred. But, really the one after that was significant, if you remember the Dot Com Bubble - Yep I remember that! So, the market was really about a 3 year bear market from 2000 to 2002 I had all these nice diversified portfolios, I thought, that were in large cap, mid cap and small cap stocks and international emerging markets, bonds and what I found out through that was that everything went down. It really have the crisis and belief to say ok, let me re-evaluate how I'm doing things. My answer to clients wants to be hang in there and it will come back. Because that is really what everybody was telling their clients.

It seems to be what most people say. Most of my clients or friends that have been impacted through this, they are saying their financial advisors are saying, it will come back, just wait! And I'm like, that doesn't sound like the best strategy. I'm sure you had a strategy in selling off all of your clients prior to the fall.

Well, yeah and part of it is true, it will come back. If everyone remember back in 2008, the most recent one down to 2009 when the market dropped, stocks came back but it took 5-6 years for your portfolio to return. And so the one issue is...and usually with the medial will say, don't abandon your portfolio at the very very bottom.

There is so much valuable information in this video and we are only 4 minutes in - please watch in its entirety!

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As Seen On

Karen Arbutine on The American Dream TV Show
Karen Arbutine on CNBC Orlando
Karen Arbutine on Orlando Fox 35 News
Karen Arbutine interviewed by Orlando Sentinel