By Lou Sorendo
“I had quite a few people that just basically said, ‘no, let’s sit tight. I like my allocation and I’ll just ride this out’.”
Things may get ugly. That’s the sentiment of Randy L. Zeigler, a private wealth adviser with Ameriprise Financial Services in Oswego, who spoke recently about how investors are reacting to the COVID-19 pandemic.
He said everybody is probably reacting to some degree emotionally.
“In the span of four to five weeks, we went from an economic circumstance where we were in the middle of an 11-year record growth cycle in the U.S. and hitting an all-time high on the stock market Feb. 19, to being in the depths of what we expect to be a pretty ugly recession,” Zeigler said.
“If there is a time to use the word ‘unprecedented’, this is it,” he said. “We’ve never been on this road before.”
He said the economy has plummeted not because of structural problems within the economy itself. It has plunged because of the government’s response to fighting the virus itself and trying to mitigate deaths.
Personally, Zeigler said his “head was spinning” for the first two weeks of the crisis when there was a freefall on stock prices.
“Every day was changing when [New York state] Gov. Andrew Cuomo came out and did his press conference for that day. It went progressively to more increasingly severe restrictions on movement and activity and that just scared the population,” he said.
That in turn resulted in the freefall of the stock market, he noted.
“That’s because nobody knew what was going to happen. Whenever you have a completely unknown situation and it looks to be getting significantly worse by the day, you are going to have a fear response in people,” Zeigler said.
From an investment standpoint however, most of Zeigler’s clients did not respond emotionally with a sell-at-all costs approach, he said.
“Most people sat tight and watched to see what was going to happen,” he said.
Zeigler noted the majority of his interaction with clients during the early phases of the crisis was to present them with several options.
The first option for clients involved “sitting tight, doing nothing and waiting for the recovery,” Zeigler said. “Recovery is going to happen, but it’s probably going to happen in the fall or into next year.”
The second option involved strategic selling to reduce equity exposure for clients.
“I gave people the option of having me look over their portfolio and make specific recommendations regarding assets that had greater volatility risks,” said Zeigler, noting that clients largely disregarded that choice.
The third option involved looking at portfolio allocations — such as fixed assets, cash, equities and real estate positions — and determining whether or not to consider rotating certain percentages from more stable fixed assets into equities and take advantage of the downturn in stock prices.
Zeigler said he saw more clients take this route as opposed to a sellout option.
“I had quite a few people that just basically said, ‘no, let’s sit tight. I like my allocation and I’ll just ride this out’,” he said.
Zeigler attributed that to a client’s exposure to long-term education involving risk and asset allocation within portfolios, topics that he stressed when meeting with investors.
He said a time-tested adage holds true: “You always find out about your real risk tolerance in the middle of a recession.”
Zeigler said most of his clients don’t make their investment decisions based on their emotions.
“Their emotions play into their decision-making process of course, because we are all human beings,” he said.
However, Zeigler said investment and portfolio management decisions are based as much as possible on data, expectations and solid available research.
“The problem in this case is it isn’t like any recession we ever had,” said Zeigler, noting the 2008-2009 Great Recession was unprecedented as well.
“What makes these kinds of circumstances so challenging is there is no way to be able to perfectly predict the near-term future,” he said. “We are making our best guesses based on the data we got and what we think is going to spin out.”
