By Jeremy Wallace and Andrew Hart
Do you remember participating in school fire drills when you were a kid? Lining up and leaving the school in an orderly way and reassembling in a safe place? At the time, it probably felt like a fun break from schoolwork. But as an adult, you understand perfectly well why the school administration made their students do this: so that if a real fire started, everyone would know exactly what to do. Preparation minimizes panic, saves lives, and prevents chaos. In this case, safety means preparing before a fire, not after one.
Here at Wallace Hart Capital Management, we take that same principle to heart and diligently apply it to investing. The ongoing coronavirus pandemic and the enormous toll it is taking on the markets show why preparation is key.
A Necessary Alternative
We’ve experienced plenty of market turmoil in our careers. And after the last two 50% declines in the stock market, we decided to change how we invest our clients’ hard-earned money. Most money managers use a strategy called “buy and hold,” where they pick a diversified basket of stocks they believe will rise in value over time and hold onto them no matter what. It works great during bull markets. But here’s the thing: buy and hold won’t protect your money from losses during a bear market. We saw that during the dotcom bust. We saw it during the financial crisis in 2008. We witnessed countless people lose the bulk of their retirement savings, which took years to recover.
We’re seeing it now with the coronavirus.
We knew there had to be an alternative, so we switched things up years ago. Now we use a tactical investment strategy based on technical analysis. This enables us to respond to market conditions and make adjustments rather than just hold on no matter what, allowing us to protect our clients’ money from staggering losses.
Using the principle of supply and demand, we track where the markets are trending. Then we put specific rules in place so that if the markets trend below a certain point, we move to cash. Sometimes we move entirely to cash if the situation demands it!
That may sound drastic, but the circumstances of the past month show us why it’s necessary. What have the markets done in March 2020? That’s right—they crashed, over and over. The Dow fell over 2,000 points on Thursday, March 12th, its worst day since 1987, (1) quickly followed by another record-breaking drop on March 16th, one even more dramatic than the one on Black Monday in October 1929. (2)
Things got so bad that they actually had to freeze trading on the NYSE multiple times because stock prices were plummeting so fast. (3)
Protection Is Priceless
Do you know what our clients were doing during all this? Panicking? Calling us with worry in their voice? Nope. They weren’t doing anything because they didn’t need to do anything. They were already in cash.
Over the last several years, we’ve moved our clients to cash on several occasions. Sometimes people ask us, “Why do you keep doing this? We’re not in a real bear market. Things always go back to normal in a few weeks anyway.” To that, we always answer, “Someday a real bear market will return, and stocks will fall hard. We never know if it’s going to be a real one, but we are always prepared for it. So when the real one does come, we’ll be ready.”
In other words, we’ve been holding fire drills with our clients’ portfolios for years. But this time is not a drill. Now a real fire is here…and we were ready.
That’s why, even though the markets have fallen more than 20%, our clients’ balances didn’t.
To be clear, we’re not geniuses. We’re not superstar stock pickers. All investing involves some risk and there’s no magic formula for success. But that lesson we learned when we were kids, we follow that lesson. We follow the numbers. We follow the law of supply and demand. We follow what the markets are doing now. Most of all, we follow the rules we’ve put in place to make sure our clients can exit the markets in an orderly manner…and then keep their money in a safe place.
Keeping Your Dreams Safe
At Wallace Hart Capital Management, we believe wholeheartedly that there is nothing more important than protecting our clients’ hard-earned money. Because when we do that, we’re also protecting our clients’ dreams.
So, if our current market environment is stressing you out, causing you to wonder if there’s a better way, if you want to do more to protect your money, or if you have any questions about what we do and how we work, we’re available anytime. Reach out to us at 859.300.3030 or through our website to set up a virtual appointment today. We’d be happy to chat with you!
About Jeremy
Jeremy Wallace is founder and chief investment officer at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Jeremy has 20 years of experience in the financial industry and is passionate about helping clients preserve and enhance their wealth so they can pursue their passions. Jeremy graduated from Emory University with a degree in international economics and a certificate in financial planning. Outside of the office, Jeremy spends most of his free time with his wife, Julie, and their three children, Isabel, Lincoln, and Reid. He is an avid Chicago Cubs baseball fan, and he enjoys golfing with his wife and traveling with his family. Learn more about Jeremy by connecting with him on LinkedIn.
About Andrew
Andrew Hart is the co-founder and chief planning strategist at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Andrew has 15 years of experience in the financial industry and strives to provide new and better strategies and processes to improve his clients’ lives. Andrew graduated from Wittenberg University with a bachelor’s degree in business management and holds a certificate in financial planning from Georgetown University and the CERTIFIED FINANCIAL PLANNER™ designation. When he’s not working, you can find him enjoying the city of Lexington, KY and spending time with his wife, Susan, twin sons, George and Ted, and daughter, Merritt. To learn more about Andrew, connect with him on LinkedIn.
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(1) https://www.cnbc.com/2020/03/12/stock-market-today-live.html
(2) https://www.thebalance.com/fundamentals-of-the-2020-market-crash-4799950
3/30/2020