[bdub]

Now that we’re into correction territory what does a guy do. If your invested in index etf's tracking the market you’re down the market roughly. If you are into individual stocks you are lost likely down some multiple of that, your portfolio most likely has a beta between 1.2-2 or more depending, so you are likely seeing declines of 15-20% plus already. The worst mistakes will be made by the investors that hang on until they can’t stand the pain and then bail at the bottom. Then they compound that mistake and take too long to get back in or never return to the market.

If you are a young investor and have no cash sitting, I wouldn’t do anything. Maybe try and scrimp up a few extra bucks, delay that new truck and try and add on the panic. If you are middle age or later and fully invested in stocks its tough. Seeing a huge chunk of your savings get wiped out on paper is stressful. Just remember historically this will pass. May take a few years or may take a few weeks, but it will eventually come back if you are holding quality.

If you were lucky enough to be practicing some sort of risk management and have some cash sitting this is the golden opportunity, and the reason why you have been managing your risk. Now the big decision is when to get in? If you think you are an investing genius and can time the exact bottom, perfect. If your sensible you will realize that it is going to be next to impossible. Average in over time. Make some rules. Put x amount to work at level y of the market, put x1 amount to work at y2 level and so on.

Saying that, you have to realize that the future rates of return on the cash to be deployed is directly linked to the decisions on levels of x and y. The main problem is y is unpredictable. There are certain factors to watch that can hopefully give us a rough idea though. The number one thing is obviously the statistics on the virus and how the market is interpreting them. Next is bond yields/what the FED does. And then add in other numerous numbers of other factors.

I keep a close eye on the VIX when panics hit markets. The VIX, a measure of how volatile the market is, will give us some indication of the market’s interpretation of all these factors. Right now, the VIX is telling us the market could potentially swing several percent up or down here. On Friday we were kissing 50, a very high level historically.

To give some past reference and how to think about this correction I looked at a couple periods. First the mini crash in 2018 where we seen a run of the mill 20% correction. Although painful this was short lived. The vix hit its peak around 36 ish on Dec 24/18, the bottom of the correction. The 2008 period was much different, the vix was high for an extended time, hitting 80+ a couple times through Nov/Oct 2008. But the market didn’t hit its bottom until early March 2009 where the vix was hovering at the 50 level. By September 2009 the vix finally started to hit levels around 30 and the market was already up close to 40% off its bottom. We were well into the next bull market.

The vix is telling me that this event is much more serious than the 2018 correction, more like the 2008 crash but we will only know in hindsight.

Don't take any of this as any sort of serious advice. Best of luck.