How to adapt your investment mindset for times of uncertainty, with Daniel Posner

March 27, 20207 min read
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Dan Posner, Senior Advisor to Yieldstreet

Daniel Posner is Senior Advisor to Yieldstreet and the Chief Investment Officer at Rensop Investment Group, which focuses on Private Equity and Distressed investments in Energy, Real Estate, Specialty Finance, and Growth Equity strategies. He also held the Chief Investment Officer role and focused on Distressed and Credit Opportunities investments at DE Shaw, Golub Capital’s GC Synexus, and Alliance Bernstein’s Energy Opportunities Fund. This background in the distressed credit business gives him unique insight into opportunities that present themselves in times of uncertainty

What are your thoughts on the economic impact of the coronavirus?

While the U.S. economy was in a strong position prior to the outbreak, we are all realizing how intertwined our economies and government policies are, and how much we depend on each other. The coronavirus crisis will certainly have a material impact on the U.S. economy in the short-term. Unfortunately, this will cause a lot of pain in the next 6-12 months, especially with the disease affecting people’s health and loss of life. With the lockdown affecting hundreds of thousands of small-medium sized businesses, people losing their jobs and earnings, the crisis has bled into the real economy. 

We are in an economic recession, even if we haven’t yet reached the text-book definition of two consecutive quarters of negative growth in the economy. Businesses are contracting across the board.

It’s important to adhere to what the government and healthcare organizations are asking us to do by minimizing social interaction with each other. We must do this to limit the spread of the disease and so that our healthcare system is not over-burdened. We are all in this together and to the extent that we are able to keep ourselves away from others, we are also keeping each other safe. The hope is that the next few months will see the development of a vaccine that will prevent the virus from spreading.

What indicators do you think investors should pay attention to when trying to make informed investment decisions with regard to the market as it currently stands?

With the S&P 500, Dow and Nasdaq, still reeling from the impact of the outbreak since the last week of February, it can be tough for investors to see past their immediate losses. 

Prior to the crisis, the United States was going through a prolonged business cycle and many would in fact say that we were overdue for a recession. Typically, the economy goes through a recession every 8-10 years. While the coronavirus outbreak is certainly uncharted territory, historically, we’ve seen other such disease outbreaks such as ebola and SARS as well as other economic crises such as those that unfolded in 1998, 2001 and 2008. As this issue is now being tackled on a global scale, it’s also important to pay attention to how the international community reacts to the situation.

Companies will become more focused and will consolidate their businesses. Counterintuitively, difficult times like these can be financially rewarding in terms of investing. When markets are down 25-35%, people are afraid and anxious that they will go down further. There are many scenarios in which the public markets will continue to decrease in value.  However, smart investors will look for opportunities in the marketplace and try to find opportunities that would be able to provide value even in the worst times. Investors who are looking to put their capital to work now may find that it’s a rewarding time to invest. There are surely solid businesses that are in need of capital to survive or grow due to the short-term impact of the virus.

It’s not only equity and public markets that are an indicator of where the economy is headed. Sometimes technical or emotional factors work against public markets and come at a cost. For example, times like these may cause investors to panic, stress and sell in a market. However, that’s often the exact opposite tack a seasoned investor would take. The story for retail investors seems to be that when the first signs of uncertainty arise, they hold on but when it becomes clear that the market will crash, they start to sell and cause panic. The smartest investors typically take action when the markets seem dire and it looks like the world is coming to an end. That’s when they actually put their money to work. 

I would submit that now is a good time to consider adding to one’s investment portfolio, even with the NASDAQ down to 7000, the DOW below 20000 at 19800 and the S&P 500 also at multi-year lows. It’s important to remember that we still have an underlying economy that’s of high quality. 

One indicator to pay attention to is the government’s response to the crisis. We have a supportive government and financial markets that are looking to add liquidity to the marketplace. The Federal Reserve has lowered interest rates to 0%, has announced that it will buy as much debt as it needs to cushion the blow of the virus, and now the Senate has unanimously passed a $2 trillion economic rescue plan that will offer assistance to tens of millions of American households affected by the coronavirus

I believe that when we get to the other side of this crisis, there is going to be pent up demand for goods and services. While the short-term can be scary, there are some potential long-term learnings, including people taking more precautions with their hygiene and health. 

In your opinion, is it possible to benefit from a recession?

Yes, without a doubt. Many companies become stronger after a period of recession. Thriving as a result of a recession is entirely possible. Focus on companies that are leaders in their industry and are low-cost providers. They will likely ride out the storm until it’s safe to come out and then will pounce on the opportunities in their industry. This may be a good time to be investing as history has a tendency to repeat itself and eventually, once the market bottoms out and the virus is contained, things will eventually come back to normal. 

How do you think individual investors should be thinking during this time? How do you think they should adjust their mindset to make the most of this economic downturn?

Investors should always have a long-term mindset. This means that eventually, this crisis will play itself out and life will be back to normal, even if it’s a “new normal”. People will get back to work and corporations will be providing the same goods and services that they have in the past. Investors should invest their money into opportunities where they see value, keeping in mind that while things look bad now, they won’t always remain that way. There are strong assets and strong businesses that might be hit by the crisis now, but can expect to recover, including the tech, financial services, and food industries. 

Now is a good time to start ‘nibbling’ and consider taking 10-20% of what you would normally invest and start to put that back in the market. Over the course of the next 6 months, an investor may want to add to those investments. Think above investing your capital in healthy companies while things are as cheap as they are now. 

It’s important to remember that nothing has changed structurally and while some of the Achilles heels of our healthcare system have been uncovered, if investors take a portfolio approach and diversify between bonds, equity, real estate and alternative investments like those that Yieldstreet offers, they have the potential to make the most of the current situation. Diversifying with asset-backed investments like those that Yieldstreet is able to offer based on specific assets within a variety of asset classes may be a great idea for certain investors. Of course, there are still assets with real value out there and diversifying your portfolio with collateral-backed assets can help give you peace of mind that there is still potential to get your money back on investments like these.

What are your top tips for investors to consider during this time?

  1. Stay positive – enjoy family time while ensuring that you are doing everything in your power to keep yourself and others safe. 
  2. Continue your long-term investment strategy.
  3. Dollar-cost average your investments across time.
  4. Don’t look at your portfolio on a daily basis. 
  5. Turn off the news if you feel overwhelmed.
  6. Exercise and eat well.
  7. Embrace the new reality and use your time productively – finish those home projects. 
  8. Spring clean your physical space and clear out your mind during this quarantine time. This way, when the time comes to get back into the swing of things, you’re ready to go. 

What’s the best advice you’ve received in your experience about times like these?

Make sure to have appropriate liquidity. Invest when markets are weak. People tend to overreact and oversell.  When people are sellers and it seems like things can’t get any worse, those are often the most financially rewarding times to invest. Be mindful of what you’re investing in and focus on solid, healthy companies in solid industries. Be mindful of the age-old adage: this too shall pass.