Hello everybody, it's Sam from Financial Samurai and I just want to check in with you guys. It's been a while. It's February 24th and S&P 500 corrected 3.4% Due to fears of the corona virus the COVID - 19 Corona virus and I feel like I'm in the twilight zone here a little bit because I still have this respiratory illness That has been afflicting me since early January end of December it went away for a couple weeks And then it came back feels like this season's flu season is much worse than expected or maybe it's simply because My boy's gonna preschool and he's just like the germ machine and he's bringing everything back So I wanted to share some thoughts on the corona virus and how we should position ourselves Because things could get a little bit dicey Definitely volatility is back and I think we need to talk about our finances and our asset allocation In this time of uncertainty and I think it's always good to talk about it with your loved ones with your friends with your partner And with yourself So first and foremost, I think first quarter earning results for 2020 are likely to disappoint Especially if the corona virus continues to spread and grow in cases in February and March Remember first quarter is January February March and they're gonna be reporting numbers in April and May and I think that chances are high that Companies are gonna disappoint and when you disappoint on earnings stock prices the S&P 500 goes down And I think there's a good chance The longer the corona virus lingers that CEOs of all these companies are going to use this opportunity I say opportunity in quotes.

It's not a really great opportunity. It's not a great situation But this opportunity to kitchen sink their earnings. So whatever operational problems they had in the first quarter oftentimes or sometimes CEOs CFO CEOs will use some kind of exogenous variable in this case the corona virus To put blame on why their earnings didn't come to fruition or didn't meet guidance and this buys them You know another three months of time right because it's just all on quarterly earnings results So you just want to really pay attention to the count and the numbers supposedly as of February 24th there's something like 80,000 cases across 30 countries There's about 2700 deaths and so the numbers are probably going to continue upward But hopefully the trajectory will slow down.

We just don't know for sure. But if it doesn't slow down There's probably a greater and greater chance that first quarter earnings are going to disappoint So if you're an equity investor like I am like I'm assuming most of you guys are Just be aware that things aren't looking that great to look at the bond market Wow the 30-year bond yield has Breached 2% it went down to around 1.85% That's an all-time low folks and then the 10-year bond yield has gone down to about 1.38% That's basically an all-time low.

I mean we hit that low in 2016 about 1.35% But that is really interesting. It's really telling so the bond markets a bull market the stock market Before this three and a half percent correction was a bull market. It's still a bull market, right? So we're in an everything bull market.

So usually when the bond market is this strong it means that investors are seeking the safety of bonds and usually a Massive ramp in bonds is a telling sign that the economy is going to be slowing down or something's in trouble, right? And so something has to give and we don't know for sure whether the stock market is going to give back All of its gains or some of its gains from 2019 or whatnot But it's really telling the bond market is really telling that we should be careful in the equity market The number one thing all of us homeowners can do is refinance our mortgage And I refinance my mortgage in 2019 to a 7-1 arm at 2.625% No points, no cost.

I actually got it about a $250. Maybe it was $350 credit I'm set for the next seven years and if you haven't refinanced your mortgage in the past one year or two years definitely check and Definitely set yourself up and lock in a great rate because again We're almost at all-time lows in the 10-year bond yield and we are at all-time lows with a 30-year bond yield So why not lock in these low rates and at least improve your cash flow by saving on mortgage interest?

If you've been thinking about buying property and you need to buy property whether it's because you want to settle down for the next five To ten plus years you need a bigger home because you have another child on the way or your first child Now is probably as good a time as any because the market has been softening for the past couple years Mortgage rates have been falling and therefore affordability has gone up Don't underestimate the wealth effect the stock market has given us in 2019 I mean a 31% increase in stocks I don't care what your allocation 20% 40% 80% 100% of your net worth.

That is a huge move Historically because the stock market is historically provided about an 8 to 10 percent return. So 31% is a 3x greater return on average and it is just logical that people are going to feel wealthier and they're going to asset allocate into perhaps something more tangible and more real and That is the real estate market.

The real estate market is relatively defensive. It's a tangible asset. So it just doesn't go poof The very next day out of coronavirus fears it provides utility which is shelter and then it provides income which is rental income So money should logically flow to real estate and away from more risky stocks in this type of environment Especially with interest rates going down and you can think about real estate more like a bond Now whether it's a corporate bond or a high-yield junk bond or a treasury bond It depends on what type of real estate you buy but when rates are going down real estate generally outperforms other asset classes so I personally believe that real estate will outperform the S&P 500 in 2020 just like how real estate outperformed the S&P 500 in 2018 I also think the bond market probably has like a 70% chance of outperforming the S&P 500 in 2020 and the cash market.

I mean, it's only Providing about a 1.75 percent yield. That's kind of like the best I've seen right now in the first quarter of 2020 But 1.75 is really good folks because the 10-year bond yield is at 1.35 so think about it You've got to hold the 10-year bond yield for 10 years to get 1.35 percent a year and then all your money back after 10 years but with the online savings account, you can get 1.75 percent or 40 basis points or 0.4 percent greater than the 10-year bond yield and you don't have to hold it for 10 years You can hold it for one month one year two years whatnot.

So there is another arbitrage opportunity folks For those of you who want to build liquidity save cash get more conservative It's not a bad idea to really boost that percentage of your net worth and now as for the stock market I can only share what has happened in the past and if you look at the history of 3% plus drawdowns About 80% of the time you're gonna see a positive return after One month three months six months and 12 months and actually the percentage goes up on the 12 month mark In fact since about 2008 so since the financial crisis after 12 months Stocks are up double digits every single year since and that's just logical because it's been a bull market since 2009 And if you want to go into the nitty-gritty about what happened during previous pandemics So the SARS virus I was covering Asian equities back in 2003 So the start in global interest of SARS was March 25th 2003 and the peak in global interest was around April 24th.

So about a month you saw China and the Hong Kong market declined by about 9% and then one month after peak interest The markets rebounded about 15% in China and 10% in Hong Kong and then three months after the peak about 31% in China and 17% in Hong Kong so History suggests that you should use These pandemic situations to leg in and buy stocks.

So what am I doing? I actually have a lot of cash Because I've gotten a lot of distributions from my real estate crowdfunding investments that I made in 2016 and 2017 So I'm legging in I said it earlier in a newsletter And I think in a post and my plan is to leg in with every single 2% plus sell down So on February 24th, I legged in about 30% of my cash because the market went down three and a half percent and If the market rebounds, I'm just gonna sit tight and if the market corrects another 2% or more I'm probably gonna leg in again and again and again and the reason why I just don't go all-in is because I clearly don't Know what the bottom is.

We've run so far But also the reason why I am legging in is because I'm relatively underweight Equities since I bought a new primary residence in 2019 I used a lot of my profits from 2019 to buy a Larger home for my growing family and I'm underweight equities by about 4% of my total net worth.

So my equity exposure as a percentage of my net worth is about 21% something like that and I wanted to get it about 25% So I want to increase exposure But 25% is what I'm comfortable with and you've got to figure out what you're comfortable with The rest of my net worth is composed of real estate I think that's 35 40 percent and the bond market a lot of municipal bonds because they're double taxation free And also financial samurai is worth something and then also cash and private Investments such as real estate crowdfunding private equity investments and venture debt So if you're fortunate enough to have a job or a steady source of income wherever that might come from You should probably come up with a plan as to how you're gonna take advantage of market volatility Whether it's legging in every 1% 2% 3% Whether it's refinancing a mortgage whether it's beefing up your defensive bond portfolio You've got to look at your asset allocation and compare it to your financial goals and your risk tolerance Don't look at my risk tolerance and the way I invest and say hey, I'm gonna follow exactly what Sam does Because you're not me.

I have two kids to provide for now. I don't have a steady job and I'm relatively risk averse even though it looks like I might swing for the fences for some of these things But on a percentage basis, I think I'm pretty relatively conservative, especially for someone my age I think the best case scenario we can hope for is that there is a temporary sell-off Maybe it's a 10% total correction You're able to accumulate some positions in some stocks or indices that you enjoy and then we see a v-shaped recovery in demand and production after the first quarter and the market looks beyond the first quarter results as a misogynist variable that's not Fundamental and long-term in nature.

That's the best case scenario and I would say that's probably a 60 to 70 percent scenario and when you're investing you can't think about absolutes you got to think in bets So that is probably a 60 70 percent scenario. I think there's like a 10 to 20 percent scenario This could be the start of something much worse like maybe a 20% correction in which case you've got a mentally Exercise your mind and look at your positions and say how would you feel if you lost 20% of your position?

Of your net worth or your investments and if you feel really really bad Well, maybe you might have to do some altering of your asset allocation But again, I want all of us to have a conversation because it's during difficult times volatile times But I think we can learn the most where we can also plan the most and where we can also address Some things we've been neglecting for a while since the bull market tends to make us a little bit Sanguine a little bit lazy about our investments and our finances.

So thanks so much folks I do hope everybody stays safe and healthy and as always I'll see you around on the financial samurai forum or in the comment section Of a latest post. Thank you