Markets have been hammered by coronavirus outbreak fears and an oil price war, dropping almost 20% off their February highs. The thought of a large-scale “stay at home” situation could prove to be a major economic problem not easily fixable by the government.
Amid the panic, major U.S. investment brokerages like Fidelity, Vanguard, and T. Rowe Price – which have about $9 trillion under management combined – are trying to preempt customers from fear selling, by telling them to “stay the course.”
This advice – to think long term and not respond to the daily gyrations of the stock market – is exactly what iconic investor Warren Buffett, CEO of Berkshire Hathaway, has said on many occasions — including the 2008 financial crisis when he wrote in an op-ed, “Buy American. I Am.”
In his op-ed, Buffett said he believed in the American economy and its companies, making the case to stay in or get into the market if you want to invest for the long term, because “equities will almost certainly outperform cash over the next decade, probably by a substantial degree.”
According to Vanguard, some investors are doing just that.
“During the last week of February and the first week of March, the majority of households trading moved money into equities rather than into fixed income (bonds and cash),” Vanguard’s Amy Lash told Yahoo Finance. “More than 7 in 10 households trading moved into equities.”
Lash added that while there has been an overall increase in trading from Vanguard clients, only 1% are making moves, compared to a typical day’s 0.4%. People with only retirement plan accounts — as opposed to taxed brokerage ones — have barely touched things. Less than 0.3% of Vanguard’s 30 million customers have made any trades over the past month, according to Vanguard.
This narrative shows that while there may be significant selling driving the markets lower — the S&P 500 index is at last May’s levels as of Monday’s close — average retail investors are looking ahead – to when the coronavirus will be under control and the fears calmed.
For many average investors, the price is right
This isn’t the only Buffett-esque lesson retail investors are heeding.
Brokerage accounts at Fidelity saw an equity buy-to-sell ratio of 2.11 to 1 on Monday. That means that for every stock sale, there were more than two purchases – somewhat counterintuitive given the day’s huge selloff, with major stock indexes off by more than 7%. It was a busy Monday, with 57% more logins at Fidelity than the average Monday over the past 12 months.
“Customers are using the market volatility to add equities to their portfolio,” Fidelity’s Robert Beauregard told Yahoo Finance.
Fidelity customers are doing exactly what Buffett does. When a stock he likes goes under a certain threshold, becoming cheap enough, he often buys more of it.
“The most common scenario is that customers already own the position, believe in the company, and are adding to their existing position at a ‘discount,’” Beauregard said.
The most common stocks people are lapping up? Apple (AAPL), Microsoft (MSFT), Inovio Pharmaceuticals (INO), Tesla (TSLA), and Amazon (AMZN). (Inovio said last week it was accelerating the timeline for development of a coronavirus vaccine and expects to start human trials next month in the U.S.)
Those three funds replicate the S&P 500 index, which itself is arguably the best representation of the broader U.S. economy. Buffett would approve: "My regular recommendation has been a low-cost S&P 500 index fund," he wrote in his 2016 Berkshire Hathaway annual shareholder letter.