Pub. 10 2020 Issue 2

16 www.azbankers.org Making Portfolio Changes During Challenging Market Environments By Nate Birkholz, Bankers Trust O NE OF THE BEST-KNOWN INVESTMENT MANAGEMENT MANTRAS during difficult times is to “stay the course,” but what does that mean for equity investors in the real world? Though individual circumstances always vary, conventional wis - dom dictates that your best bet during a stock market downturn is to leave your stock portfolio alone (don’t sell), and give the invest- ments adequate recovery time before selling, which can take weeks, months or years. However, not all investors have the luxury of time, so what is the best “Plan B” if holding indefinitely isn’t an option in the short run? The case for staying the course First, there is a reason “staying the course” is widely accepted as the optimal investor response to a stock market downturn. It comes down to data. We have about eight decades of historical stock market returns — since the Great Depression in the 1930s — to inform us. That data overwhelmingly indicates that during a market downturn, regardless of duration, leaving a stock portfolio alone and refraining from selling stock during the down period yields superior results in two respects: 1. The portfolio recovers more quickly. 2. In percentage terms, the recovery is larger than if an investor