February 2021

DFW investing leaders weigh in on recent market volatility’s impact on portfolios | Dallas Business Journal

By Catherine Leffert | February 3, 2021

Despite a recent day-trading frenzy that caused volatility on Wall Street— including some stocks shooting up five times in value — long term investing is still the most reliable way to gain off the market, North Texas wealth management and investing experts said.

Local leaders said the recent activity in the market, in which people day-traded based on investing advice from social media platforms that led to Grapevine-based GameStop stock jumping up 400 percent, is not unprecedented, and as different cycles in the market cause certain stocks to spike and fall, regulation will balance out some of the volatility.

Colin Carter, managing director of Tiedemann Advisors’ Dallas office, said hiccups in the market have happened before, but those flashes of volatility don’t have a major impact for most long term investors.

“If you go back 10 or 15 years, we have the beginning of high speed or high frequency trading, which short term can create a lot of angst and volatility in the market,” Carter said. “And we got through it, the market adjusted, there were some regulatory changes, but it didn't change the overall investing landscape. And it didn't change the way people valued securities over the long term. If you keep your eye on the long term, you focus on good companies, fairly valued stocks, then you will get through this, and this will be an aberration.”

John Lynch, chief investment officer for Dallas-based Comerica’s Wealth Management arm, said more market regulation is likely on the horizon, though that was probable with the administration shift this year anyway.

Greg Young, senior investment strategist at Bernstein Private Wealth Management, said regulators will likely find places to tighten up, but in general said the markets are functioning in the ways that matter, buyers and sellers are being matched and there’s enough money for the system to operate.

All the investors agreed that their firms weren’t changing strategies because they’re focused on long term, sometimes decades-out, strategies. Though some clients were concerned the past several weeks, the leaders said this blip in the market won’t affect their portfolios.

“This is really a non-starter for us,” said Bernstein’s Dallas Managing Director Bowman Hallagan. “We're taking a long term approach where we're looking at someone's goals over a period of sometimes years, if not decades. And how we achieve that is far more important than what's happening over the course of a week or two.”

Lynch said day trading can toe the line of gambling, and though some may have seen big returns from GameStop’s 400 percent increase in a month, those returns are not sustainable. Carter said short-term events aren’t predictable and usually aren’t repeatable. He pointed to last March’s steep market fall at the start of the COVID-19 pandemic as another recent example.

“But then we also had the most rapid recovery from that bear market,” Carter said. “So, recent history suggests you cannot time the market. You cannot respond to what are essentially one-off events and base your investment decisions on the short term phenomenon.”

As to what the potential effects could be on the market, outside of potential further regulation, leaders said it was too soon to say, but they aren’t concerned for their clients’ portfolios. What has marked a distinct change in recent history is the Internet and the platforms people are using to trade and gather information, such as trading application Robinhood and social media platform Reddit.

GameStop, and other companies and commodities such as silver and AMC Entertainment Holdings, Inc., saw extreme surges after a Reddit group called “Wall Street Bets” promoted buying the stock. The advice in Wall Street Bets came in part to exacerbate short-sellers, such as hedge fund Melvin Capital, which eventually closed out of GameStop short position.

“In a strange way, I see this is a very productive exercise in increasing the efficiency of the markets, it will cause some pain at times and some people will be rewarded immensely for kind of catalyzing the change," Carter said. "But things will revert to a more normal basis over the course of time and I don't think it'll take very long.”

Hallagan added this recent frenzy has a shelf life, and the fundamentals that Bernstein uses to advise — interest rates, economic growth, corporate earnings, among other things — is what matters in the long term. Lynch added in his weekly market outlook report that those basic metrics, also such as GDP, inflation and employment, are what Comerica utilizes for investments.

“We do not advocate the trading patterns that led to last week’s volatility, nor do we employ them in our investment process,” Lynch said in his report.

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