Don't let the news dictate your portfolio: market strategist

Oliver Pursche, 1879 Advisors Chief Market Strategist, joined Yahoo Finance's Jen Rogers to talk the week's market action.

Video Transcript

JEN ROGERS: I want to bring in Oliver Pursche, 1879 Advisors chief market strategist. So, Oliver, you say, remain calm and invested. It's very hard to remain calm in this environment.

OLIVER PURSCHE: Absolutely.

JEN ROGERS: How do we do it?

OLIVER PURSCHE: Well, so there's a couple of things in portfolio management that are good rules to follow. And that is, don't overreact to news, and let things settle.

Now the reality is that we're only five days into the self quarantining for most of us, and you're already starting to feel the pressure. So we know it's going to get worse.

Markets are forward looking mechanisms. So they're going to rebound way before we feel the worst of the crisis, both in terms of the human toll, the health toll, and the economic toll. So that's why it's important to stay calm.

Now there is an opportunity for investors in this market to sell stocks at, perhaps, a loss even, and rebalance your portfolio as you think about your goals, as you think about which companies and industries might do well going forward, because it's going to be an uneven recovery.

To the point that was being made before by Melody, you know, companies like Uber and Lyft and Rent the Runway, even though they're private, are probably going to struggle a whole lot more than a Kraft Heinz or a General Motors will. So there's an opportunity to rebalance your portfolio.

JEN ROGERS: OK. So give us some examples-- you just did a couple there-- but of what you like, besides defensive names. Fine, we're going to need food--

OLIVER PURSCHE: So Amazon. Amazon is killing it in terms of retail. Was before the crisis, is doing even better now. I think they announced that they are planning on hiring over 100,000 workers to help their fulfillment centers.

And they're probably going to come out stronger at the tail end of this. Now it's sold off, just like everything else in the market has.

Microsoft, new leadership. You know, the leadership there is terrific, and they're growing in the cloud. So they're doing very, very well.

Think about IBM, where there's new leadership. These are great growth names.

And we have to remember, in the absence of growth-- and to the Goldman Sachs report about potentially a 25% decline in year over year earnings in Q2, you know, when there's an absence of growth, when you find it, it's really, really rewarded by investors.

And so that's why you want to look at those types of companies where there's a catalyst for growth.

JEN ROGERS: I talked to one investor today that said, you know, in this environment, stop looking at the income statement and just look at the balance sheet. You're talking about some dividend names that-- you think we could have cuts--

OLIVER PURSCHE: Yeah.

JEN ROGERS: --in different stocks. That is going to happen? Do we need to be worried about [INAUDIBLE]?

OLIVER PURSCHE: I don't have a crystal ball, but absolutely. Balance sheet strength is incredibly important.

So stay away from highly leveraged companies. Stay away from companies that have a lot of macro exposure, where you know that their business is going to deteriorate sharply as a result of the coronavirus. And expect dividend cuts.

You know, we have a rule at 1879 where we'd always said, if there is a dividend cut, we're automatically going to sell the stock. I don't think that we'll be able to apply that rule in its-- you know, that harshly going forward in this environment, because I expect even fundamentally strong companies with good balance sheets and good cash flows will cut their dividend as either a precautionary measure or because they can.

JEN ROGERS: Looking at this issue, economic, financial. We're now getting policy responses out of Washington. But many people are also talking about some of the technical elements of this market right now, how fast and quick it's moving here. Are you concerned at all about market structure?

OLIVER PURSCHE: Well, I'm always concerned about market structure. I would say this-- and I believe you guys actually did a great job reporting about it earlier when I was watching the program.

You know, a lot of the selling and volatility that's occurred over the last, you know, week, two weeks, has been driven by program trading, has been driven by hedge funds that have to do risk parity trades and, you know, work through that. That seems to be coming to an end. So we should see a little bit of a decline in volatility over the coming week or so.

What I am concerned about is really just investors overreacting and there being panic selling. And we haven't really seen panic selling yet, believe it or not. So when we talk to clients, they're staying put right now.

JEN ROGERS: A lot of people say, though, that we actually need to have a panic selling, we need to have a capitulation. And as you just said, we haven't seen that.

So does that suggest, if you subscribe to that theory, that there is more to go here on the downside?

OLIVER PURSCHE: Well, I think there is more to go. I don't know that it has to be associated with panic selling.

Like I said in the beginning, I think you've got to remain calm. We're only a week, really, into this-- you know, five days into self isolation. And I don't know about you, but I'm going a little stir crazy sitting at home, and everybody I'm talking to is, right. I mean, that's just the way it is.

I think a month from now, if we're still in the same position and we're still self isolated, the world is going to look very, very different to us.

But again, most importantly, from an investment perspective, I think you take this opportunity to take a look at your portfolio. Sit down with your advisor. Maybe, you know, harvest some tax losses for the year.

There weren't a whole lot to be had last year. And then, you know, take a look at which areas you're most comfortable with and which areas you want to be invested in going forward. Because this, too, will pass.

I can't tell you when. But historically speaking, it's taken about two and a half, three years from the lows to recover and get back to the market highs. And we saw it in 2008, 2009.

We saw it in previous crises with the dot com bubble bursting in terms of broader markets. Not the NASDAQ itself. That took a very long time.

And so again, I think if you're a long-term investor, and you're saying, OK, I've got to wait three years to get back to where I was this December, you're probably OK. And if you're not, it's because you're badly allocated.

JEN ROGERS: All right, use some of your time in isolation to rebalance here. Keep it calm. And investment advice from Oliver Pursche, 1879 Advisors chief market strategist. Thank you so much for joining us.

OLIVER PURSCHE: Thank you. Be well.