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Iron Capital Insights

  • Iron Capital Insights
  • March 25, 2020
  • Chuck Osborne


The market hates uncertainty. I hate that phrase.

We could just about make up for all the market loss in this downturn if we had a dime for every time some pundit has uttered the word, “uncertainty.” I have heard people say this crisis is different because fighting this virus is so uncertain. I have heard pundits claim that markets can take good news or bad news, but they can’t handle uncertainty. (Markets are not big fans of bad news, either.)

Here is a news flash: the future is unknowable and therefore always uncertain. There is never more or less uncertainty; there is always 100 percent uncertainty. The reason past crises appear more certain than this one is because they are in the past. Hindsight is 20/20, foresight is nowhere close.

Prudent investors don’t try to predict the future; they pay attention to what is happening now and think in probabilities. Right now, the market appears to be in a bottoming process. The volatility remains high with big up and down days – Friday and Monday were down, Tuesday was up.

When we have the down days it feels like we are going to be going down forever, and when we explode up it is easy to say, “this is it, time to go all in.” This is when it is time to stop projecting and just pay attention to what is actually happening. We are going nowhere, which is what happens when the market is forming a bottom.

We also have to think in probabilities. There is not one possible future; there are several possible futures. Right this moment, we can see three probable futures:

1) We could take off as we did in March of 2009, and Tuesday could be the beginning of the new bull market. This is possible, but is it likely? We are far from the peak as far as the actual virus is concerned, and as of this writing, Congress has still not committed to the stimulus package.

2) We could go down further. It is possible that this crisis is not even halfway done as far as the market is concerned. Is it likely? There is a lot of stimulus coming. The Fed has pulled out all of the stops and many healthy people are already getting anxious to get back out there and get things moving. Some experts are even suggesting that the cure may be worse than the disease and we should take a more surgical approach to battling this virus.

3) We could bounce around before finally heading back up. It is possible we are forming a bottom, which takes a little time. Is this likely? It seems so to us. The highest probability in our view is that we get good news one day and bad news the next for at least some period of time. We bounce around with a lot of volatility but not really going anywhere before the real rebound takes hold.

Prudent investing is risk-averse, so we position our portfolios in a way that protects us in the last two scenarios without putting us out of reach if the first scenario pans out. This I can promise:  No matter what happens, there will be pundits claiming to have predicted it, and many will say it is all clear ahead because our future is certain…you know, just like they were saying 30 days ago.

We’ll know better.

Warm regards,

Chuck Osborne, CFA
Managing Director