How much markets will have to endure before any stability emerges is impossible to say, and it depends how much economic damage is done as Covid-19 causes all sorts of disruption over the coming months.
There has been a lot of talk from forecasters and strategists about what the inevitable recovery will look like. Many had originally expected a sharp "V-shaped" bounceback, but now we're hearing more about a much more subdued return to normality.
Some are even speculating that America is already in recession, comparing today 2008 when the extent of the downturn wasn't known until some time later.
That seems hard to believe when you look at recent indicators. In the last three months the US has enjoyed the strongest employment gains since September 2016, and the unemployment rate is at a 50-year low of 3.5 per cent.
However, it's possible, with conditions having changed dramatically over the past month.
Then again, recessions don't always mean a GFC-style meltdown. The technical definition is simply that output has declined compared to where it was before. If that previous period was fairly buoyant, a recession can feel relatively mild.
So what should we do - sell everything?
If things get worse, another 10 per cent decline from here is easy to see. In that case, selling now is the right thing to do, but only if you're good enough to get back in at the right time as well.
If you're a long-term owner of quality businesses rather than a trader, you might be better off just staying put. Corrections, bear markets and recessions will come and go, but many great businesses remain resilient, keep paying dividends and surpass their former glory sooner or later.
Besides, things could improve over the next few months and the current panic may prove unjustified.
For this to occur, we would need to see a slowdown in the number of new cases being discovered. While that's happened in China, it's going in the other direction elsewhere.
Despite all this Buffet-style advice, few of us like watching our wealth decline before our eyes, and maintaining the long-term view is easier said than done when the short-term is proving so ugly.
For risk averse investors who have found themselves more exposed than they are comfortable with, it's not too late to do some fine-tuning.
The S&P 500 index in the US is 12.2 per cent below its peak, but it's still 7.2 per cent higher than it was a year ago. In NZ dollar terms, it's 14.1 per cent higher.
Our market has been much more resilient, with the NZX 50 just 5.4 per cent below its record high from two weeks ago. This is due to a few local heavyweights (such as a2 Milk and Fisher & Paykel Healthcare) bucking the weakening trend, as well as the relatively high weighting to defensive sectors.
Amazingly, the NZX 50 is still 21.4 per cent higher than a year ago, highlighting just how strong the market was in the lead up to this sell-off.
You've still got time to take some risk off the table, if you don't feel you have the stomach for the bumpier ride that could lie ahead.
Reduce some of your higher risk (or lower quality) positions, while keeping geographic exposures and sector weightings in check.
Hold a little more cash than usual and take advantage of term deposits, which are still offering a reasonable return for the risk.
I've also got some sympathy for adding a small amount of gold. It pays no yield and has virtually no industrial use, but gold always performs well during times of uncertainty.
It's had a great run already, but it will continue to benefit from low interest rates, and will hold it's value should central banks take further action in terms of unconventional policy.
- Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.
