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SD Investment Council Sees 30% Market Crash as Return to Long-Term Fair Value

Who shouts “Buy!” when the market goes bear? Your South Dakota Investment Office, which says now is the time to boost our public pension fund’s stock holdings:

State Investment Officer Matt Clark said Monday that hundreds of millions of dollars in cash being held for the South Dakota Retirement System were put into index funds in recent days.

Clark and his predecessor Steve Myers have long taken a contrarian long-term view to investing, especially the public pension fund [Bob Mercer, “South Dakota Investment Office Pounces and Bets Big Cash on Falling Markets,” KELO-TV, 2020.03.16].

Clark and the State Investment Council appears to think the Dow’s rise to nearly 30K was irrational exuberance and that the past month’s 30% market crash brings us back to reality:

The council sets an allocation for stocks and similar investment from 50% to 85%, with a neutral ground of 70%.

“Markets were quite expensive prior to the recent declines. For this reason the stock allocation was at the low end of the range at 50% rather than at the normal 70%. The 20% difference was held in cash,” Clark said Monday afternoon, after trading closed on Wall Street.

“Due to the significant price declines, markets are now priced near our estimates of long-term fair value. Last Wednesday and especially last Thursday the stock allocation was increased back to the 70% neutral level,” he continued [Mercer, 2020.03.16].

Our state investors tend to do bonus-worthy work, so I’ll take their assessment of the market seriously. But for the moment, I’ll leave it to Clark and friends to buy, while I invest in more durable goods, like repairs on my trusty Beetle.

13 Comments

  1. John Tsitrian 2020-03-17

    I hope South Dakotans take their investment cues from this hardheaded and realistic bunch instead of the toadying Republicans we send to Congress, whose non-stop rah-rahing about the market and the economy just got exposed, big time. Covd-19 has been the catalyst for a long overdue correction in a market that has been overvalued by any conventional and historic standard that can be applied to it. Way to go, Investment Council.

  2. Donald Pay 2020-03-17

    Buying the dip is usually a good strategy. Generally, such dips are v-shaped. The market sinks and rebounds very quickly. If you don’t pull the trigger quickly, you miss out on some money you could have made. I don’t know about this time, though. Where is the bottom? Stocks opened up this morning, but only 3 percent. So, there are buyers out there who think the market has priced in the future damage to the economy. I think, however, this is going to affect the economy for a while, and change the way people live and spend in ways that are unknown yet. This has been going on for 3 months in China, and they are still under self-quarantine.

    But, yeah, my strategy, I think, is going to be to buy back into the market a bit at a time, but I’m a little skittish to pull the trigger on that first buy.

  3. Jason 2020-03-17

    Give us a break, Don. Our corporate capitalist system is crashing and threatening the lives of millions of people and your sharing stock tips?

  4. Donald Pay 2020-03-17

    No, Jason, I don’t give stock tips. I have no idea what to buy at this point. If I buy, it will be broad market sector ETFs, because I’m not qualified to give stock tips.

    If you look broadly across the various economic systems in the nations in the world, it seems we are all in the same boat.

  5. Dicta 2020-03-17

    Only the foolish time the market. ETF’s have an average annual ROR of 7% with minimal fees. Continue to invest the same way you always have and just grind it out.

  6. Buckobear 2020-03-17

    Lary Kudlow lives in Pierre, eh ?

  7. Donald Pay 2020-03-17

    Well, Dicta, I’m foolish then. I’m glad I timed it to be mostly in cash over most of this drop. I’ve seen too many drops in my life. I really am depending on the relative pittance I’ve saved for retirement, so I protect against the downside risk, but I still take some risk. This correction, as John said, was long overdue. But this might be more than a correction.

  8. Greg Deplorable 2020-03-17

    It’s an opportunity for those who were wise with their monies. The foolish and greedy will be punished, that is the blind hand of a free market.

  9. jerry 2020-03-17

    The State of South Dakota should invest in ventilators as we are gonna need them here and the rest of he country is ill suited for what is coming. trump has told governors that they are on their own to get ventilators, so this is a golden opportunity to do just that. South Dakota cannot just tell sick patients to stick their heads our of the window and catch the wind, we don’t have enough ventilators to take care of what’s coming.

    “The German government just placed an order for 10,000 mechanical ventilators. What’s the U.S. government doing about a potential shortage here? Not much, it seems. President Trump alluded to the matter in a press conference but did not spell out any plans.

    Ventilators pump oxygen into the lungs of a failing Covid-19 patient. U.S. hospitals have something like 62,000 up-to-date machines immediately available, plus another 99,000 obsolete units that could be pulled out of storage in an emergency, says the Society of Critical Care Medicine. If the pandemic in the U.S. veers off in the Italian direction, that entire collection may be inadequate” https://www.forbes.com/sites/baldwin/2020/03/14/ventilator-maker-we-can-ramp-up-production-five-fold/#67e5d6095e9a

  10. Debbo 2020-03-18

    What I’ve read about the stock market gels with the assessment Matt Clark and others make.

  11. Catherine Ratliff 2020-03-18

    Appreciate Donald Pay’s comments.

  12. Catherine Ratliff 2020-03-18

    Our state investors have been the smartest for as long as I can remember. I first heard about their savvy investing in the mid 70’s.

  13. Cory Allen Heidelberger Post author | 2020-03-20

    The market does not always reward wisdom and punish the foolish. That’s prosperity gospel, and that doesn’t work. Rain falls on the just and unjust alike. Mutual funds are losing money for nice people and not-nice people alike, as surely as restaurants are shuttering regardless of the moral worth of their owners.

    I do wonder how selling stocks right now puts the average investor in a better position. Most of us with money in the market are saving for retirement. Most of us are years from needing the money. Has this month’s sell-off consisted entirely of people who simply can’t wait for a recovery and need their cash right now? How much of the sell-off has consisted of people taking money out of companies that they think are going to disappear… and if any such withdrawals are taking place, where are those bailers putting their money to keep it growing… or at least safe?

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