Coronavirus... What we are learning.
This is a historic time. The preceding 6 months and the following 12 will be the subject of 100s of books down the road. As many of us are holed up in our homes take the opportunity to observe what’s going on around us and document our reactions.
There really is a wizard behind the curtain. We just don’t get introduced until situations like this. The good news is there are thousands more like Dr. Fauci serving in all aspects of our government. Dr. Fauci has become a household name. 4 months ago 99.9% of America couldn’t pick him out of a lineup.
The Information Age is working. Ten years ago we would be relying on Cable news, Newspapers and the nightly news for information. Twenty years ago we would have been down to the Nightly News and Newspapers. For all the ills of Social Media (Twitter and Facebook) Now some of the foremost experts are giving real time information and deep expertise. Ive listed a couple below.
https://graphics.reuters.com/CHINA-HEALTH-SOUTHKOREA-CLUSTERS/0100B5G33SB/index.html
This too will pass. Sounds cliche but it will. History shows us that one of our survival mechanisms is that we during stressful situations can learn from surviving and end up stronger.
Josh Brown, CEO of Ritholtz Wealth Management sums it up this way:
“The economic news about the US economy was not getting better at the end of the financial crisis. But stocks stopped going down every time that bad news hit. It took a lot of pain to get to that point, but eventually, bad news fatigue had set in. This happened with regards to potential terror threats in the wake of 2001. It happened during the Asian currency crisis of 1998. It happened during the Latin American defaults of the same era. It happened during the Ebola scare of 2014. It will happen now.”
Throughout the pages of history is human nature rising to the occasion to overcome the challenges in front of them. Malcolm Gladwell in his book, “David and Goliath” describes the Blitz Campaign the Germans imposed on the British leading up to the Second World War. The strategy for the Germans was to bomb the British people to break their will, but to their amazement the opposite happened.
Gladwell breaks the British people up into three distinct groups.
The dead- The dead can’t go around spreading panic
The Near misses.- “They feel the blast, they see the destruction, are horrified by the carnage, perhaps they are wounded, but they survive deeply impressed. “Impression” means, here, a powerful reinforcement of the fear reaction in association with bombing.”
Remote misses.- These are people who hear the sirens, see the bombers overhead and hear the thunder of the enemy bombs but the bombs hit down the street or around the block. Their reaction is the opposite of the near miss group. They survived and thus after the 2nd and 3rd bombings they reacted with excitement and a flavor of invulnerability.
So what can we learn from this event. Danger when it presents itself is scary, traumatizing but if we approach it appropriately will build the necessary muscles to survive not only this event but future ones.
Here’s some charts and data that I hope will provide some perspective.
-Trying to time this market requires you to be right twice. First, you sell at the appropriate time and then buy in at the right time. Ben Carlson, tweeted Friday after the close, “Over the past 17 trading sessions the S&P 500 is down 20%. If you missed out on the best 4 days in that time you'd be down 36%”
This chart shows is somewhat normal for markets to have this kind of drawdown. What’s different is the velocity. This has been steep and fast, but it doesn’t rule out the market rebounding for the year.
-Markets have had pullbacks greater than 25% before. Michael Batnick shows what happened the year after in this chart.
So what actions should we be taking?
First things first. This market as you are observing is extremely volatile. This doesn’t mean you should sit it out, but take care of a few things before getting in.
Have a proper emergency fund. 3-6 months is a good place to start.
Understand how long this money will be invested. If it is for your kids college in 5 years perhaps sit it out.
Get Debt under control. While there is opportunity in volatile markets, eliminating costly debt may be a more prudent strategy.
If you have cash, lets discuss where to allocate and how to get it in the market.
Don’t alter your current systematic investing strategies (IE 401k, 529 etc). The assumption is that you will be using these funds down the road after this calms down.
Enjoy this time with your families and friends. It’s a rarity that the world stops in this manner. As I write this my 9 year old and 6 year old are playing one on one in the driveway outside my window.
FOLLOW THE INSTRUCTIONS OUR LEADERS ARE GIVING.
Take the Long View!
PK