Response to Coronavirus Concerns
I don’t have to tell you that these are challenging times. As we have started to see the close-to-home impacts of school & business closures, event and sports tournament cancellations, etc in the last couple of days almost everyone is on edge and many people are living with significant fear. That fear is certainly being played out in the investment markets as well. It’s a whole different world when 1000 point up and down days now seem to be the norm. The ranges of these returns (big declines one day and hope-filled recoveries the next) have been an almost daily occurrence this past 2 weeks culminating with 2 big declines the last couple of days. Stock markets are in bear market territory (defined as being down over 20% from their peaks) in a record short period of time. I don’t know where things go from here short term. I wish I did. It’s hard to not feel in control of a situation. It’s easy for us to look back and play the “if-only” game related to government responses to situation like this or making different market or portfolio adjustments.
During times of stress and fear it’s important for us to focus on what we know and then make reasoned and calm decisions related to the things we don’t know. From my perspective, these are some of the things we can know:
1. God is still in control and He loves this world. I say that humbly, knowing that not everyone lives their life from that perspective (and things are understandably more concerning for them), but I believe it beyond a doubt. In times like this, our faith and our trust in God to guide us through difficult times is a perspective that brings significant peace. Step back from the news reports and reflect on what He has promised. Here are a couple of resources that may help. Verses on Strength in Challenging Times and Troubles
2. We are going to get through this. While we don’t know the journey (and we know that there will be continued tragic loss of life and that our way of life will be impacted in the meantime), we also know that we are resilient as people, and especially as Americans. We have proven time and again that for all of the bickering and petty things we focus on when times are good, that when faced with great challenges we can come together. I remember thinking a couple of weeks ago that as Americans we have freedom so ingrained in us that I wondered how we would handle having entire cities on quarantine lockdown. While it hopefully doesn’t get to that point, it seems that people are realizing that making sacrifices to our entertainment and lifestyle temporarily is going to be necessary for reducing the spread of this disease. Early indications from China have shown the reductions in new illness from the drastic decisions that their government made.
3. There will be a recovery. Again, we don’t know how long it will take or what that pattern will look like. Historically, the vast majority of non-systemic global events (such as viruses, geopolitical confrontations, weather events, etc.) have had short downturns followed by sharp recoveries where initial panic selling has typically resulted in an actual loss due to missing out on those significant bounce-backs. Drastic changes to a pre-determined long-term portfolio allocation require you to be right twice (getting out and getting back in at the right time) and Dalbar studies have shown us time and again that those moves have worked out poorly for investors over time. We can now see that this situation is more meaningful in both the extent of the decline and the anticipated mid-term impact on the global economy than most of those previous events. The comfort to this point has been that this does not seem like a systemic issue in the way that we look back on 2008 to realize the challenges that were in the banking and lending systems. There is still so little that we know about the economic impact of all of this, but as we now realize, it will have a meaningful impact on the economy over the rest of this year. Stock and stock fund portfolios have obviously taken a hit that on paper has reduced our accounts significantly over the last few weeks. For those with shorter time horizons it is making for difficult decisions about timing of distributions and portfolio positioning. For those with longer time horizons I have had well more than 2 to 1 inquiries related to adding more money to accounts than I have of people asking if they should sell. I do see that as the correct approach for those individuals as it appears that a long-term buying opportunity has presented itself, even if we continue to get significant volatility in the weeks ahead, which is my current expectation. Jim Lowell from Fidelity Sector Investor said this week “10 years from now, this market moment will be but a blip—but up close and personal it looks like a blimp.”
4. You have the ability to make a difference. You are probably not the one who will come up with a cure for Coronavirus, but there are things we can all do to get through this in the best way possible. First, take the warnings seriously. Clearly the spread of the virus is real and it is impacting nearly every country at this point. Underestimating it has cost certain people and countries more than others at this point and is now leading to difficult decisions being made. I know many people have minimized it compared to the normal flu, etc, but it’s important to be aware of the differences in this case. It’s important to be educated so that you can talk reasonably with others to minimize the extremes of people underestimating it or panicking about it. Hearing something is “10 times more lethal than the flu” causes immediate reactions in people until they also hear that less than .1% of people with seasonal flu die from it. 10 times that is 1%, a meaningful percentage, but still something that indicates the vast majority who get diagnosed will recover. Having statistics and understanding who is at the most risk from an age and health standpoint is valuable. This seems to be the best resource for up to date statistics. Make sure you and your family are being smart with hygiene and discussing things reasonably.
But, second, make sure that you maintain your care for other people. The virus is not spread through smiles, so don’t stop doing that. Encourage other people. I have been absolutely blessed by numerous emails from clients telling me to keep my head up and that they are praying for me and I can’t even begin to describe how valuable that is for me at a time like this. I’m so invested in each one of you succeeding and being able to accomplish the things that are most important to you and it is gut-wrenching to me to think about the impacts of dropping portfolios, so to get that kind of encouragement really helps a lot.
While our portfolios are focused on the corporate level and how companies will navigate these challenges (and how the perceived value of their stock is impacted because of it), our focus needs to also include the individual level and how will workers will be able to navigate reduced hours and business closures and small business owners of companies who are being negatively impacted. This is where I pray that your financial foundation is strong with paying attention to cash flow, minimizing debt, and having an emergency fund that can allow you to ride out the storm while others are panicking and selling things at the wrong time to create liquidity. Making sure that your life, health, and disability insurance coverages are up to date the way you want them is smart (call us if they aren't). If you are in the position to give to organizations that will be able to help those impacted physically and financially that is such a blessing, but also be aware of neighbors and other people in your sphere who you can support and impact in various ways.
We’ve got this. Let’s rise up and all be at our best right now. Praying for you and your loved ones to stay healthy and strong. We are committed to doing everything we can during this time and have discussed and prepared contingency plans as a team to be fully capable of working from anywhere and have access to the information we need. We are adding articles to the market commentary page of our website as they come up. If there is anything else that we can do to help in any way, please let us know.