With all the turmoil going on regarding the Coronavirus and the stock market, my investment partner BAM/LW created this piece that I thought you might like.
Monthly Investor Letter—February 2020
Recent outbreaks of the novel coronavirus (a.k.a., COVID-19) outside of China has raised concerns about the virus’ containment. This heightened concern sent global stocks quickly lower over a few trading days as investors assess the potential impact of the virus on the global economy. While we don’t know how many people the virus will infect, the length of this viral cycle and what influence it will ultimately have on the economy, we do know that you may have some questions about how this might impact your investments.
With that, we want to share three investment-related themes to keep in mind. First, don’t give in to the urge to take action. The news stories about the virus can be downright scary, but we need to remember that market prices react immediately to both good and bad information. To potentially make money or avoid potential losses, we would need to trade before it is news. And, of course, we don’t know the future, so any action would be a guess, and any positive result would be luck.
Second, we need to keep perspective. This isn’t the first new virus we’ve seen, and this won’t be the last. SARS, Zika, H1N1 and others have all come and gone. While the concerns at the time were the same (e.g., How quickly will it spread? Will there be a cure? Will it slow down the global economy? Will it impact my investments?), our society has figured out how to overcome past viruses, and markets have done the same.
In fact, markets have short memories regarding epidemics. Markets may initially react to the uncertainty and fear that comes with any new concern, but, for the most part, viruses get contained and investors return to corporate and economic fundamentals. We can see this pattern in the adjacent table. Market returns generally have been up in the six- and 12-month periods following the outbreak of a virus or disease. While this is a small sample set, we know that keeping focused on the long-term
helps us keep a level head during
all kinds of storms.
The third and final idea we want to
share is to be on alert. Believe it or not, the Securities and Exchange Commission had to issue a public warning that fraudsters are attempting to play into our natural emotions of fear and greed during this period of uncertainty. There have been reports of social media posts and online ads promising a huge profit by investing in companies that have supposedly found a cure for the novel coronavirus. We’re sure we sound like a broken record on this topic, but there are no sure things or get-rich-quick strategies when it comes to investing.
Before we wrap up this brief, we want to make a couple observations about the virus. First, one statistic that we haven’t heard much about in the press is on the number of people that have recovered from the virus. According to information tracked by John Hopkins University, over 30,300 people have fully recovered from the virus. While it does have a slightly higher mortality rate than some of the more recent viruses, catching it doesn’t mean you will perish. The odds are that our immune system will fight it off. Further, while the number of infected people outside of China has grown, the overall number of people that are contracting it appears to be on the decline. This suggests that containment measures and safety precautions may be working to limit the spread.
Our advice remains the same, to stick to your long-term plan and tune out the noise. We invest client money in a way that isn’t dependent on lucky guesses or get-rich-quick schemes. We use investment strategies and prepare financial plans that assume events like these will come and go. So, please, stay positive and focus on your family and your health. If you want to think about the virus, send positive thoughts toward those infected by the virus.
If you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are here to help you reach your financial life goals!