Special Edition: Coronavirus and Market Mayhem

I don’t usually write about current events but this is a big one. Picture a boy in suspenders with one of those newsboy caps yelling “extra extra read all about it!” Coronavirus has changed my life and the stock market suffered it’s biggest one day loss since 1987. The pic above is what I saw walking by the toilet paper aisle at the grocery store yesterday.  Why are people choosing toilet paper to stock up on as opposed to, say, frozen pizzas?  It just seems kind of arbitrary.

I looked at the cart of the woman in front of me.  She had enough PB&J and fruit snacks to feed an army:

“Stocking up?” I asked. She told me that she had read somewhere that a month is what you are supposed to have.  Then she followed it up by saying “I’m really not that worried.  I think people are panicking but at some point you just have to join in, you know.”  I swear that this was actually her response verbatim.  She chuckled nervously and was handed her $597 receipt.  I pulled out my phone and wrote her words down instantly realizing that I need to write this before the week is over.  

This is What Fear Looks Like

After all, we have been in the longest bull market in US history. After over 10 years of champagne and caviar does anyone remember what a correction feels like?  Some younger investors have never even experienced crashes IRL.  When supplies are being stockpiled and con men are literally making a killing by selling fake filter masks online, this is what fear looks like.

My Own Coronavirus Timeline

This is one fools perception of the last few days:

• In late February, Donald Trump claimed that “The Coronavirus is very much under control in the USA.”  He also characterized it as “their latest hoax”. 
• At the same time Bill Gates said, “In the past week, COVID-19 has started to behave a lot like the once-in-a-century pathogen we’ve been worried about.”  “I hope it’s not that bad, but we should assume that it will be until we know otherwise.”  Gates also started and self funded an accelerator focused on a COVID-19 vaccine.
• Late last week, Elon Musk tweeted “The coronavirus panic is dumb.”  News also came out that Saudi Arabia and Russia couldn’t reach a deal on oil production and prices tumbled over the weekend. 
• On Monday the markets opened immediately triggering a 15 minute trading stop after falling over 7.5%.  They ended down around 9%.  I put out a poorly timed niche article about making money with patents while everyone else was buying all the hand sanitizer (I don’t think my mom even read it).  Coronavirus news headlines started to look even scarier.  At a press conference, NBA player Rudy Gobert touched all the mics and recording devices to illustrate how the fear is overblown.
• On Tuesday markets seemed to stabilize a bit.  Since I am currently teaching a college class as a sort of post FI lifestyle prototype, I told my students to stay home if they had any symptoms.
• On Wednesday the markets opened down over 7.5% again triggering a 15 minute trade halt.  They ended decisively down.  NBA player Rudy Gobert tested positive for the Coronavirus. Donald Trump said “To keep new cases from entering our shores, we will be suspending all travel from Europe to the United States for the next 30 days.” My 75 year old parents hastily book a flight back from Panama worried that the borders may close.
• On Thursday the markets suffered their worst loss since 1987. The university that I am teaching at shut down in person classes for the rest of the semester. I met for the last time in person with my class. My wife’s office closes down for the next 2 weeks.
• It is now Friday and the markets have bounced either like a super ball or a dead cat. My kids school will close next week and be entirely online.

Operating In an Environment of Fear

Do you believe Bill Gates or Trump and Elon Musk? The thing is that it doesn’t matter who you believe or what you believe.  We are dealing with science and not public opinion when it comes to an epidemic.  There are models from past outbreaks and this virus will have morbidity and mortality rates.  We don’t need to speculate, we just need to be prudent and do the best course of action which is one of cautiousness and rationality. Put in the terms of a risk analysis, even if the likelihood is low, the severity of this hazard makes it worth considering prudently.

However with the stock market we are dealing with public opinion and not science.  Sentiment is what will decide to what degree this real health concern related economic shock becomes a prolonged stock market down period.  

Catching a Falling Knife

 “It’s hard to catch a falling knife.”  This is an old investing adage.  Over the past week, the stock market has fallen more than 25% off its peak.  Then today it bounced about 9%. These are huge swings. I don’t know how low this market will go but I’d rather dollar cost average over a fall and a bounce rather than trying to time an absolute bottom. I personally have been buying (mostly the broad market) a little more each day that it falls.  This is because I have a very long investing time horizon and stocks are certainly 25% cheaper than last week.  If this market falls to 40-60% off its peak, I will be putting more money in every step of the way.  This is part of my strategy but may not appropriately be yours.  

A Historical Perspective

Stockpiling supplies, urging everyone to stay indoors when it hits, and a stock market tumble.  I am not talking about the Coronavirus,  I am talking about Y2K.  After the Nasdaq run up of over 400% in the 90’s, the Y2K scare of computers failing world wide created lots of fear.  Ultimately that fear may have been what drove everyone to do Y2K audits and corrections to their systems.  The fear led to preparations that may have prevented the event.  This may be the same case with the Coronavirus…or not.

When I held my class on Thursday, I said goodbye to the students that I may not see in person again for the rest of the semester.  It was sad for me because this interaction with students was the precise reason I took this roll.  One of the students asked me if this was the craziest thing that has ever happened in my career.  It made me think of past work at a manufacturer in Tijuana during cartel battles or that time as a young engineer when I was in the operating room observing a surgery when things started to go wrong. 

I re-assured everyone that we would get through this. The students needed to hear that I was working to find a path for success with the class. I don’t know what the market will do exactly.  I also don’t know how hard this virus will hit.  However, I do know that fear is a big influencer in this environment and I know that I have seen this fear before. It is worth factoring this fear into investment decision making.

If others are running for the hills and pulling money out of investments, that does not mean “at some point you just have to join in, you know.” Don’t listen to that lady in the grocery store check out line. Be disciplined. Think of your investing horizon and decide what if any allocations you may want to make. If you are young with a long time horizon think about when you may want to allocate more and under what conditions. Every volatile market does mean an opportunity for someone.

On a personal side and a health side, compassion is what comes to mind. We don’t need to say “The coronavirus panic is dumb.” just because we want credit for being contrarian if we are right. Regardless of the outcome, compassion comes to mind. Some may feel isolated and vulnerable working alone at home having just lost 25% of their net worth. Some may lose loved ones. All of us will go through something that is real regardless of how “real” this threat turns out to be.