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From an Investment Standpoint, Don’t Sweat COVID-19

by Carolyn Walder

As you may expect, we have had many calls and emails from concerned clients about what they should do as a result of the “Corona virus” outbreak. (The disease is officially named COVID-19, which is caused by the virus SARS-CoV-2.)  We are continuing with the same advice that we have given over the past 20 years, “stay the course.”  Assuming that there has been no change (and no change is anticipated in the near future) to your circumstances, we are urging clients to not change their asset allocation because of this “coronavirus crash” in the markets.  As you probably know, we have been calling for a correction in the markets for some time, and although this may very well turn out to be more than correction, we have historical evidence that the likelihood that this will be a protracted downturn/bear market similar to 1929, 1974, or 2008 is extremely low, and even if, in the highly unlikely event, that it did turn out to be that dramatic, you know from our past emails and discussions that you would recover, even if you needed to take money from your portfolio during that time (of course, assuming that we have planned to take money from your portfolio and you have a fixed income allocation).  For perspective, see https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets.

There have been and will continue to be shocks to our financial system (both in the USA and abroad) that affect the stock market. Over the past 20 years, we have had numerous market crises, several of which have been in response to viral outbreaks (see https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22), including infectious disease outbreaks of the Ebola virus and SARS.  One of the positive aspects of this crisis is that COVID-19 has about  80% of the genome of the Corona virus known as SARS that caused havoc back in 2003 and CDC, NIH, and drug companies are already working in concert on vaccines and treatments that target the same human cell entry patterns (see https://www.nih.gov/news-events/news-releases/nih-clinical-trial-remdesivir-treat-covid-19-begins and https://www.niaid.nih.gov/diseases-conditions/coronaviruses).

While there are scary aspects to this “SARS-like” virus, the most alarming to the financial markets are the unknowns. How many people will be affected? How long will the outbreak last? When will we get a vaccine and/or effective treatment? What effects will it have on supply chain/manufacturing/service disruptions, and as a result, what impacts will it have on our economy? All of these issues have caused market participants to pull the sell trigger and wait until there is better news.  However, as we know this is a very difficult game. Market timing moves require that you know when to get out and when to get back in (see “Recent Market Volatility”). It is far, far better to take advantage of a significant downturn to rebalance a portfolio (particularly one that has an allocation to fixed income).  You automatically lower your average cost of your shares, and you are guaranteed to participate in the rebound when it comes, whether it is a few days, a few months, or even a few years. Please rest assured, we are monitoring the markets and attempting to determine the most advantageous time for an event-driven rebalancing opportunity, assuming that this is not a V-shaped short-lived downturn like so many of these event driven market corrections have been in the last 10 years!

Lastly, consider reading the article “A Transformed Investor’s View of Market Volatility,” by Dave Goetsch, Executive Producer of the TV sitcom “The Big Bang Theory,” and a DFA client.  The opening sentence reads: “Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair.”  Although the content of the article was about Goetsch’s journey to “investment enlightenment,” we recommend that you read it for one simple reason: It was written on August 20, 2018.


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