As I write this the market has suffered one of the most severe and quickest drops in history. Only a few months ago new records were being set on the upside. Now it appears that we have reversed course 180 degrees and are setting new records on the downside. Why? Does this strike anyone else as strange and as a radical disconnect from reality?
Going into this COVID-19 virus panic, our economy was strong, people were working, getting wage increases, and the market was hitting all time highs. Just a few short months later, it appears that nothing will ever be the same again.
There is an old investment adage (I imagine that all adages are old, that is why they are adages, but I digress) “This time it is different.” In fact, some have called them the five most dangerous words in investing. The reason being it is never different. Of course, the cause or details or nuances may be different, but the behavior (and subsequent response) is always the same.
In my over 30 years as a professional advisor I have experienced drops in the stock market of -10%, -20%, -30%, -40%, and minus over 50%. Each one had a different cause. Each one brought different fears. And, each one provided a new challenge for me to address the very real concerns of my clients. In every single case, however, the market returned to set new all-time highs. It is the action (or inaction) that we take during these volatile times that make all of the difference.
Remember after September 11th how eerie it was to look up and see no planes in the air? Do you remember how, for a split second, we were all Americans? Churches were full. People gathered together to provide comfort and support for one another, and our differences vanished. It seemed that things would never return to normal, and in some ways they haven’t. We were naïve, perhaps, with our security surrounding air travel. You could walk right to the gate to hug your loved one goodbye before they boarded their flight. Changes came as a result of that tragedy and slowly things returned back to normal. As of last year, new records were being set by more miles flown than ever before, by more people than ever before.
We have seen other infectious diseases bring fear and uncertainty to our shores before. Let me name but a few: West Nile Virus, H1N1 flu, SARS, Avian Bird Flu, Swine Flu, oh and remember this from the 80’s? Aids and HIV. I remember reports projecting into the future something ridiculous like; every fifth person in the country would be infected. There was so much confusion about how Aids was contracted that people stopped shaking hands, kissing or even touching other people. Sound familiar. This was not because we are bad people, it is because there was more we didn’t know about the virus than what we did know.
This brings me to the point about the current health concern surrounding the COVID-19 virus. We are not bad people, we are not overreacting, we don’t know what we don’t know. This translates to changing behavior, limiting social contact, canceling public events and college classes, and avoiding the handshake. All are rational behaviors to an unknown disease.
What is not rational, in my view, is the absolute disruption to the financial markets and the belief that things will never go back to normal. I will make a bold prediction right here in this blog; at some point, things will return to normal. You will fly again. You will shake hands with strangers. You will resume college classes and go to a public sporting event. It will happen. And, I believe that common sense and rational thought will return to the financial markets and investments will once again be fairly priced.
What we do between now and then will make all the difference in our outcomes.
In no way, do I mean to diminish the current reality of COVID-19. This is a highly contagious virus, of which we don’t fully understand. We should all take full precautions to avoid contracting it. However, in the days and months ahead we will gain new understandings and new treatment regimens to address it. And, similar to 9/11 we will likely institute new procedures in public spaces to reduce the contraction of infectious diseases.
I am not a physician and in no way an authority on this topic. I am a professional wealth manager who has experienced dozens of these, “This time it is different” situations, and the result is always the same. Wealth is transferred from the uninformed and reactionary to people with a long-term strategy and patience.