Several of you have asked how did we not predict this economic crisis? Although a very valid question, we must understand that so many aspects of life are just unpredictable. It’s just so. Of course, the better we understand history, the better we can predict the future. HOWEVER, life continuously demonstrates “unprecedented” events. How many times do we hear “unprecedented” spoken these days?
Over the past 50 years, America has experienced many epidemics—the Hong Kong Flu, HIV, SARS, H1N1, Ebola, etc. Each new epidemic brought us anxiety, unknowns, and panic. Through each epidemic, however, we gain new knowledge, expertise, and capabilities to help with the next epidemic. This is the essence of progress—accumulating knowledge and capabilities to better manage our lives and our world. History reveals to us that we resolve crises faster and faster as we go through time. Which makes complete sense since we continuously gain more knowledge and capabilities as we go through time. But again, “unprecedented” events will continue to occur because history rarely if ever repeats itself—although many patterns do exist. As Mark Twain famously stated, “history does not repeat itself, but it rhymes.”
Compared to other epidemics over the past 50 years, the coronavirus appears more contagious than most—yet we’re still learning. However, the mortality rate DOES appear to be below one percent (always remember this point).³ Therefore, predicting the shutdown of large swaths of our economy seemed quite far-fetched indeed just a month ago. The first fatality in the United States was reported JUST a month ago (Feb 29th). One American fatality, as tragic as it is, shouldn’t seem so perilous to our economy when you consider that approximately 7,500 people die in the United States every day; that the H1N1 flu in 2009 in the U.S. caused approximately 12,500 deaths with 61 million infected cases with limited disruption to our economy; and that approximately 45,000 people die of the flu each year.¹ By the time the United States experienced only the first coronavirus fatality, the Market (DJIA) was ALREADY down 17 percent the day before on February 28th. The Market is immensely jittery because humans are immensely anxious especially from the daily news cycle of doom-and-gloom.
The good news—the coronavirus along with the current economic crisis will pass. The question is how long will it last? I believe we will have a quicker recovery of both the coronavirus and the economy because, as stated above, we have so much more knowledge and capabilities to address crises today than we have ever had. Look at all the advanced technological capabilities and knowledge of our health care, pharmaceuticals, and biotech companies. How about all the companies retrofitting factories to produce needed PPE and other medical supplies? How about all the other companies and individuals stepping up to donate needed money, labor, or supplies for the sick? Even the many layers of government seem to be working fairly well—Congress remarkably and quickly passed a $2.2 Trillion Stimulus package (definitely good for now but I have reservations about the future).
The point here is that we cannot time the Market. You’ve heard this time-and-time again because it is true. Study after study over the years has shown that ‘Market Timing’ does not work and that ‘Time in the Market’ is the superior strategy.² The timeless adage by the great investor Peter Lynch, “Time in the Market beats Timing the Market.” The Market is a forecasting entity itself immediately adjusting to all available news—often overly selling and overly buying. Should you ever decide to time the Market, you must be right TWICE—selling high and then buying low when things are most uncomfortable (extraordinarily difficult). Professional day traders and investment gurus fail all the time with timing the Market. However, if volatility causes you too much anxiety, then you should definitely look at making your investment portfolio more conservative.
What we know: We know that humans have been through countless crises over time and have prevailed stronger each time; we know that the Stock Market has always increased over time; we know that Wealth has always increased over time; and we know that dollar-cost-averaging, diversification, and asset allocation are prudent investment strategies for the long-term investor to capture wherever Wealth will grow.
If you would like to discuss your personal financial situation, reach out and I’ll be happy to help. Hope you and your family stay safe and healthy.
Regards,
David