Harold Evensky's musings on the Coronavirus
I know that “experts” on what’s happening in the world have inundated you (and me) with pontifications, but I can’t resist putting my two cents in too, so I’ll start with the obvious. It’s scary as hell out there and with good reason. Covid-19 is expanding at a geometric rate, global economies are being decimated, and markets are in free fall. Deena teases me about how often I reference the old Chinese curse “May you live in interesting times,” but this time does seem to be the mother of “interesting times!” You might ask: Is there any good news? I believe the answer is Yes! Panic, Perspective, Patience, and Planning (and possibly Prayer, but I will leave that to you and a higher authority).
Panic and fear are natural consequences of the Covid-19 scourge and the media seem to love to feed this emotional tsunami. Fear can often be a useful guide steering us away from unnecessary risk; however, when unconstrained as it is today, it usually leads to panic. In the investing universe, that is a recipe for disaster. The antidote is reasonable hope that provides “the wisdom to take reasonable risks and the power to persist in adversity.” I believe Perspective, Patience, and good Planning will help you develop reasonable hope.
As I’ve often reminded clients during times of scary markets, long term there are only two possible outcomes: #1. There is no light at the end of the tunnel and the world will come to an end. In that event, all bets are off and it will not matter what you do. #2. There is light at the end of the tunnel, the world will not come to an end and eventually the world economy and markets will recover.
We’ve been there, done that. Consider just a few examples.
The Bear Market of 1973–1975. Between January 1974 and February 1975, the market lost 49% of its value.
Black Monday on October 19, 1987. This was a sudden, severe stock market crash that struck the global financial market system and caused havoc. In ONE day, the Dow Jones Industrial Average fell 22.6%. It’s still the largest one-day percentage drop in Dow Jones history.
The 1990 Recession. Stocks trended higher in the eight years prior and peaked two weeks after the recession began. Early in the recession, stocks declined, losing 26% until eventually bottoming out.
The Great Recession (12/07–6/09). This recession brought the worst economic contraction since The Great Depression, ultimately losing almost 54% from peak to trough.