The last few weeks have sparked a great amount of volatility in the market – S&P 500 is down 7.62%.
The Coronavirus death rate is concerning, particularly relative to this year’s flu. Fear of a pandemic is causing indiscriminate selling in the market. I am worried less about the virus, though it is very serious, and more concerned with investor panic.
Warren Buffet released a letter to his investors and you will not be surprised to hear that this is his quote, “Do not buy and sell based on today’s headlines. The real question is has the 10 year or 20 year outlook for American businesses changed in the last 48 hours?”
This is the question I want you to ask yourself this week as you continue to be flooded with news headlines that want you to be afraid. This is a bad virus. It spreads more rapidly than SARS (the last coronavirus that made news headlines), though not as deadly. The difference between then (2003 – SARS) and now (2020 – COVID) is that the Chinese economy is a much larger player in the global GDP. China will more than likely go into a recession.
A recession by definition is a period of temporary decline during which trade and industry activity are reduced, generally identified by a fall in GDP in two successive quarters. Could COVID put us into a recessionary environment? In all likelihood yes, but the same things that typically work in an economic slowdown (quality, minimum volatility) work in a recession/contraction (quality, minimum volatility). The question to your advisor is am I positioned for an economic slowdown or recession?
I’m not saying recessions aren’t difficult. They feel terrible. When I came into the market in 2007 the bottom fell out and I saw investors hurt and afraid. This is a core memory. Last time there was a recession I didn’t have children. Things “feel” different in every recession based on what else is going on in our lives – maybe we are closer to retirement, or have more responsibility, but go back to the question earlier – has the 10 to 20 year outlook for American businesses changed?
What are your thoughts?
Team Wealth Edit