Signal Rather Than Noise
Over the past two weeks, financial markets around the world have been in a state of turmoil not seen since the 2008 Global Financial Crisis. There is a significant amount of media coverage of events around the world, much of which is not especially useful or helpful.
Let us add some sense to what is being churned out by the media.
Naturally, when events that impact our financial position are occurring with the speed and severity seen in the past couple of weeks, it is natural to feel concerned. When emotions are heightened, it is worth sticking to the facts and examining your current position.
At this point, we have no clear data on what the full impact of the coronavirus will be on the world, either from a human or economic perspective. There are mixed reports about what this all means, most of which is opinion (not fact).
Market declines occur when investors reassess their expectations for the future. The expansion of the outbreak is causing worry among governments, companies, and individuals about the impact on the global economy. Apple announced earlier this month that it expected revenue to take a hit from problems making and selling products in China1. Australia’s Prime Minister has said the virus will likely become a global pandemic2, and other Australian officials have warned of a serious blow to the country’s economy3. Airlines are preparing for the toll it will take on travel4. There are seemingly endless examples of how the impact of the coronavirus is being assessed. Though, sticking to the facts available at this time, nobody truly knows what the end effect will be.
The market is clearly responding to new information as it becomes known, but the market is pricing in unknowns, too.
When it comes to the management of investments, we are repeatedly struck by the number of people with an opinion about the action you should be taking. This is wildly irresponsible and reckless of those sharing their opinion. It is rare that any one of these people know your individual circumstances and what mitigating action had been taken well in advance of these events we now see unfolding. Always remember it will be you (not them) living with the consequences of whatever action you then take.
We can’t tell you when things will turn or by how much, but our expectation is that bearing today’s risk will be compensated with positive expected returns. That’s been a lesson of past health crises, such as the Ebola and swine-flu outbreaks earlier this century, and of market disruptions, such as the global financial crisis of 2008–2009. Additionally, history has shown no reliable way to identify a market peak or bottom. These beliefs argue against making market moves based on fear or speculation, even as difficult and traumatic events transpire.
The great Austrian Psychiatrist Viktor Frankl was famous for stating, “between stimulus and response, there is a space. In that space, is our power to choose our response.”
If you are concerned or unclear (about what to do or what is being done), the simplest action you can take in response to these market events is to contact us. We can then discuss your specific situation.
1. Apple, February 17 press release. https://www.apple.com/newsroom/2020/02/investor-update-on-quarterly-guidance/
2. Ben Doherty and Katharine Murphy, “Australia Declares Coronavirus Will Become a Pandemic as It Extends China Travel Ban,” The Guardian, February 27, 2020. https://www.theguardian.com/world/2020/feb/27/australia-declares-coronavirus-will-become-a-pandemic-as-it-extends-china-travel-ban
3. Ben Butler, “Coronavirus Threatens Australian Economy Reeling from Drought and Fires,” The Guardian, February 5, 2020. https://www.theguardian.com/business/2020/feb/05/coronavirus-threatens-australian-economy-reeling-from-drought-and-fires; Ed Johnson, “Australia Says Economy to Take ‘Significant’ Hit from Virus,” Bloomberg, February 5, 2020. https://www.bloomberg.com/news/articles/2020-02-05/australia-says-economy-to-take-significant-hit-from-virus
4. Alistair MacDonald and William Boston, “Global Airlines Brace for Coronavirus Impact,” The Wall Street Journal, February 26, 2020. https://www.wsj.com/articles/germanys-lufthansa-makes-cuts-as-it-braces-for-coronavirus-impact-11582712819