Extreme Market Volatility as a result of the COVID-19
The accepted professional practice through these sorts of market bending events is to hold and ride the wave(s), try not to think in terms of 3 days, 3 weeks or 3 months - and look beyond 3 years, i.e. what do we imagine Auckland International Airport will be doing in three years? Apple, Google, Mainfreight, Unilever, Microsoft, Disney etc?… Even defensive shares are immediately down between 5% and 20%, but when do we actually expect the lights to go out, the roads to close or the gas to dry up?
If this "Black Swan" is as bad as some soothsayers predict (it could be), it's going to be worse than 2008 (homes & banks may be lost). I'm not in that camp but, we do need policy makers (Government) to respond with some fairly compelling stimulus, if we are to build a platform under these markets. Such news could affect an immediate V shaped recovery, (though at the moment, I'd be happy for a nice L that holds current losses and allows our world to come to grips with how to deal with {accept} this coronavirus).
These types of viruses are nothing new. I’ve read the “normal” influenza kills just over 0.1% of the infected population... this particular virus appears to put at great risk between 2 and 3% of those infected, especially older men.
As a world reliant on trade, we need to see real evidence of containment very soon. The elderly and infirm are always at danger when winter colds and flus arrive, this year we need to be especially vigilant. We need to be prudent about being clean and mindful of what and who we’re touching, but by in large, we also need to get on with the job of living. I’m by no means an expert, but I fear we risk doing greater harm if we persist with the current strategy of shutting everything down.
Sadly, the events and emotions of today are the other side of that enriching coin, which delivers to us the returns that create and protect wealth. Right now, it won’t feel all that protected, as we endure todays extremes. As we said earlier, the best advice today is to ride it out... which doesn't mean it can’t get worse, nor does it mean we shouldn't look to buy opportunistically into the apparent discounts. We need to play each day as it comes. We need to stick to the strategy and time frame we agreed from the outset. Investing should never be random. A rational and disciplined plan is what we should always follow.
At the beginning of 2020, I was heartened to learn from quite separate sources that after extensive research to measure the actual value good financial planning brings, two independent studies concluded that Financial Planners add alpha of between 2 & 3%pa over the long term. A large part of this "value" was achieved through the adviser holding their client to a course, avoiding the usual novice investor traps, picking better quality and balancing the risks. It’s an interesting concept to measure; “what would have been the return had you not done ‘X’ or, if you had done ‘Y’”. Like the movie “Sliding Doors” (from 1998), what would have happened had we turned left instead of right? And what then of the next decision we must make on this new path? If you get a chance, watch the movie. It’s likely well out of date now, but I recall it as light and entertaining (I may be showing my age).
And speaking of age, in closing - remember that the Roaring Twenties was preceded in 1919/20 by the Spanish influenza…
Kind Regards
Tony
Tony Munro | CFPCM, Post Grad Dip. Bus.Studies (PFP), AFA, FSP 5501
