Client Letter: Coronavirus

Quinn Waddington - Mar 02, 2020

Letter sent Friday, February 28th...

 

Well that was quite a week we had in the stock markets! The worst weekly drop since 2008 on the US markets. We know how well the markets have recovered since then.

 

In more recent history, we had a 19.8% drop in October - December 2018 and were back at news highs by February 2019.

 

This is when the news headlines and scare tactics will argue that “this time is different”. It isn’t.

 

Yes the Coronavirus is a major issue that needs to be handled swiftly and carefully. Yes it is causing economic issues with travel suffering and Chinese factory outputs reduced, but it will pass.

 

I am not a health professional so I can’t tell you how long it will take or what the solution is but whether there is a vaccine, a cure or even just a continued reduction in the death rates (similar to the flu) the panic will subside, people will resume traveling and you can be sure that the Chinese factories will be back with increased production to make up for lost time.

 

I am also not a fortune teller (wouldn’t that make it easier!) so I also can’t tell you what Monday will bring. I would like to think the weekend will provide time for investors to take stock in how much the markets have dropped and come back with rational thinking about global economies going forward. Of course the markets aren’t always rational , especially in the short-term.

 

All we can do is tilt the odds in our favour, and as can be seen below, just about every recent health scare has created a great opportunity to buy over the following 6 and 12 months. When we look back in February 2021, I don’t believe this time will be different.

 

Health Epidemics - Impact on the S&P 500

 

The Key Points:

  - Markets have returned to all-time highs from every dip, correction and recession.

  - Steep drops like this are often followed by quick bounces back up.

  - Panic (or any emotional trading) will almost always work against you in the long-run.

  - Focus should always be on your long-term financial plan, not daily, weekly or even monthly returns.

 

I know the headlines are causing a lot of worry so please let me know if you’d like to discuss.

 

Thanks and have a great weekend!

Quinn.