Lessons of History

The apocryphal Chinese curse/blessing goes something like this: May you live in interesting times.  Without a doubt, we are living in a period of historic significance.   Certainly, the markets have been disrupted in ways I have never seen in my career.  This only solidifies my belief in ensuring your time horizon is long enough to weather such turmoil.  I believe that combined with building a sufficient cash reserve and never timing the market will serve investors well down the road.

There are some that suggest the impact of the crisis to the markets were easily predictable.  The problem with market timing is you must be right twice.  You have to know when to get out and when to get back in.  I don’t know a single person, professional or not, who has been able to make the call on both sides.

Of course, there are exceptions to the rule and very wealthy people who have done it successfully.  I still contend that it is not possible for the vast majority of investors, including the professionals.  A quote from Burton Malkiel, “I have never known anyone who could consistently time the market. And in fact, I’ve never known anyone who knows anyone, who was able to consistently time the market.”

Who could have predicted a pandemic like this? There have certainly been signs that viral outbreaks were a global risk.  Bill Gates has been talking about this for several years.  An article from 2017 in the Smithsonian Magazine points to some of the risks in China’s “wet markets”.   I found the article disturbing to say the least.  You can read it here: China Ground Zero

It may be too early to determine if experts or the responsible government officials failed in their duties.  Frankly, I’m not that interested in publicly flogging anyone.  If someone has not done their job, then they should be held accountable.  I’ll leave that to their superiors.  I am more interested in learning from the outbreak and being better prepared next time.  I’m a big believer in historical context, here’s a book recommendation from a good friend, The Great Influenza by John Barry.  It’s next on my list.

Many children, including my own, are asking what will happen? Will we be okay? These questions are borne out of anxiety and fear of the unknown.  Being forthright and honest is the best response.  In the near term there remains quite a bit of risk especially for those in high risk groups.  There is palpable fear among some, and we should do our best to comfort them.

More data continues to flow in, and forecasting models should get better.  The Institute for Health Metrics and Evaluation (IHME) has posted fascinating charts here by U.S. and state.  If correct, the models are showing peak state death rates ranging from late April into the summer.

Throughout this crisis, I have spent many hours attending web calls hosted by industry experts.  A recent call with a finance professor from University of Pennsylvania focused on the relative health of the economy.  Unlike the 2008 crisis, financial institutions have weathered the storm.  There are not “reckless institutions” that caused the COVID-19 event.  In addition, Americans home values have not slipped significantly.

So, while many are in a life or death situation, there is a likely scenario where the economy begins to revive rather quickly.  There is no doubt that there is significant damage to lives and livelihood and I don’t intend to minimize that in the least.  Despite that, there is some hope that we can bounce back from this.   Do not underestimate the power of the Fed to significantly impact the markets with increased demand for equities while extending liquidity to firms in need.

If any of us were to project five years into the future, I think most would paint a rosy picture for the health of the economy.  A vaccine for the virus may be as early as 18 months by some reports.  As suggested by patients with the same malady, one who was healthy going in often has better outcomes than a patient not as healthy.   The same might be said about the economy.  It was pretty healthy going into the crisis and so may respond dramatically coming out of it.

Lastly, I want to especially thank all the first responders, health care providers and health professionals who remain at duty serving others.  One of my dearest friend, a RN, has volunteered her services outside her normal duties.  She is out taking swabs of patients in a drive-thru clinic to test for flu and COVID-19.  These people are the best of us.  Lisa, you are a rock star!

If you would like to learn how an independent, fee only advisor and a CERTIFIED FINANCIAL PLANNER™ professional can help you, please contact me.  Feel free to share with others and make suggestions for future articles: peter.oneill@fiduciamwealth.com