Keep Calm and Carry On
Just over only two months into 2020, the most searched term on Google is – Covid-19 or coronavirus. The media is now focusing on and speculating about where this virus is going and what impact it will have on our world. This is enough to take even Donald Trump out of the headlines.
Until two weeks ago, a strange thing about the coronavirus was how little impact it had on global markets. Complacency has now been officially banished. Markets are now pricing in global recession. Have they gone too far?
To be sure, the coronavirus will impact the economy and disrupt businesses and supply chains, but at this point no one knows how severe the impact will be. It is all just speculation by people who, not wrongly, want to protect against the worst possible scenario.
This is not the first time the market has behaved like this. Look at the chart below. These shocks occur, the market reacts. Eventually the market recovers to even higher highs. This time will be no different. We do not know when, but rest assured this too shall pass.
As long term investors, we attempt to look past short term shocks to the markets.
The market is still very volatile, reacting to daily news snippets. Uncertainty and fear are prevalent. This opens interesting opportunities as relative prices gyrate wildly. We are seeing enticing prospects to either improve the quality of our companies, while maintaining the same profit potential, or finding new companies with big profit potential.
Our portfolios are well positioned with cash. That hurt our returns last year but is comforting now. Investing is about the long term. We have been here before. While uncomfortable, these periods where fear overtakes reason open doors to wonderful opportunities and we expect this to be no exception. We are in no rush, calm and common sense in the face of irrational behaviour has always served us well. We are confident it will this time as well.
What Nathan Rothschild is reputed to have said almost 200 years ago is still relevant today: “buy when there is blood in the streets”. While markets change, events always differ; the one constant is human behaviour. People have a tendency to overreact to dramatic and unexpected news. This time will prove no exception.
You will come out of this richer than you think. As always, we are here to discuss your portfolio with you
Be well. Do not worry.
The team at Kingwest.