What to do During the Global Coronavirus Outbreak
For the past two weeks, nearly every investment manager, advisor, broker, tech platform, or other financial company has sent a note to their customers with more or less the exact same message: Sometimes markets go up, and sometimes they go down. There’s absolutely nothing you can do about it, and although things may seem alarming, the best thing you can do right now is just hold on and continue to keep investing within your means.
This way of thinking has its lessons about not trying to “pick winners” or “time the market,” but the idea that we should all resign ourselves to the fact that we are merely along for the ride is a level of helplessness that we have a hard time endorsing.
So instead, we felt it important to give you a more frank view of what we see unfolding and how to respond.
The ongoing coronavirus (COVID-19) global outbreak is a black swan event, in that it was impossible to predict, and yet it has caused industry-wide disruption. While there continue to be many more unknowns, a few things do seem clear to us:
- The magnitude of the risk is impossible to quantify at this moment.
- Today we are likely much closer to the beginning of this outbreak than we are to its end.
- A sustained outbreak which results in large scale restrictions on movement, travel, and public gatherings would have severe negative impacts on the world economy.
- We are currently more at risk of slipping into a true recession than at any time in the last decade.
- Times like these increase the adoption rates of new technologies by forcefully placing people out of their comfort zones.
What has happened?
The last 2 weeks will certainly be a memorable period for the history books as global markets plunged at a pace not seen since 1987. The main culprits for this pandemonium are the coronavirus disease (Covid-19) and the Russia-Saudi Arabia oil price war.
Since the start of 2020:
- Oil is down a massive 52%.
- London’s FTSE 100 index is down 32%, the Dow Jones Industrial Average is down 20%, the S&P500 index is down 16%, the JSE Top40 Index is down 31% and the Euronext100 is down 34%.
- The South Africa rand is down 10% to the Great British Pound and 20% to the dollar.
- The gold price has fallen 3%, silver is down 30% and platinum is down 31% as market participants continue to flock to alternative assets .
- The cryptocurrency market isdown 21% since the start of January. Bitcoin’s dropped 25% and Ether — Ethereum’s native token — is down 10%.
What should an investor do today?
The funny thing about black swans is that they can’t be predicted. So rather than build an investment strategy around forecasting the market’s ups and downs, hoping that a life raft will magically appear when things get choppy, we believe that everyone should set out to hypothetically “build an ark” — an investment ark — that is capable of weathering unexpected storms, assuming that eventually, one will hit.
Rather than simply throw our hands up or just sit back and hold on, we recommend that you take deliberate actions to increase your portfolio’s ability to weather a downturn.
In some cases, this may mean holding more cash reserves, being more conservative, and likely accepting lower relative returns in the short term than what has been the norm in the past. This can all be done in exchange for greater stability and to be well-positioned to capitalise on new opportunities when the storm clouds do pass.
In other cases, if you have an appetite for risk with sufficient cash on hand, this significant pull-back in global markets may be an attractive investment opportunity. Remember investment risk falls when prices fall, because lower prices imply lower expectations of future value. This logic contradicts our emotions — we tend to be more confident when markets are rising, which actually doesn’t make sense. Buying assets at higher prices is riskier than buying them at lower prices.
Investing, like life, involves considerable uncertainty. Uncertainty shouldn’t stop us from investing, instead we can use proven principles to help improve our outcomes: invest according to your time horizon, minimise costs, invest for growth, diversify your investments by investment type and geography, and don’t try time or beat the market.
History shows us that trying to time the market in a time of crisis like this is a gamble. We don’t know when the crisis will end so it is not obvious when to exit, or when to re-enter. If you do need some extra cash then consider the amount that you need so that you sell with a purpose and not in fear.
The panic that we are experiencing today isn’t entirely unfamiliar to seasoned investors. While this economic and societal shock is unique, we’ve actually seen and heard this in different forms all before.
- WW1 and the subsequent economic depression,
- to the 2000’s dot com stock market bust,
- to the 2008 Great Financial Crises,
- to the September 11 Twin Tower shock,
- to the 2016 Brexit election,
- to the 2017 Hurricane Katrina devastation,
- to oil price’s collapse in 2020 and everything else in-between.
We’ve experienced a lot over the years and after each of the above seemingly insurmountable events, we came out of them collectively stronger. Markets made new highs and what once seemed impossible became normality.
To reassure any investors who are feeling anxious, let’s take a look at Microsoft’s stock over time — you could use any top-performing asset that has been around for many decades. Over the last 30-years Microsoft’s stock has grown over 45x with a couple small ‘bumps’ along the way.
What is comforting is that if we zoom in on the 2007–09 period, when the last Great Recession happened, a time when Microsoft’s stock lost 56% of its value, falling from $36.79 in October 2007 to $16.25 by the 2nd of February 2009. We notice that this significant decline was nothing more than a small pothole along the way.
Investors that purchased Microsoft’s stock at its absolute worst time, at its peak of 2007 would still be up >3.5x today. That’s up over 350% on their initial investment. This puts the benefits of a long-term portfolio into context — so while the present can be very emotional, taking a step back and viewing the bigger picture should assist you in making rational long-term decisions.
As an investor, it is always humbling to be reminded of how quickly things change. The coronavirus is a global shock that no one was anticipating, and no matter how much we dislike these sort of time periods, which are difficult for so many people, we know that we’ll come out the other side and all of this will become nothing more than pages in a history book.
As a community, let’s try to lean into this moment. We’d love to hear from you, so tell us what you’re seeing out there.
The Revix Team
At Revix, we’re driven to empower everyday people to become their own wealth managers. Cryptocurrencies have been our first investable category. We offer Bitcoin, a regulated gold tokenised-commodity called Paxos Gold, and 3 ready-made crypto Bundles. These Bundles are like the S&P500 for crypto, and offer passive diversified exposure to the crypto asset class. Investing is as easy as signing up, choosing an asset, and then watching your portfolio grow.
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This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose and before investing, please take into consideration your level of experience, investment objectives, and seek independent financial advice if necessary.