The Coronavirus: Navigating the Unknown
By Jeff Bernier
“We do not fear the unknown.
We fear what we think we know about the unknown.”
– Teal Swan
If there’s one thing I know for certain about the novel coronavirus, it’s that the epidemic has sparked a tidal wave of fear. In New York’s Chinatown, Chinese restaurants like the popular New Shanghai Deluxe have seen their income drop 70-80% due to fears of the virus. (To date, there has not been a single case of the virus reported in the entire state of New York.) My own Uber driver cautioned me about ordering from Amazon because, “all that stuff comes from China.” Incidents have been reported across the US of racist assaults and verbal attacks being made against Asians.
The culprit, of course, isn’t the virus itself, but rather a lack of education and understanding. It’s true that the coronavirus has now infected more than 75,000 people worldwide, and the number of deaths from the virus exceeded 2,100 as of today. But it’s also true that the coronavirus has not even come close to matching the threat of this year’s flu outbreak, which has already resulted in 12,000 deaths this year alone—and between 290,000 and 650,000 people die from the flu every year.
This short video from the World Health Organization offers the facts about the coronavirus outbreak:
For investors, education and understanding is just as important to preventing a similar tidal wave of irrationality. It’s an unfortunate reality that even smart investors are vulnerable to emotional decision making, and decisions based on emotions rather than data have much more power to harm your financial wellbeing than any global health crisis, including today’s coronavirus outbreak. (For a refresher on how emotions can wreak havoc on your investment outcomes, read my blog post, Bathtubs, the stock market, and where to go from here.) Remember that, historically, investors who stay invested during market downturns—regardless of the cause—fare extremely well. The challenge, as always, is keeping your emotions at bay when the headlines, the neighbors, and even your Uber driver are prophesying doom.
One thing that can help is to consider the real threats to the capital markets, which are long-term growth and profitability.
The biggest concern at the moment is the impact that the outbreak is having on the Chinese economy and the residual effect on the world economy due to disrupted supply chains and reduced demand for products and services sold by companies who rely on Chinese goods and labor. China now makes up 15.5% of the global economy. The country is a major purchaser of commodities like oil and agricultural products, and because companies like smartphone makers and car makers rely heavily on its manufacturing output, the electronics and auto industries face the largest first-quarter effects on earnings.[1]
Going one level deeper, here are some of the individual companies that are being affected by the initial phase of the outbreak:
- Carnival Corp’s Diamond Princess cruise ship was quarantined at a dock just off the Japanese coastline with 3,600 passengers onboard. More than 200 of them have come down with the coronavirus, including 18 Americans. Carnival stock is down about 17% since mid-January.
- Wynn Resorts has major holdings in China’s gambling Mecca of Macao. The company’s Macao resorts have been shut down by the Chinese government, causing Wynn to lose an estimated $2.6 million a day. The stock is down roughly 15% from its peak.
- Yum China Holdings, the parent company of top brands such as KFC, Pizza Hut, and Taco Bell, has had to shut down its China-based locations. The company’s stock is currently down 15% for the year.
And then there’s Nike. About 17% of the company’s revenues come from China, and Chinese factories produce about 20% of Nike products. Despite that fact, and that Nike has closed half of its company-owned stores and stores managed by partners in China, Nike stock is down only slightly for the year, and it is still up by double digits compared to last summer.
Clearly, the impact of what’s happening in China is varied and unpredictable. So what will happen if the coronavirus continues to spread? Honestly, no one knows. Not the CDC. Not the World Health Organization. And definitely not the market analysts who are trying to predict the future. Whenever uncommon events like this occur—the pop of the dot-com bubble, 9/11, the SARS outbreak, the Lehman Brothers collapse—it’s human nature to think, “this time it’s different.” So far in history, no event has managed to halt the growth and profitability of global companies over the long term. As an investor, this is the fact that matters most of all. Will the coronavirus impact global supply chains? Maybe. Will the short-term profitability of some companies be dampened by the epidemic? Undoubtedly. Will the global markets recover? Absolutely. At least if history is our guide. GDP growth may be slow and boring over the long term, but the trend line is steady, and despite short-term fluctuations, slow and predictable growth is a constant. It’s highly unlikely that this or any future health crisis will be capable of upsetting that long-term trajectory. For investors, that’s what matters most—for your portfolio and your peace of mind.
All that said, no matter what the facts may be and what the numbers tell us, our emotions are often our most powerful adversaries. My advice? Sit tight and trust your diversified, balanced portfolio to do its job of growing and protecting your assets. And if you find that, despite the data, the potential impact of the coronavirus on your financial security is creating sleepless nights, let’s schedule a time to talk. Together we can walk you through the possible market scenarios, look closely at your projections, and come up with a plan that works for you.
[1] 94% of the Fortune 1000 are seeing coronavirus supply chain disruptions: Report, Fortune, February 21, 2020
