PANIC IS MORE CONTAGIOUS THAN CORONAVIRUS

Fear of coronavirus has been increasing in recent weeks. It’s undeniably tragic for those impacted in China, and scary for those of us living elsewhere in the world.

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Many friends and family who live far from China are concerned. Here in Chicago, I’ve heard talk of keeping kids inside, or home from school. I’ve also heard panicky predictions that this will cause a recession or some other economic catastrophe.

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As a professional investor, risk assessment is a big part of how I think about the world. While I’m by no means an expert on viruses, I thought it could be helpful to those in the US feeling concerned in their day-to-day lives to share my sober-minded assessment of the actual risks posed.

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So how big of a risk is coronavirus?

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Let’s look at some numbers. So far, a few hundred people, mostly in China, have died. Similar recent outbreaks like SARS and MERS had comparable tolls. All those deaths are tragic, but consider that influenza kills about 60 thousand people every year.

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Flu is probably one order of magnitude (or more) worse than coronavirus, but it doesn’t destroy the economy, end trade, or crash the markets. Why is flu so manageable, despite the loss of life? Because we’ve all learned to accept it as normal. Panic often causes more trouble than the viruses do, and when others are afraid is exactly when the best investors try to slow down and think carefully.

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Markets are down recently, and will probably continue to suffer from this bad news for a while. But this is all short term. For long term investors, like Alliance, these market reactions are not overly important. Over time, financial fundamentals tend to outweigh short term emotions in the market.

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Investors who keep a level head in the face of fear do very well. They know to buy when others are panic selling, and to sell when the FOMO crowd gets heated up. For anybody who wants to beat the market long term, facts, data, and logic are how we counter that troublesome fear instinct.

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When it comes to the true damage from coronavirus, the jury is still out. But based on the facts I can see, and recent experience, I suspect that the fear is overblown, the market downturns are temporary, and our kids can go to school as always. Viruses are a part of life, and life will go on.

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