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Crisis,Chaos, or Opportunity

Crisis,Chaos, or Opportunity

February 27, 2020
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Crisis, Chaos, or Opportunity?

 

Stocks dropped again as fears over the Corona virus grow. People on TV are warning of a “pandemic”. Newscasters are announcing “breaking news” when in reality they are simply repeating the same thing they said the day before. While I do not want to trivialize the severity of any health risk, I do believe if one steps back and looks at the big picture, one will notice we’ve encountered similar situations many times before. When I was young in the business, a veteran stockbroker gave me sage advice: “Crisis and chaos always create opportunity.” After reflecting upon the examples, he cited, I agreed- and still do to this day. Enclosed are important points that may instead reveal such an opportunity.

 

First, Past breakouts of various health risks have been controlled.

 The big unknown here is how deadly and contagious the Coronavirus is. No one is certain, but it is essential to refer to the demographics of the infected. Below are two charts that display the percentage chance of death from infection by age, as well as statistics on pre-existing conditions. As is typical with every other notable outbreak, the elderly and people with pre-existing conditions have the highest risk of death from infection. Also typical of previous outbreaks, patients who reported no pre-existing medical conditions have an extremely low fatality rate at 0.9%.

  AGE                                    DEATH RATE*

80+ years old                     14.8%

70-79 years old                    8.0%

60-69 years old                    3.6%

50-59 years old                    1.3%

40-49 years old                    0.4%

30-39 years old                    0.2%

20-29 years old                    0.2%

10-19 years old                    0.2%

0-9 years old                       no fatalities

PRE-EXISTING CONDITION

DEATH RATE*

Cardiovascular disease

10.5%

Diabetes

7.3%

Chronic respiratory disease

6.3%

Hypertension

6.0%

Cancer

5.6%

no pre-existing conditions

0.9%

*Death Rate = (number of deaths / number of cases) = probability of dying if infected by the virus (%).

*Source: The Epidemiological Characteristics of an Outbreak of 2019 Novel Coronavirus Diseases (COVID-19) - China CCDC, February 17 2020

 

My point from all these stats and numbers is that they are barely worthy of a “pandemic” designation, and even if they grow, we have become adept at learning how to control and crush similar outbreaks. For example, the SARS outbreak of 2003, MERS of last decade, and Ebola only a few years ago. All three were death with quickly despite a great deal of hysteria.

 Technology since then has advanced, as has the general public’s understanding of hygiene. If you have been to a CVS or Walgreens recently, masks and hand sanitizer are flying off the shelves. As a result of public understanding and advanced technology, we believe this will dramatically reduce the chances of a crisis in the United States.

 Second: The outbreak in China is small compared to the overall population.

While I have no intention of downplaying the seriousness of the situation for those within Wuhan (the initial area of outbreak), the lock down has affected 60 million people out of a population of 1.4 billion. Even in the host nation of the outbreak, only 4.2% of the national population are experiencing any kind of significant lifestyle change. 

Here in the United States, we have had between 8 and 12 million people go to a care center for influenza symptoms this year! Over 300,000 people have been hospitalized in the last year. The aforementioned symptoms are widely spread throughout the country and affect roughly 4% of our own population. However, the media pays it no mind since it is seasonal and does not have the added effect of being a mysterious strain from a foreign country. One could easily make a case for the seasonal flu being a far bigger threat to the average American than the Corona virus.

 Third, the public always overreacts to these issues.

 It seems  whenever there is any kind of health risk the media will report on the topic like we are one step away from the “Walking Dead”. If you listen to the talking heads, you’d think it would be abnormal NOT to walk outside in a hazmat suit amidst the wave of hysteria. The media engages in such dishonesty because it makes for great television! It was not long ago that such fears were being expressed over Ebola, and the Swine Flu! As they were reporting it, such illnesses would be the death nail to the American economy and citizenry. Those who are report on investments work hand-in-hand with the networks to conjure up such nightmares. How otherwise can you report on stocks 24/7? There must always be some new factor that is either scary or a great opportunity. In the face of this “greed and fear cycle”, many small investors panic and rush to sell.

 Don’t even think about going on social media! I had a friend contact me with a story written by someone I’d never heard of, from an equally unknown website that was entertaining the prospect of a looming apocalypse! Social media has added yet another dimension to the greed and fear theory, and in turn has sewn exaggerated panic among investors.

 We don’t believe in panicking, and neither do many financial experts..

 Finally, where does that leave us today? 

I mentioned earlier that when I was a young advisor an old “stockbroker” told me “crisis and chaos create opportunity”. Well, I believe if you are an investor who is in for the long haul then we have some unique opportunities and suggestions. Here are three quick ideas.

  1. Don’t panic!  When people react emotionally or panic, they rarely have good results. If you like the companies you own or the mutual funds you own and they still fit your objectives and risk profile, then hold your line and keep your eye on the end game which is your long-term goals and objectives.
  2. Consider some of the dividend stocks. With the market down over the last few days yields may be higher, and prices may be down, but company profits and outlooks are no different today than a week ago.  We like dividends and we are pursuing those opportunities where we see value.
  3. Global companies have taken a recent hit due to the Corona scare. While there could certainly be some economic repercussions, we believe the recent downturn has exposed some unique opportunities in this area. These stocks can also include American companies with large exposure to world markets.
  4. Review your financial plan and your goals.  When crisis appears, it’s a good time to re-examine what you are doing and why.  Look at your portfolio and make sure you are allocated in a manner that fits your long-term goals and objectives.  People’s lives change, the world changes, the economy changes and outbreaks come and go. Use this crisis as an opportunity to do a financial checkup.

If you would like more information on the opportunities we see or would like us to do a financial plan or check, please feel free to contact me at john.greenway@lpl.com.

Disclosure: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

*All performance referenced is historical and is no guarantee of future results. Stock and mutual fund investing involves risk including loss of principal.

*The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

*International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.