Coronavirus and Your Investments (Covid-19 Update #1)

29th January 2020

The Coronavirus continues to spread – fast.  Should we be concerned?

Perhaps the challenge that some face is the fact that no one can offer a high degree of certainty around how fast the virus will spread and who might be affected. 

At this stage, to me at least, there is an absence of solid data around any remedy and how effective any containment measures might be in China and elsewhere.  There are some uncertainties. 

On the other hand, unless the Coronavirus mutates in a way that is unstoppable, which seems very unlikely, ultimately the virus will be contained and dealt with. 

In the meantime though, it is difficult to predict how fast and how widely this virus will spread.  With international travel, one would imagine it will be global. 

Although I regard information from the popular media (Channel One, Channel Three, the internet, etc) as relatively anecdotal, it appears that the reported case of Coronavirus in Queenstown was a false alarm.   

The media do a great job of discovering ‘news.’  Otherwise, we would never know about these types of events.  Because of technology, global events in far off places spread quick (as does the virus due to international travel!). 

Where I believe the media do not do us too many favours is their sensationalism, which does create unnecessary worry for many people. 

Let’s face it, we want to know what the news is.  We’re not interested in how bad some reporter thinks it is or how deadly the virus might have been for a few vulnerable people.  We just want the facts – don’t we?

 

For us as investors

I remember the SARS virus back in 2003, which lasted several months.  I remember investing in a company called Café de Coral and watching the trading price decline quite a bit throughout the SARS virus.  Of course, we averaged down and as a result of the volatility, actually improved the returns longer term. 

In short, as investors and clients of WISEplanning, I see no need for any concern.  Indeed, this may provide us with some much needed volatility.  Although I do not really know, I have a feeling that it may not come to that much long term but time will tell. 

It is affecting the Chinese economy now and will flow on to other countries to some degree.  For example, in New Zealand there is evidence of tour cancellations out of China and hotel cancellations. The flow on effect of this may take weeks or even months to materialise in money terms.

Interestingly, many investors who have funds sitting around, ready to invest, would normally hold off at this point and see how things go.  To an extent, that makes some sense, although the approach I have always adopted is to invest into events like this progressively as they unfold.  That way, whilst we may be a bit early with some of the investments in the short term, we will have the opportunity to invest at the low point as well, which all helps to boost longer term returns.

“As prices decline, the value emerges.”

 Whilst individual businesses can fail, the global markets will not.  That is because businesses and consumers rely on the goods and services that are provided by many of those large businesses that are listed on the share market. 

What we have is a market-wide decline in trading prices that ultimately will pass. Trading prices have always recovered after events like this in the past.

At the risk of stating the obvious, price and value are not the same thing, and in the fullness of time, prices tend to reflect the underlying performance of a business and those future prices have little to do with short term bouts of volatility along the way, that is, other than the fact that those lower prices represent value for us as investors. 

 

And so …

From a health perspective, obviously we want to minimise our chances of being infected.  Do you think the New Zealand Government has that process in hand? 

As investors, let’s just keep our powder dry, let things unfold for a bit and we may indeed see some opportunity emerge.  I will keep you posted. 

 

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