What the Swine Flu Panic Means for Your Portfolio

It's a delicate subject, and people's lives are at risk, so I'll state right here, up top, that I do not intend to make light of this public health concern. I share the sympathies that we all have for individuals afflicted by the swine flu. (I've experienced a delirium-packed, 10-day version of the usual seasonal flu, and I wouldn't wish this illness on my worst enemy.)

That said, the reactions of the investing community already look ridiculous: "Markets Down on Swine Flu" read the headlines. Other writers will try to convince you to pile into vaccine names like GlaxoSmithKline (NYSE: GSK  ) , or companies like Netflix (Nasdaq: NFLX  ) , for which a simplistic, "stay-at-home" argument can be made. This is simply rank trend speculation in reverse.

How to really profit
If you really want to find opportunities relating to the swine flu story, I suggest you do the opposite of what most people are advocating. For instance, consider inverting one particularly brazen and short-sighted call that was reported by Bloomberg this morning: UBS downgrades Mexican stocks from "top pick" to "underweight" because of the swine flu.

Really? An entire country's strongest businesses will be permanently impaired because of this health crisis? Would you write off entire segments of the U.S. economy if the illness got worse here? Would you sell Procter & Gamble (NYSE: PG  ) ? Ditch Home Depot (NYSE: HD  ) ?

Sure, the Mexican economy is generally more fragile than ours, but most of the big-name firms trading on our exchanges are anything but weak. Beverage and minimart king FEMSA will likely sell fewer soft drinks and beers over the coming weeks. Will Gruma sell fewer tortillas, Industrias Bachoco fewer chicken chunks? Probably.

Will this matter for the long term?

Very unlikely
If you are investing in strong names for the long term -- and that's how you should be investing -- these are the times when you should be more interested in buying stocks, not less. Flu epidemics are terrible, but they're also normal. So are economic cycles and (in Mexico) the occasional currency panic.

Buying good companies when the headline news is bad is the hardest thing to do (psychologically), but it's the simplest way to buy low. And buying low makes it a lot easier to sell high.

That's the takeaway from the two wealthiest investors in the world -- Warren Buffett and Carlos Slim, who made their fortunes buying companies with competitive advantages on the cheap, often during times of uncertainty. Despite recessions, oil shocks, currency convulsions, SARS, and bird flu, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , Telmex, and America Movil (NYSE: AMX  ) have made them very wealthy.

We've recently revamped Motley Fool Hidden Gems, putting real money into small-cap stocks, to enable us to take advantage of exactly this kind of short-term market craziness. At times like this, we're more interested in our favorite Mexican stocks: Grupo Aeroportuario del Sur and Grupo Aeroportuario del Pacifico. As monopoly airport operators with high fixed costs, both would see turbulence due to a temporary dip in air travel (one they're already getting thanks to the economy).

But in the long term, monopolies like these thrive and enrich shareholders. Ditto the major players I mentioned further up. So unless you think Mexico is forever on the wane, it's time to look at buying these stocks, not selling them.

If you want to read our take on these companies, and to take part in the deliberations with our world-class investment community, a free trial is on the house. Click here to get started.

Seth Jayson is co-advisor at Motley Fool Hidden Gems. He owns shares of Grupo Aeroportuario del Sur, FEMSA, and Berkshire Hathaway. Grupo Aeroportuario del Pacifico and Grupo Aeroportuario del Sur are Hidden Gems recommendations. Berkshire Hathaway and Netflix are Motley Fool Stock Advisor selections. Berkshire Hathaway and The Home Depot are Motley Fool Inside Value selections. Procter & Gamble is a Motley Fool Income Investor recommendation. America Movil and FEMSA are Global Gains picks. The Fool owns shares of Procter & Gamble and Berkshire Hathaway. The Fool has a disclosure policy.


Read/Post Comments (27) | Recommend This Article (93)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2009, at 6:01 PM, unklbob wrote:

    Oh, come on! Do your homework. This has been "planned" for some time. Take a look at the TOTAL number of cases, as well as how many countries are involved with this VERY LOW count. The government wants to vaccinate all of us(not me) with a drug that was "approved" for use by the FDA in a matter of ONLY 12 DAYS, and their plan is to do it within 48 hours. Is 12 days some kind of a record for FDA approval, or what? Besides, no regulatory bodies were involved to bring about this approval, Wake up, folks! This is about control, and it is brought about by the media (in lock-step with the government) putting this garbage on their front pages and force-feeding the general public. It's all a bunch of HOGWASH!! Get educated! Control by FEAR!!

  • Report this Comment On April 27, 2009, at 6:19 PM, sunnybrazil wrote:

    I really hope unklebob is right but I have a feeling we might be better taking precations here, the 1918 epidemic killed millions of people.and the mortality rate here is about the same. Lets just hope we have hold of this flu strain before it goes round the world.

    Would think a good investment might be MMM as they make the masks. GSK for anti virals and food companies. If it gets bad people will buy too much food and stockpile.

    As much as Education we must learn the lesson from history and listen WHO.

  • Report this Comment On April 27, 2009, at 6:29 PM, jbromet wrote:

    Along with the Global Economy comes pandemic disease and infection, expecially with open borders and toolerance for illegal immigration. Who was the genius that came up with that idea? People are scared enough about the financial crisis without now dealing with a potentially deadly health crisis we haven't seen in over seventy years. Considering the emotional nature of the market, it 's a foregone conclusion that an outbreak of influenza nationwide will cause a financial crisis of its own. BTW: As far as getting value for our investment, the trillion dollar CDC has advised us to wash our hands to ward off the bug. I could have gotten that advice from my granny.

  • Report this Comment On April 27, 2009, at 6:41 PM, Gardnermiles wrote:

    I tend to agree with unkibob. I do not trust the FDA one bit. They are in co hoots with pharmaceutical companies. Have they ever recommended an herbal remedy? Have they ever recommended a cure that you might already have the product in your home? Of course not. The pharmaceutical companies virtually run politics in the U.S.A. The more we either are sick or afraid of being sick the more pharmaceutical products and doctors visits are made. Disease is the biggest money maker on this planet. The FDA does not want us to be exposed to the real cures as this would ruin the economy EVEN MORE.

  • Report this Comment On April 27, 2009, at 6:58 PM, JennieCessia wrote:

    I also agree that the FDA is essentially run by the pharmaceutical companies. They have said that vitamin supplements are essentially a waste of money, but how many studies founded on sound science have they done to prove it? Then consider how many drugs with a host of side effects (many times worse than the disease they purport to cure) do they approve rountinely? Sure, the flu pandemic in 1910 killed many people, but US sanitation and water treatment practices were in their infancy then, as they seem to be in Mexico now.

  • Report this Comment On April 27, 2009, at 8:15 PM, AWF wrote:

    The US taxpayers were Infected with Swine Flu on November 7,2008---DC is now under the grip of a Pandemic--The cure is a couple of years away.

    Hope all survive.

  • Report this Comment On April 27, 2009, at 9:38 PM, afleetfeet wrote:

    So this is where all the crazies congregate!! MF - are you in competition with the Republican party??

  • Report this Comment On April 27, 2009, at 10:42 PM, jayreimer wrote:

    MF ... this comment section needs a firm hand. I do see now how people's emotions run amuck though ...

    This reminds me what I love in good books: fantastic tales told with restraint and understatement.

    Don't you miss the days of modest language? Of under-selling and over-delivery instead of oversell and under-delivery?

    I miss those days in my portfolio too! :)

  • Report this Comment On April 27, 2009, at 10:46 PM, GreenPhotog wrote:

    AWF- Your cynical post suggests you are under the grips of the Texas Bovine Flu, whose symptoms are a silly grin, mishmashing words, and a higher-than-normal willingness to attack what's right (or left). Please wash your hands frequently and try not to breathe on anybody.

  • Report this Comment On April 27, 2009, at 10:49 PM, cubmonkeysheep wrote:

    Hi Fools

    I am a little lost here. There are about 6 billion people on the planet, 81 have the Swine Flu. That is .00000135% of the population.

    Question: How many will die of smoking (or cancer or a plane crash or get eaten by a shark.....whatever, fill in the blank) in the next 24 hours?

  • Report this Comment On April 28, 2009, at 12:15 AM, paultaut wrote:

    I'm glad I live outside of a Big City rather than in one. I'm glad I don't live close to the Mexican Border. I'm glad our Medical Facilities are the Best in the World.

    The Mexican news keeps geting worse. Thousands infected and hundreds dead. All schools closed, All events closed. The Government is on the verge of shutting down plants.

    All of you are Patently operating with one Oar. This is a Virus, it is mutating as we speak. It is spreading faster. When you see thousands of Mexicans cross our Borders fleeing their Country, it will be a Major catastrophe.

    As it is, we are still fighting this using conventional tools but we do not have a clue as to how it spreads. If its Contact, our biggest cities are at Risk. Ever hear of the Drug Trade?

    If its airborne, how long it takes to manifest becomes an issue. Thanks to the Liberal attitudes in Congress, some 12 million jobs have been lost to Illegal Immigration. Now, thanks to the Liberal attitudes in Congress, Millions may lose their lives here.

    The National Guard should be moblilized now not tommorow. It should seal the Border. Anyone crossing Illegally should be treated as a Terrorist trying to invade the Country with the intention of spreading Disease.

    Paranoia or not, it doesn't matter. Mexico is on fire, thats Reality. If the Fire can not be contained, you do not walk away. You create Fire Breaks.

  • Report this Comment On April 28, 2009, at 12:43 AM, TheHague wrote:

    I love the crazies! Just when I think I might be going off the deep end I read some of the posts (i.e.unklbob, jbromet etc) and I realize there are folks out there in need of some serious help! Get a grip people and I don't mean on the revolvers I am sure you have stored in every room of your homes because you are convinced the 'Messicans' are coming to breath on you!

    Idiots!

  • Report this Comment On April 28, 2009, at 3:36 AM, adruid wrote:

    This is about real mutations of three real virus strains. This is not a plot. It is not yet even an epidemic, let alone pandemic. The flu virus has been in a cyclical aspect of human existence for a great many years. The virus, by nature, mutates through cycles, picking up characteristics of areas and species along the way. To find ourselves faced with a combination of swine, avian, and human influenza virus may seem like science fiction to some, it is simple science fact to the rest of us. OH, what to do?

    Keep clean, wash your hands, do not handle food products or materials that may carry the virus, and track your activities. You do not have to log every place or every facility you entered, just keep track of where you are going, what passes through there, and where “it “ has been. If you feel the least bit suspicious you have been exposed to the virus, go to the doctor and have yourself checked out!

    It’s a NO BRAINER!!! If it gets any worse, up to really bad, we’ll know. And NOT by some accelerated panic on the Internet!

    With love and life and longevity!

    Craig

  • Report this Comment On April 28, 2009, at 7:50 AM, paultaut wrote:

    The US has recorded its first case of person to person passage.

    A Druid: we will know is my point exactly. All of the comments prior to mine had been treating it as some sort of fictional Conspiracy instead of treating it with the respect it deserves.

    So I went off the deep end somewhat. I had to get a point across.

  • Report this Comment On April 28, 2009, at 9:17 AM, colddrink73 wrote:

    I live in Houston. Right now I am more concerned with flooding than I am with the swine flu. I am not supprised that there have been so many cases in Mexico. In a country in which when visiting you can not drink the public water supply, the sanatation concernens are very real. So far around 1500 infected with almost 150 deaths. I would not be supprised if those numbers are on the very conservative side considering the state of rural Mexico. I agree the borders should be closed but not beacuse of the Flu. The borders have needed to be closed for the past 10 years!!! You can all go out and buy masks if you want to, or you can get... or not get the latest vaccine. I'm going to keep going to work and doing my job. But as far as stocks, since this is a stock picking site. A short term short may be in order. You know from say now untill the end of the world in 2012.

    Just kidding.

    gw

  • Report this Comment On April 28, 2009, at 2:54 PM, kabierwatz wrote:

    There is no "Swine Flu Panic" in the market. It's frustrating how the business media makes different inferences as to the root causes for the market's daily directional moves based on whatever is on the front page of USA Today. Maybe the reason the market is no longer going up is because everyone is testing the limits of the Greater Fool Theory (finally) and the rally is coming to an end?? Let's start providing market analysis based on real economics for once instead of trying to satisfy some editor who wants to make a flashy headline for the Dow's movements.

  • Report this Comment On April 28, 2009, at 3:43 PM, Barrac wrote:

    FEMA Camps

  • Report this Comment On April 28, 2009, at 4:43 PM, hightonp wrote:

    Hello,

    I work for a large UK company who has been responsibly planning for a flu pandemic for the last 3-4 years. Please do your homework and read about the 1918 pandemic. This is not to be taken lightly, hopefully this will be more mild if it progresses to a full pandemic. There is money to be made in any situation, but there are other things more important.

  • Report this Comment On April 28, 2009, at 10:14 PM, Profile341 wrote:

    If dead flu strains are used to make flu vaccine, can a pork chop immunize against the swine flu? :>}

  • Report this Comment On April 29, 2009, at 12:05 PM, stevee9998 wrote:

    Studies have shown that hand washing is the single most important thing we can do. Yes, Granny probably had the same advice and she was right. Fueling the alarmist rhetoric with distrust of the CDC and FDA does not serve anyone. Call on Washington for change or offer investment ideas that take advantage of the real world situation please.

  • Report this Comment On April 29, 2009, at 6:23 PM, tucsonblonde wrote:

    Oh dear lord! Seriously people, get both a grip and a clue. This is not a government conspiracy. This is a variation of the Flu, something we deal with every year. There is NO VACCINE for this variant yet! Should we pay attention to what is going on? Yes. Should we use common sense (sadly lacking these days it seems!) and wash our hands often and sneeze into our elbow instead of our hands? Yes. You should always have a plan for your household in the event of an emergency: Be it flood, fire, terrorist, illness etc. It is part of being a responsible adult. For those that keep their heads about them, this could be a good time to pick some stocks that the Chicken Littles are running from. Could this get bad, yes, it is a possibility, but being calm and having a plan for your home and finances will make the difference. Hysteria never helps anyone, not on this board and not in the real world.

  • Report this Comment On April 29, 2009, at 8:19 PM, hightonp wrote:

    Hello,

    Sometimes things don't carry on as usual, I am a Geologist and and it is my job to see things changing on a different timescale than what we see on a market or human lifetime scale. A new virus has evolved and quite possibly the next year or two this will affect everyone to a greater or (hopefully) lesser extent. The 1918 virus is estimated to have killed 20-100 million people at a time when the worlds polulation was a third of what it is today. I find these numbers astounding, please do your own research on the 1918 flu virus and make your own informed decision. One thing that is well documented is that flu virus infections are exponential in character: look at the news and make up your own mind in these early days. I worked on the pandemic plan for the company that I work for (as part of their business continuity planning) and this is now being implemented.

    Again I would say that sometimes it is worth thinking out of the box and there are more precious and important things to invest in over the near term.

  • Report this Comment On April 29, 2009, at 8:24 PM, gsharky wrote:

    I bought a bunch of JNJ today, they make Purell sanitizer and hand wipes :-)

    Wen to CVS today and noticed they were sold out !!

  • Report this Comment On April 30, 2009, at 12:22 AM, logicalFoo wrote:

    Gardnermiles, you gotta be joking right? Herbal treatment for viral infections? In the age of the Internet, it really astounds me to find so many people still so uninformed.

  • Report this Comment On May 02, 2009, at 8:40 AM, nullDevice wrote:

    logicalFoo, do you use cough drops? Menthol is an herbal remedy.

    Most drugs are initially derived from herbal sources. Occasionally it is so expensive to synthesize them that the production pharmaceutical is still refined from some plant or another.

    The question is not where a remedy comes from, the question is whether clinical trials support its use as a treatment.

  • Report this Comment On May 03, 2009, at 8:37 AM, nowshade wrote:

    I still have a sneaking suspicion that a virus of this magnitude and complexity cannot derive out of nowhere. The fact that this new virus which is a combination of bird-human-swine flu appeared first in Mexico raises eyebrows of bio-genetic engineers. In Mexico it is not a common practice to grow pigs and birds together. This virus was possibly created in a laboratory. Something went wrong! Probably a Mexican janitor got infected somehow and went back home. Sheer speculation!

    In this scenario, the lab should have some kind of vaccination beforehand. This could be the reason why this drug got FDA approval so quickly.

  • Report this Comment On November 15, 2009, at 5:57 PM, mrasey wrote:

    Hi I'm the author of the Swine Flu Vitamin article that Mobius23 linked to and copy/pasted. I'm actually happy to see my article making the rounds BUT it was posted in its entirety without my permission. Further, the copy/paste can get me into trouble with eHow's plagiarism software causing me to lose revenue if not my entire account at ehow. Could an administrator or a site owner please delete the text of my article from Mobius23's comment?

    I can't find a contact link for the site, so I hope someone sees this comment.

    And may I suggest the adoption of a copyright policy to prevent future infringement?

    Thanks

    Mrasey

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