I started investing in February of 2009 -- roughly the greatest time ever to put money into stocks. Since then, I've regularly invested whatever I could. The European contagion, the U.S. sovereign debt crisis, Brexit -- none stopped me from continuing.
But with COVID-19, my approach changed entirely. For the past three weeks, I've considered putting any new money into stocks far too dangerous.
That's now changed. While I don't necessarily believe there's a ton of immediate upside present, my perspective has shifted from fear toward hope for the future.
Read below to see why, and the dramatic change I believe we witnessed on March 10th that once again has me -- and hopefully you -- ready to buy stocks.
Coronavirus the disease vs. Coronavirus the economic event
As we listen to what's being discussed in the public sphere, most commentary falls in one of two camps.
- Coronavirus the disease: These are doctors and public health officials who are discussing the sickness: how many are infected, fatality rates, and what steps need to be taken to stop its flow.
- Coronavirus the economic event: Business news channels cover the stock market's plummet and what economic moves are being made to mitigate the circumstances.
Between these two, the first camp has gotten all of my attention. Here's why: besides financial provisions that help people stay/work from home, I believe all leverage to help the situation resides in the public health sphere.
Coronavirus represents a tail risk that most people are completely unfamiliar with. The exponential rate of growth is breathtaking. Consider these facts:
- On February 20, there were 10 confirmed cases in the United States.
- By March 10, there were 949 confirmed cases.
Here's what that looks like:
A little back-of-envelope math paints a scary picture -- especially when you consider "confirmed cases" represent an absolute minimum:
- Crossing 10,000 confirmed cases on March 20.
- Crossing 100,000 confirmed cases on March 28.
- Crossing 1,000,000 confirmed cases on April 7.
Thankfully, there are steps that could change this scenario dramatically -- namely social distancing. But for the most part, it didn't seem like anyone with the power to make such interventions was willing to do so.
My thinking was simple: if this many people are getting sick, crushing our healthcare system in the process, the fiscal losses for our country are entirely uncapped. I don't want any part of investing in such a scenario.
I didn't sell anything as a result, but my cash position built to 13% of my portfolio (thanks in part to the rest of the portfolio -- stocks -- falling).
The signal that changed my mind
Then, on March 10th, the message being sent by certain parts of our country started to change dramatically. It started when New York decided to call in the National Guard to New Rochelle.
What followed was a blur of college cancellations/online-only instruction. Technically, Stanford and the University of Washington got the ball rolling on March 7th -- which makes sense as both are near coronavirus epicenters. But it didn't stop there: by the 10th, the cancelations spread far and wide across the country. Even Alphabet decided to tell all North American employees -- not just those near epicenters -- they had to work from home.
And now, the NBA, NCAA, and Major League Baseball have all announced major changes in operations, to varying levels. Expect this trend to accelerate in the days and weeks ahead.
Make no mistake, these cancellations will cause their own set of hardships. And the K-12 cancellations that could soon follow will put a strain on families and communities. But the message behind these decisions -- decisions made without a centralized directive -- are loud and clear: We are taking this threat seriously and will do whatever we can to stop it.
As Rusty Guinn wrote at the finance-related Epsilon Theory website, the consensus that cancelling is the best decision has taken hold:
Defecting from this consensus and continuing with a large-scale event is an expression of pure risk. There is practically no upside and significant public, political downside to pressing on. There is practically no public cost (i.e. excluding event sunk costs) at this stage to cancelation.
With that message, in my mind, the losses -- financial and otherwise -- that we'll experience are finally starting to be capped.
The road ahead
I'm not going out and investing every last cent today. I'll start buying stocks in small chunks over the next two months.
The statistics we see will get worse before they get better. Confirmed cases, deaths, and the toll this takes on the economy will be a shock to our psyches.
And of course, stocks may continue to fall in kind. But it's important to remember that reality often lags the stock market -- especially when a recovery sets in. The S&P 500 hit its Great Recession low on March 9, 2009. Unemployment didn't reach its worst figures until seven months later.
There's no telling where the market's lows may be. I'm OK with that, and you should be, too.
And before piling everything last cent available into stocks, there's another message from Guinn's post that's worth repeating. We need to use the resources we can to help our neighbors. That means:
- Spend if you can: We can help service vendors -- like restaurants and bars -- by tipping generously and ordering often when it is both safe and possible.
- Being a good neighbor: Checking in with neighbors to be sure the elderly, immuno-compromised, and households that cannot get out of work (and thus have no babysitters) are getting whatever support we can offer.
- Donating: It's highly likely this will disproportionately affect society's most vulnerable. Find a local food bank, shelter, or medical organization to donate to.
This doesn't mean you can't invest your nest egg wisely. In fact, that's exactly what you should do. Just remember to take care of all the people around you as well. And be glad our long-term losses are finally starting to be capped.