Yesterday the Dow fell 1,190 points—the largest point decline in history. It sounds apocalyptic, but it was only the 125th worst percentage decline. It matters how we measure these things. Yet all we hear are stories about points. Take from that what you will. In all, the S&P 500 lost 11.45% this week, a swift decline from last week’s all-time highs.

No matter how often we have corrections or bear markets, or how periodic or “normal” they are, we’ll never get used to them because we abhor losses. Even temporary ones drive us crazy. Blame the limbic system and the amygdala which evolved over eons to keep our hunter-gatherer ancestors safe. Unfortunately, our behavioral fight-or-flight responses aren’t well-suited for life in the 21st century; they’re optimized for a world that no longer exists.

Active COVID-19 cases have dropped sharply from a peak of 58,747 on February 17th to 44,314 at the latest count.  94% of total cases and 96% of deaths are from China.

It seems to be particularly bad for people over the age of 80 who have compromised respiratory systems or are generally frail. The biggest threat is pneumonia. China has the largest smoking population in the world; half of all men are smokers. 60% of male Chinese doctors smoke! Ergo, they have compromised respiratory systems. And while they have made great strides, malnutrition continues to be a factor in China. Furthermore, China lacks the healthcare infrastructure to deal with this type of disease. I’m told that the hospitals they built overnight don’t have ventilators. Instead they have oxygen therapy which is basically useless in these cases. So it’s no wonder that the virus looks especially bad in that region.

Developed countries are much better prepared. Singapore is doing a great job of containing the virus. So are parts of Europe. Israeli scientists say they’re just weeks away from a working vaccine. Some American companies are claiming the same. No doubt the day is coming when COVID-19 will cease to be a threat.

Now to the markets.

There has already been a lot of fallout. Look at the cruise lines. The airlines. Theme parks. Concert venues. Movie theaters. Anywhere people congregate in crowds. Some of these stocks are down more than 50%. How much lower should they go? Is it possible that too much damage has been priced in? At some point, negativism has its limits.

Volatility can be disorienting. The S&P 500 just had its fastest 10% decline in history—6 days! Not even the Financial Crisis can top that. Given the extreme uncertainty surrounding the coronavirus, it’s no wonder volatility has been spiking. But you don’t need huge spikes in vol to shake confidence—a little bit goes a very long way.

Consider this: it takes less than one gallon of water to cover an entire city block in dense fog. Take 100 ounces, divide it into 80 billion particles and you’ll bring traffic to a halt. Heightened volatility has the same effect on our collective rationality.

Now to the media.

Can you remember why stocks fell 12.5% in May of 2015? What were the headlines?

At the time, the world was worried about a Greek Default, falling oil prices, and Kim Jong Un’s trigger finger. The fog of volatility was so dense that many investors couldn’t see their hands in front of their faces. Every correction feels like that. This one especially so.

Here are some of the top headlines from back then:

  • Marc Faber warns the S&P is set to crash 50%
  • Today is the scariest day for investors in 17 years
  • Legends of finance have big bets on the stock market going down
  • Something just happened in the stock market that was a precursor to the 1987 crash
  • Why a lot of smart money is betting against stocks
  • RED ALERT—get ready for a ‘severe fall’ in the stock market
  • Investors see no letup to the market bloodbath
  • Crash guru warns the Dow could plunge to 14,800

All that fear-mongering because stocks were down 12.5%. And yet here we are, more than 65% higher than we were then.

Regardless of the crisis, the media is not above lobbing grenades into the foxhole if that’s what it takes to get attention. As someone whose career is spent in those foxholes, I find their zeal for catastrophism more than a little offensive.

I’m not telling you to “tune out the noise” because I don’t find that to be a particularly helpful piece of advice. It’s akin to saying “don’t be human.” But we should be mindful of what we consume and how it affects us.

Nor am I saying that I know how or when this crisis will be resolved. Whatever you read about the virus or the markets, remember this: there are no facts about the future. It is inherently unknowable. That doesn’t mean we can’t do anything; we can rebalance, look for tax losses, and deploy excess cash. If you have cash on the sideline waiting to get invested, let us know.

In Conclusion…

We’ve said for months that we’re in the latter stages of the current economic cycle, which is why we repositioned portfolios last year to be somewhat more defensive without making an extreme market call (something we would never do).

We didn’t know that a coronavirus would be the catalyst for a selloff. Nobody did. There’s no mention of a virus in any year-end commentary that I’ve seen. However, I did provide the following:

Over the last two years, the same risks have been repeated over and over: interest rate hikes, a flattening yield curve, the impeachment, the trade war, and the election. And while people might be worried about these things, nobody should be surprised by them. Business owners and CEOs might be frustrated, but many have prepared as well as they can. Paying attention to known risks is smart, but we should acknowledge that what we can’t see, what we aren’t talking about, and what we aren’t prepared for will probably be more consequential than all the known risks combined. That’s how risk works.

Who knew it would play out so quickly? I followed the statement above with this:

The case for optimism is that we have always muddled through these types of events in the past and we’ll likely always muddle through. The global markets are incredibly adaptive, especially as they become freer and more transparent.

I still believe that.

If these emails are helpful or if you have a topic that you’d like us to address, please let me know by sending a quick note to

Have a good weekend!






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