As I wrote my February newsletter I couldn’t help but notice things changing in the blink of an eye. Here is what it feels like as we end March.
Coronavirus is impacting all aspects of our lives. In addition to the obvious medical costs there are other important variables to consider. Quarantining strains our relationships. Social distancing is having a pronounced impact on employment and the economy. The fallout from this creates heightened uncertainty about the economy, which manifests itself in the fastest drop in the S&P 500 in history. Combine lack of control over the situation with the negative news cycle and everyone quarantining makes it is easy to see why everyone is so pessimistic.
During these periods it is important to take a step back and reflect. So much of our outlook is driven by perspective. However, perspective is limited to our experiences. Here is a Gallup poll of the most important events of the 20th Century.
Notice anything absent from this list? The two pandemics everyone is citing as prior instances of our current crisis: The 1918 Spanish Flu and 1957 Asian Flu. Neither of these events ranks in the top-18 most important events of the 20th Century. The Great Depression came in at #10. How much does recency bias impact the rankings? Impossible to quantify, but important to recognize that in today’s environment we are all susceptible to this cognitive bias. Current events make everyone’s default outlook pessimism.
However, data from the last 500 years of human history would indicate this is a very incorrect outlook to hold. Check out the website ourworldindata.org or MyOrdinaryLife. Here are some charts highlighting the improving human condition.
Are things perfect? No. Things will never be perfect. If the last 100,000 years of human history provide any guidance, it is that over the long-term, we will adapt, survive, and thrive. That’s a pretty good track record on which to base optimism.
Now how does this impact my investing?
Simple. I am extending the frame of my perspective. It is impossible to turn on the TV or read an article not highlighting the troubling events unfolding before us. Fortunately, the events of the next 6, 12, or 24 months represent a chapter in a much longer story. Understanding what is happening today and how it will impact the businesses that I own is important. Having answered that question, my attention has turned to focusing on the next few chapters. I am looking for businesses and industries that will come out of today’s environment stronger than they entered.
What can you do?
At the risk of sounding like a broken record, the first and most important thing you can do is create a financial plan. No one planned for a global pandemic. However, periods like this represent golden opportunities to create and execute an investment strategy. More people have reached out to me about investing in the last month than at any other point since I started Spring City Partners.
If pessimism is holding you back from investing give me a call or shoot me an email.