After a spectacular 2019 for most diversified investors, this week’s S&P 500 index value appears to be on track for closing the week at a significant dip, and as of this writing represents an approx. 10% year to date dip.
We have therefore been invited by financial media to suspect that the blended value of 500 of the largest, best financed, most profitable businesses in America and the world has “lost” value – with more “losses” to come – due to the spread of a new strain of coronavirus that started in China.
Permit me to doubt this, and to suggest that you – as goal-focused long-term investors – join me in doubting it.
I do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. I’m reasonably certain that many of the world’s leading virologists and epidemiologists are working on it, and I believe that their efforts will ultimately succeed. Clearly, this is nothing more (or less) than my personal opinion.
But if the rich history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis.
I draw your attention to:
- SARS in 2003-04, also originating in China
- The bird flu epidemic in 2005-2006
- In 2009, a new strain of swine flu
- The Ebola outbreak in the autumn of 2014
- The mosquito-borne Zika virus outbreak in 2016-17
Without belaboring the point: the super-spreader of SARS – a fish seller – checked into a hospital in Guangzhou on January 31, 2003, basically infecting the whole staff. The epidemic exploded from there. On that first day of the litany of epidemics cited above, the S&P 500 Index closed at 855.70. Seventeen years and six epidemics later (including the current one), yesterday’s Index closed fairly close to three and a half times higher. I’m confident that you see where I’m going with this.
A couple points from Jeremy Siegel today, a well-respected Wharton school professor:
- This is serious but limited – certainly not like the 2008 financial crisis. No systemic problems in the financial area (i.e. will not freeze credit like during the financial crisis)
- Long term uncertainly is not at all increased as a result of this virus
- Probably no more than a one-year hit to earnings, so recovery could be swift
As always, our team welcomes your inquiries around this issue. In the meantime, I think the most helpful – and certainly most heartfelt – investment advice I can offer would be that you continue to focus long-term and not panic over a serious, but most likely limited financial event.