You’ve heard about that disease sweeping the world, right?
It can cause fever, cough, body aches, fatigue; sometimes vomiting and diarrhea. Most cases are mild, but others are quite severe, even fatal in rare cases.
Around the world, nearly 1 billion people come down with this malady…9 to 45 million in the US alone. Between 12,000 to 60,000 die of the disease each year in the US alone.
You’ve heard of this disease, right?
It’s called “the flu.”
Not the one you were thinking of? Oh, right, you were thinking of the new one…what’s it called…Coronavirus. Or COVID-19 as the official name is abbreviated.
I’m not making light of either the flu or COVID-19. I had the flu this year and for about six hours I thought I might be one of the annual fatalities. It was awful.
But if you read a headline that said, “Over 1,000 may die of COVID-19 in the US alone!”, you might spark a panic. Change “COVID-19” to “flu,” and you get a yawn.
The fact that no one sees into the future causes outsized responses (panics?) to new risks, like COVID-19. We don’t know how bad it could get, but our imaginations can work in overdrive to fill in the blanks.
Yet history surely has something to teach us.
In the last 30 years, there have been too many worldwide disease panics to mention here, but a small sampling may include some you remember: swine flu, SARS, Avian flu, Ebola 1, Zika and even HIV/AIDS. In each case, commentators wondered aloud and in print, “What if we don’t find a cure?”
And in each case, we did. Or at least a response that worked.
Nearly 100 years ago the Spanish flu killed more people (over 20 million!) than did World War I, which was taking place at the same time.
None of this is to say COVID-19…or the next significant viral outbreak around the world…isn’t serious. If you or someone you know is sick or dying, it is serious business (no matter the cause).
But we can tend to give financial markets too much credit for their ability to properly analyze and appropriately react to “new things,” like COVID-19. We assume financial markets are made up of super-intelligent people who make rational evaluations of all these new risks that appear suddenly.
Yes, there is plenty to spook us. Not only is this disease new and unknown, it originates from China, which now accounts for about one-third of global trade.
So, the stakes (as always) are certainly high. If the virus abates and the economy can sustain growth, then the recovery will begin quickly. If the virus continues to expand around the world, profit growth will suffer as will financial markets.
But the historical perspective has been very consistent…non-financial shocks to the financial system have been short-lived. Real, but short-lived.
No one can tell you this time won’t be different. But a lot of money has been lost by optimists and pessimists alike telling themselves, “this time is different!”
If you are investing with the faith that free markets are still the surest way of seeing that wealth is created long-term, the short-term gyrations of market pricing are just a distraction. It’s nothing to get sick over.
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