My Firm's Communication during the COVID-19 Crisis
Clearly, the Corona-Virus pandemic is not cemented in history as the next great crisis. Unlike the last one - the Financial Crisis of 2008-09 - there is a real human survivability element that is the unique wrinkle to our current predicament. While many people will rightfully focus on the health aspect of the pandemic, others will lend some thinking space to the financial aspects. For those, I am publishing the communications that my firm - Resilient Asset Management - has sent to our Clients.
The first note was sent on January 27, 2020. At that point, it was unclear if the market impact was from the Corona-Virus itself or if there was a political aspect to it - call it the Bernie Sanders effect. Here is the note in its entirety:
To the Clients of Resilient Asset Management:
I hope 2020 has gotten off to a great start for everyone.
As most of you have likely noticed, the Coronavirus in China is moving markets worldwide. Obviously, the first order effect is the potential casualty toll the virus can take.
Of other concern are the second order effects such as the freezing effect on an economy with fewer people traveling and others altering their regular spending routines due to either their own choices or government instituted policies. And of course, the other and perhaps greatest impact is fear, and rightfully so - this virus appears to be very deadly.
Up front, as you are all aware, I am not an epidemiologist. However, I wanted to provide some context for you by recalling a similar event - the SARS Outbreak in November, 2002. My source document is here: https://www.cdc.gov/
Here are some facts:
- The SARS Outbreak started in November, 2002 and lasted to July 2003 (9 Months)
- A total of 8,098 people worldwide were infected.
- Of the 8,098 known infections, 774 died. (Note: the Coronavirus numbers as of 9:50 CST Today were 2,900 infections and 81 deaths)
- By late July 2003, no new cases were being reported and the World Health Organization declared the Global Outbreak to be over.
On a practical note, I recall flying on a commercial plane and witnessing passengers rigorously wiping down their assigned seats as well as the bulkhead adjacent to them. Moreover, I saw a few people wearing surgical mask too. Having lived in Japan for 6 years, where surgical masks are very common, I was not alarmed by this. hHowever, this definitely was non-standard behavior.
To reiterate, I am no expert on infections and have no formal training in Epidemiology - and obviously, you are not Clients of Resilient Asset Management for my thoughts on this area. However, my thoughts on how a global outbreak might impact your Investment Portfolios might be of interest to you.
Here are some thoughts for you to consider as to how the Coronavirus may impact your portfolio:
For starters, let's refer back to SARS - here are some facts that relate to a core holding of ours, the Vanguard S&P 500 Index Fund:
- Price per share on November 1, 2002 (Beginning of the Outbreak): $83.28
- Price per share on March 3, 2003 (Mid-Point of the Outbreak): $77.24 (-7.3% from Outbreak)
- Price per share on July 31, 2003 (End of the Outbreak): $91.32 (+9.7 from Outbreak)
As you can see, there was a negative initial reaction in the market that bottomed a few months after the outbreak. This is a typical response as the markets tend to react sharply when pricing in unsettling news and then reality sets in that the world is not going to end. Also, the World's medical professionals - an exceptionally capable bunch - devise ways to combat the disease and the outbreak is eventually well in control.
The Coronavirus market reaction has been somewhat similar with an initial negative turn at the end of last week followed by today's more pronounced move. As longtime readers know, I never offer market predictions - the World's Stock Markets are extremely complex with an exceptional number of independent and dependent variables, thus making predictions - in my view - impossible.
What I do know is that over the course of history, markets have withstood many shocks - World Wars (two of them), the Cuban Missile Crisis, the Oil Embargoes of the 1970s, the Invasion of Kuwait, the Y2K issue, the Gulf Wars, the Financial Crisis of 2008, and some more I have unintentionally omitted. Will the Coronavirus be added to this list - you guessed it, I have no idea.
What I do have an idea on is the long-term greatness of capitalism. None of the events I previously mentioned put even a scratch of the tried-and-true greatness of investing for the Long Term. Nor did they alter the secret sauce of our American Economy that is the envy of the World and has no historical peer. No matter the obstacle, markets, especially in the United States, have marched ever upward and the World is demonstrably better now than it ever has been.
So for anyone thinking about altering his/her investment posture due solely to the Coronavirus, I recommend against it. For Long-Term Investors, intermediate fluctuations are of little concern to you - it is the end-game that counts. And for those Clients with identified near-term financial needs, we have set aside funds in commitments that are unaffected by any virus.
Personally, I am not making any changes to my portfolio and am not recommending you do the same. For those still contributing to your portfolios, the lower prices the near-term fear brings will be kind to your portfolio in the long-term. Remember, lower prices are good when you are buying - it sounds simple, but people tend to forget it when buying equities.
Obviously, the human toll the Coronavirus takes on society is one I wish we could have avoided and of course I hope the duration and lethality of the outbreak is minimized by our medical experts. And my heart goes out to all the individuals burdened by this horrific disease.
As always, if you have any questions about your specific situation, please feel free to contact me directly.
In hindsight, where vision is always 20/20 or better, the numerical comparison to the SARS Epidemic were of course low. And the market movements illustrated were much less-pronounced than the ones we are currently experiencing. Nevertheless, it was early in the game, so I claim the same ignorance I had then.
The second note was sent on February 24, 2020. The intent here was to have an open dialogue about the Corona-Virus and its impact on my Clients. Here is the note in its entirety:
To the Clients of Resilient Asset Management:
Hello, I hope you all are doing well.
Up front, not a single one of you has called me in a panic, which is a great thing....thank you for that.
Bigger picture, us (the bigger Us) getting our arms around this virus, limiting its lethality, and eradicating it is obviously the most important thing.
Practically speaking, it can be gut-wrenching to see red numbers in your portfolio in the density we have seen over the past week. As you probably suspect, I am not suggesting any portfolio-altering maneuvering...I think I have been pretty clear about that in my previous letters.
While Market Corrections - defined as a market downturn of 10% or more - are indeed very common, they do not typically happen over the course of a calendar week. So I will call this correction, at a minimum, unusual as to its timing. The absolute drop is not precedent setting by any means.
Due to the unusual nature of this correction, I am going to host a Conference Call this evening in case any of you have specific questions about the recent market activity or the secondary effects. This call will start at 6 PM Central Time and will go on as long as needed for those wishing to participate. You will receive a separate Calendar Invite in another email.
Accomplishing a conference call brings IT into the mix, which can present problems even under ideal circumstances. Here are some data points for you:
1) The Invite List is being kept confidential to protect people's email addresses - however, if you would like to invite others, by all means, please do;
2) The Zoom Link you will need is the following:
3) If you prefer to call in, the dial-in number is
4) For those choosing to participate, others may be on the line, so I will moderate as best I can - I don't anticipate any issues.
While participation is of course optional, if you do plan to call in, please reply to this email indicating you will participate or reply to the Calendar Invite you will receive. Replying of course does not obligate you; however, it allows me to prepare for what's in-store.
Of course, the door is always open to those wishing to speak to me directly. I emphasize this point to those who are in time zones that make this conference call time difficult. I will make myself available to you should you so desire.
I look forward to speaking to whomever calls-in this evening. In the interim, stay the course...from my aviation background, I have never forgotten this lesson: If you have an Emergency, you can stay calm and you might conquer it. If you panic, typically bad things happen. Meaning, we rarely make good decisions in Panic Mode.
The conference call turned out to be very informative to me. From the Clients who participated, I sensed tremendous calm with no hint of panic, which was a great thing. All participants acknowledged the long-term nature of their retirement investments, and if anything, wanted to increase their commitments to the long-term.
Of course, this was early-on in the crisis and we had not yet come to the present depths. However, given the circumstances, I sensed that generally speaking, Clients wanted to stay the course.
The third note was sent on March 9, 2020. This was after we had the dual-reckoning of the Saudi-Russia Oil showdown coupled with the increased intensity of the Corona-Virus worldwide. Here is the note in its entirety:
To the Clients of Resilient Asset Management:
Hello, I hope you all are well.
As I am sure you are more acutely aware than in my previous notes, the Stock Market is again in freefall. As I am typing this, we have already seen a 15-minute pause in trading, which is a highly unusual occurrence triggered only by large market declines.
In my view, times like these are where Financial Planners truly earn their keep. Reviewing a Portfolio after an up 30% year is JV compared to times like this. Whether the markets are hot or cold, Resilient Asset Management's Fiduciary Duty to you remains the same - and I will NEVER hide from you. Of that, you can be absolutely sure.
How ironic that today's market demise falls on the 11th Anniversary of the Market Low in 2009 - one of the truly great buying opportunities - March 9, 2009 - of anyone's lifetime.
First, a deep breath. That is easier said than done at times like this, though it is essential. Large red number on a stock market ticker can trigger an avalanche of emotions. I have met a lot of people in my life, no one of whom I am aware claims to make better decisions when doused in emotion. Mood swings coupled with decision making can be a toxic elixir. Therefore, a deep breath and reflection are essential in times like these.
Second, financial needs. Any Client associated with Resilient Asset Management passes through numerous financial filters during his/her/their onboarding process. One such filter is the "Current Spending Needs" sieve. At this station, we identify those areas needing cash in the near to intermediate future. Concomitantly, we set aside cash or very liquid, short-term commitments to fund these expenses. For some, that is retirement spending, whereas for others, it is education expenses for their children....there are several other examples. Whatever the case, those spending requirements are not in peril as the assets covering these expenses are unaffected by market activity like we are seeing today. Thus, the deep breath can be a little more shallow for those with identified requirements of their portfolios.
Third, rationality. Markets ebb and flow. Typically, markets stay within tolerable limits having only somewhat imperceptible movements to most. At other times, chaos pervades the market and you see interruptions to your regularly scheduled programming - meaning CNBC interrupts Today on NBC. Looking back through history, market corrections are not uncommon - we had bear markets in the early 1970s, Black Monday in 1987, the Y2K bust, the bursting of the Dot-Com bubble, and the Financial Crisis of 2007-2009...and not to mention the Great Depression. While the circumstances causing the recent market reduction is unique, the size of the correction is most definitely not.
Fourth, perspective. I have written about market turmoil on my BLOG in the past. For an after action report on investing during the 2007-2009 Financial Crisis, please read this: https://resilientam.
While the above article focused on purchasing a broad index fund, I also wrote about how market corrections can present opportunities in specific companies. To read about such an instance, please read this: https://resilientam.
Fifth, patience. It can be excruciating to wait for market prices to return to levels that are personally acceptable to you. While past performance guarantees nothing in the future, historically speaking, being patient can be one of the most profitable activities one can do. Of course, this is easier said than done and you can feel like action of some sort will expedite things. Action can help, though typically action in markets like we have presently are peppered with emotion....please see my first point regarding emotionally-charged decisions.
Sixth, big picture. I have said before that I have no training in Epidemiology and hold out no expertise regarding world-wide oil markets. What I do claim; however, is supreme confidence in capitalism. The Invisible Hand Adam Smith identified in 1776 has stood the sternest test of all - the test of time, which incidentally is the only one that counts. And if I had to bet against humanity or a virus, I will take humans 100% of the time. One way or another, we will conquer this microbe.
In short, my strong suggestion is to do as I suggested in my BLOG post and stay the course. My hope is that sooner or later markets will stabilize, we will get our arms around the Corona-Virus, and then the world will return to normal. Somewhere in the middle, hopefully, markets will catch a bid and we will get back on an upward trajectory.
Meanwhile, supreme patience is in order. I monitor the markets every day and regularly review your portfolios for re-balancing and tax-loss harvesting activities.
As always, if you have specific concerns, I will make myself available whenever you need to speak to me. So DO NOT hesitate to call me or schedule an appointment to speak to me.
This note brings us a bit closer to present day and the dramatic declines we have presently seen in stock market prices. Across the board, no Resilient Asset Management Clients showed signs of panic, this making my job easier than it could have been. For my Clients' commitment, I am ever grateful.
The last note we have sent thus far was sent this morning, March 12, 2020. This was the morning after we learned of the travel ban from Europe and the other restrictions introduced at the Federal level. Here is the note in its entirety:
To the Clients of Resilient Asset Management:
Hello, I hope you all are doing well.
Obviously, these are unprecedented times. Had you told me in December last year that prior to the end of March we would have a travel ban on flights from Europe, a suspended NBA Season, and a Fan-less NCAA Basketball Tournament, I would never, ever have believed it.
Well, those realities are upon us. I won't give you any more statistics or my view of the world, that is not why we have a professional relationship.
My strongest recommendation remains the same - stay as calm as possible and don't panic. Yesterday, I think I perceived the first vibrations of general panic. My thought is that generla panic in financial markets is going to become more pronounced before calm sets in. These are the times for which we have established a cogent financial plan where panic is hopefully minimized because all your essential bases are covered.
For this note, my primary intent is to communicate the soft message that I am here for each of you if you want to talk about your unique and special financial situation, or about the other impacts this crisis is having on your life.
I have spoken or corresponded with most - though not all - Clients...my goal is to communicate with any who desire it. My calendar is free from 9:30 AM CST onwards. I have a stand-up desk, a coffee machine in the office, enough food to last a very good while, and multiple sets of Air Pods. So if you would like to call on your own time on a whim, no problem. If you would like to schedule time, that is fine too.
Bottom Line: you hired me exactly for times like this. And it is my duty to you to be where you need me to be when you need me to be there. Right now, that is in my office, at my desk, with my phone and computer in-hand.
Please be patient and stay calm - this too shall pass.
I am standing by for you----Chris
By today, most people, myself included, had endured the most dramatic crisis since 2008-09, with a chance of getting very sick baked in. The time for "staying the course" notes was done, and we needed to move past that and deal with potential panic, which is the achilles heel of sound finance. Fortunately, Clients are remaining vigilant with no one wanting to make dramatic changes to their Financial Plans.
Could this change? Of course. However, the goal is to have a robust financial plan that reduces the chances of making regrettable financial decisions down to as close to zero as possible. In my little corner of the Financial Planning world, panic remains at bay...hopefully it remains this way. My ultimate hope is I publish an "After Corona" report with all this behind us.
