Opinion - Corona

On Friday, January 17 – after a spectacular 40% run-up that started the day after Christmas 2018 – the Standard & Poor’s 500-Stock Index closed at 3,329.62.

Two weeks later to the day – last Friday, January 31 – the Index closed a little over 3% lower, at 3,225.52. (Indeed, more than half that damage was done on Friday.)

We have therefore been invited by media to suspect that the blended value of 500 of the largest, best financed, most profitable businesses in America and the world has “lost” three percent – with more “losses” to come – due to the outbreak in China of a new strain of Coronavirus. The story was similar in Australia.

Permit me to doubt this, and to suggest that you – as goal-focused long-term investors – join me in doubting it.

I have no 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 (or perhaps most) of the world’s leading virologists and epidemiologists are working on it, and I believe that their efforts will ultimately succeed, at some stage. This is just my opinion and if the history of similar outbreaks in this century is any guide, this would seem to be a reasonable stance.

  • 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

I don’t want to overdo it but when the SARS outbreak started America’s S&P 500 closed at 855.70.

Seventeen years and six epidemics later (including the current one), this past Friday the 17th of January, the Index closed fairly close to four times higher.

I wish quick recovery to those infected, thoughts to those that lost someone to the virus and a comfortable quarantine to anyone stuck at the moment – but from a financial markets perspective, there I always something to worry about.

As always, please call me if you are concerned  - In the meantime, I think the most helpful – and certainly most heartfelt – investment advice I can offer would be that you turn off the television set and stop paying so much attention to facebook scaremongering.

- Nathan Fradley

Note:The history of the SARS epidemic, and of most if not all the others before this one, is very well documented by Wikipedia. The closing level of the S&P 500 on 1/31/2003 is from Standard & Poor’s, as reported by Yahoo Finance.

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