One of my favorite memories from my time playing high school sports is the summers that I got to attend Five Star Basketball Camp. At the time, Five Star camp was the top basketball camp in the nation, and the best high school players from all over the country would attend as though it was a mandatory requirement during summer vacation. The camps would be held on various college campuses, often giving campers an immersive camp experience that could last weeks at a time. The camp itself was designed to develop talent, not just showcase it. In fact, the major purpose of 5-Star camp was to instruct players how to play the game even better. Each year I was there, i felt that I learned how to be a better player; and I had the joy of getting to share the courts with players that would go on to have professional careers in the NBA and Europe.
Each day, the camp would gather as a whole to provide us athletes some recovery time, and during this time, we’d get to listen to a lecture by a well-known coach or player. One year, a speaker issued a challenge when it came to preparation. He said, “There will come a time when Winter will ask you what you did all Summer…If you want to be great, you have to pay the price."
Ask any serious athlete, and they’ll tell you that offseason is mostly a myth. Yes, there are some mental health days and some designated recovery times; but as you go up in the ranks of competitive sport, you’ll find that the preparation required to stay there is no joke. Most athletes first come to this realization when they get to college because for many great high school athletes, college is the first time that athleticism is no longer enough. It shifts again with professional leagues as professionals are the elite of elites.
I share this story because I’ll be 40 years old this year, and I can still see my teenage self sitting on the floor in that gym hearing those words for the first time. After all these years, I’ve never forgotten that experience because I feel it applies to so many areas in life—but especially personal finance.
You might have noticed that the last week hasn’t been kind for investors. If you need a visual, take a look at the following charts. One chart will show major global indexes Year To Date, while the other shows the most recent 5 days (this is being written after the market close on Thursday, Feb 27th). Friday didn’t look any better for us investors.
Global Indexes Year-to-Date Feb. 27th, 2020
Global Indexes Feb. 21st - Feb. 27th
The truth is that we’ve seen some significant selling this week due to fears of the Coronavirus or COVID-19 outbreak. With so much misinformation out there, it’s easy to focus on fear instead of fact. To counteract that instinct, I’ve included some facts concerning the COVID-19 virus (all current as of February 28th).
The WHO now has the total number of confirmed cases (globally) at 83,652. The total number of deaths 2,858. Let’s take a look at this data in comparison to the flu…
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The CDC has not yet finalized these numbers, but these type of numbers occur every single year with influenza. Imagine if we heard the same level of alarm in the media regarding the flu.
What's not being highlighted by the media? There’s a different site, WorldOMeters.info/coronavirus that give us different data:
Total cases number 85,983. However, 79,257 cases are in China. Another 3,150 cases are in Korea. China has a population that exceeds 1 billion, and many of the cities in China have populations larger than individual states here in the US. A quick Google search for “Wuhan population” shows that over 11 million people live in and around the metropolitan area of the city. Therefore, if Wuhan (a city) was a state here in the US, it would be the 8th largest state due to population Source: http://worldpopulationreview.com/states/ *Wuhan is where this bug originated.
As we begin to look at the numbers in more context, they don’t appear to be as frightening.
Of the confirmed cases, 39,801 people have recovered and been discharged. Meaning there are only 43,241 case are still ACTIVE cases--- not the 83k number that continues to be used by the media. From the deaths reported, 26.4% of fatalities are coming from people ages 60+. Even that data is skewed with 14.8% of that number being folks over age 80!
*This chart was created by Worldometers.info and reproduced with permission. You can find the updated chart on worldometers.info website.
There are also some co-morbidity factors at work in the death cases, where patients that suffered from cardiovascular disease, diabetes, respiratory disease, hypertension or cancer had higher probability of dying than a patient with zero pre-x conditions. Patients with zero pre-x conditions have .9% death rate.
Basically, this thing is a serious matter, but it seems the largest number of people who are dying from this are older and/or already have health concerns. Please hear me when I state that these deaths are tragic, and in no way should we be desensitized to loss of life. I’m simply trying to point out that I sincerely do not believe that this is the coming of a global plague.
That being said, we will continue to monitor things. There are some very positive developments—some you could only dream about in the past. For instance, medical scientists have already mapped the genetic sequence of this virus, and they are expecting to begin human trials of a vaccine in 6 weeks (or less). Folks, this is light speed compared to different times in history. Our advances in modern medicine are beginning to borderline on miraculous.
Whew. That was quite a bit of digging. Where was I again— Oh, the importance of Preparation.
When we sit down with clients, we work hard to learn all we can about their goals and priorities. As much as we can allow, we want the financial planning process to be a collaborative effort. As part of that planning process—a part that never leaves—we must continuously assess our plan’s progress toward our goals. This includes an understanding of how prepared we are for what we call Black Swan events.
A Black Swan, according to Nassim Nicholas Taleb, is an event that is very difficult to predict, high consequence and appear to have been predictable after the fact. I believe this coronavirus event qualifies as a black swan. These types of events are one of the reasons we seek to prepare and plan the way we do. While it’s not nearly as exciting as investing and potentially earning large market returns, risk management always deserves a seat at the planning table. Events like this one are why we emphasize the need for a written income plan in retirement and a clearly defined investment strategy when trying to grow and protect your wealth.
What Happens Next?
Any attempt to predict the future from here is at best an educated guess. Here’s my list of expectations:
- I’m optimistic that the global effort to attack this virus will amaze us all at what can be accomplished when people unite to achieve a common goal. The abilities of technology and modern medicine will shine.
- I believe that, while there may be some economic implications due to the disruption, they will be temporary.
- The global economy will be forced to re-evaluate relationships with China. For years, China has been able to play unfairly in the global trade game, which has resulted in many countries placing key supply lines and manufacturing facilities in China. Communism does not work as an economic system, and this type of event only amplifies how vulnerable China can make the global economy. I expect that there will be further supply chains leaving China. How this impacts the Chinese? Only time will tell.
- This will bring US Healthcare to the forefront of our national politics. Yes, we are hearing about healthcare again—mostly because it’s an election year. However, this potential pandemic will reveal a great deal about our system (both the great parts and the flaws).
- I feel strongly that markets will recover. This is the price we pay as investors for the growth of our investments. We endure market tantrums and investing winters because that’s part of the game. Our human nature fails us in times like these, which is why industry savant Nick Murray says “Human nature is a failed investor. Remember, investing is and always has been about the future. If you have done the work and created a plan, then I say “Onward.”