Fear of the Virus and Fear of the Market

Fear is in the air; fear of the virus and fear of the market. There is no denying, the new decade has started off on a wild roller coaster ride. Really, when 2019 drew to a close nobody could have predicted the kinds of panic that would ensue in the following months. There is one thing most of us probably already knew. The stock market was eventually bound to go down. The bull market was never going to last forever. There is an unpredictable cycle to the stock market represented by bulls and bears. Bull markets give way to bear markets and bear markets are followed by bull markets. With the stock market, depending on your views and/or retirement situation, this is either the end of the world or a greatest opportunity since the 2008 Recession.

While nobody can predict what the market will be like 1 year from now, 2 years, 5 years, or 10 years from now, I tend to be an optimist on the stock market.  Each and every year for 11 years straight, nobody predicted that it would be a global pandemic that would bring the bull market to an end. The panic over the coronavirus (COVID-19) has brought the world to a halt in many ways. There is a national emergency in effect, travel to Europe has been severely restricted, all kinds of national sporting events have been cancelled or delayed, and bans on even domestic travel are being considered.

Here in New York City, the coronavirus is spreading with over 200 people already confirmed to have contracted the virus. I imagine many thousands more have the virus (possibly even myself), but show no symptoms (yet). There is a state of emergency in effect in NYC; crowds of over 500 people are banned, public museums, entertainment facilities, and local colleges and universities have closed down (and moved online), grocery and department stores have run out of supplies, loads of people are wearing masks and gloves in the street, and rumors of closures of public schools and transportation are widespread. I have never experienced society in this kind of panic before.

Heck, in the weeks before and after events like Hurricane Sandy or even the months after the September 11, 2001 terror attacks, there was no such of level of panic here in NYC. At its core, I believe what most people are really afraid of is the unknown. The market itself, doesn’t react well with the unknown.  And I guess the ultimate unknown is a global pandemic caused by a virus of unknown origin, with unknown quantities, and no known cure. And yes, that is a pretty scary thing.

At the same time, we must remember that human history is littered with pandemics (many of which were far worse than what we currently have now) and they all have one thing in common: they all subsided and life went on. In my lifetime, I remember the fears about SARS (2002-2004) and the H1N1 (2009). In 2009, the H1N1 infected nearly 60 million Americans and killed over 12,000 Americans. It is a sad and unfortunate part of life, but these pandemics all passed. Will we still be talking about the coronavirus a year from now or two years from now? Maybe or maybe not. I don’t have a crystal ball. I can’t see the future. But I am an optimist and looking back at older pandemics, most lasted a year or two then either disappeared or became part of normal life.

I understand the policies of trying to contain the spread of the virus until more knowledge is gained and a vaccine can be developed. And you should definitely take precautions such as washing your hands, staying home when sick, etc., and following the guidelines of medical professionals. But panic and hysteria solve nothing (and the news media is no help in this regard).

As for the stock market, there is a great deal of fear. I noticed this at work where, for the first time ever, the stock market was even brought up as a topic. Several of my coworkers talked about not putting anything into the stock market and that their friends put a stop to their retirement contributions due to the market downturn. In actuality, these downturns are the best time to put money into the stock market for the long term. Most great companies are trading at a large discount with some great dividend yields.

True, we don’t know where the bottom will be. However, we do know that historically all bear markets are followed by bull markets. Bear markets are opportunities for long-term investors, especially dividend growth investors. When dividend stocks trade at a steep discount you can purchase more of them for less money. The more shares you can buy, the larger dividend payout you will receive. Then when the bull market returns you will see the value of your stocks increase. In addition, you will be collecting (increasing) dividend payments throughout. If you reinvested those dividends, you will have seen the snowball grow exponentially.

Like I said, I tend to be an optimist and have a long-term view on things. I am not panicked over the virus or the stock market downturn. Sure, I may be washing my hands more and keeping my work station cleaner, but I am still going about my life. As for the stock market, I see this as an opportunity to invest in some great companies. Despite a few corrections, the market has been on fire the last 4 years (it’s been on fire the past decade). However, lower stock prices mean more shares which means more dividends and thus, means I can achieve financial independence much quicker.

Yes, the speed in which this all happened is quite shocking. It really is horrible that all those thousands of lives were lost and the many more tens of thousands effected. These numbers will increase in the near future. If there is a time not to panic and be strong, it is now.  As for the market, I’m sure many felt it like a punch to the gut. However, the market will recover as well as most coronavirus victims. Sadly, some will not recover… and that is the real tragedy here.

So, what else can be said? Things look like they will get worse before better, but they will get better eventually. Fear is a natural and useful emotion/instinct, but it will not define me. I will take necessary precautions, but what will be, will be. I will continue to live my life and continue investing in the stock market. So, how about the rest of you? Is there are large outbreak of coronavirus in your area? Are you taking precautions? Do you see the market downturn as an opportunity or disaster? Do you plan to continue investing? Are you panicking?  Let me know in the comments below! Stay well!