Important Lessons Learned from Coronavirus Crisis

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News on the Wuhan Coronavirus crisis was at its worst last weekend. At that time, the virus cases have drastically increased both in China and in foreign countries. There were even the first two death cases reported outside of China. Coronavirus statistical updates were like a storm that hit the media. All people on the ground were anxiously talking about it.

That was the background when I wrote the article by that weekend. Therefore, I had given two choices of advice for the investor to decide. The first one was to do nothing and wait for one more week of observation. The second one was to quit the market temporarily and enter again at its bottom. Currently, reality proves that the first choice was right. I hope not many of you have chosen the second one. 

Enter Market at its Worst

Through this experience, we have learned several lessons. The first one is that we should enter the market at its worst when all bad news surfaced. When we also feel like running away, we should do the opposite. China market opened for its first time after the Lunar New Year celebration at a loss of 7% with large gapped down. If you buy that day, you are a big winner by now. If you have quit, you will be feeling regretful.  

I have had a mixture of responses at that weekend. I have moved a few funds away partially from US equity to gold-related funds. The reason for this move is not because of fear, but to lessen too much exposure to the equity market without sufficient reserve in the backing for a few of the positions. I have also switched all my bond defense unit into Greater China-related funds for two of my small funds. Not because of taking the opportunity to enter the market at its worst, but rather, it was done to rescue the “troubled” funds, just in case if it is necessary. These two top-down funds are fully (100%) invested without any defense temporarily. 

Chart A ~ China market has recovered almost half of its weekly losses.

For many other portfolios, I did not do anything, because they all have sufficient defenses behind them. After a week of observation, good thing that gold-related funds did not drop too low by this weekend. While US equity markets have recovered and even reached new historical heights this week. These have brought my US equity funds back to where it was before the crisis drop. China’s market has since been moving upward after the Monday drop and has recovered almost half of its weekly losses by the weekend (Chart A). This recovery has helped my two fully invested greater China funds. They are now in positive territory. I shall wait for a while and re- position them properly.  

Chart B ~ Coronavirus update as of February 9th, 2020.

Market Never Waits

Coronavirus has been spreading by leaps and by bounds within this week. The infected cases and death figures last weekend were 11,374 and 259. But it has increased to 37,612 and 815 as of February 9th (Chart B). This increase was merely within a week. Looking at this figure, you would surely have been shocked and would not dare to touch the stock market. But the stock markets have short memories. They all went up without waiting for anyone to catch their breath. 

Chart C ~ Daily record of new cases has slow down since February 5th.

One of the reasons is that the market has detected the rate of spread has been slow down daily since February 5th (Chart C). Secondly, recovery cases have already been out by now (Chart B). The figures are also significantly high. It shows that the coronavirus is not as deadly as the public has feared. This recovery figure has calmed many investors’ nerves down. Thirdly, the Chinese government has been putting a lot of effort into uplifting the economy during that week. Therefore, all these reasons have contributed to the global market to fly high and left the coronavirus all behind in the rearview mirror. 

Market Does Not Repeat History

Pessimistic market analysts have been using virus history to forecast what would happen to market performance this round. Even though they said that the market would eventually recover from all those virus epidemic events but none of them said how long it will take for this time to recover from such a tragic phenomenon. 

It took months for the market to recover during the most severe ones in the past. No one dared to say it will only take weeks for the market to recover this time. The reality proves market downtime was only as short as one week. Analysts failed to see how an intelligent market can be. The stock market learned faster than any analyst. It always beats human intelligence.  

As the saying goes, once bitten, twice shy, the stock market would not be bothered any longer when a similar incidence happened many times already. The same principle applies to trade war when the final settlement has not even been settled. But the market would not wait, it will continue to fly high. It would care less for what will be going on for the trade talk future. 

That’s the reason, we have a good time to invest now. If such a dreary epidemic doesn’t kill the current bull, what else will do? I believe those who have taken the advantage to top-down investment even until 100% invested (without any defense temporary) during this coronavirus epidemic “opportunity” are the best decision they have ever made.

The best is still yet to come! Happy Invested!

(PostscriptIf you happened to take the second choice of decision to quit market out of fear, it is not too late for you to reenter market again right now, because the market has not been fully flying high yet.)

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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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