Investing during the Corona crisis

Marc Kennis Marc Kennis, March 24, 2020

24 March 2020

We don’t have to tell you that for most people right now the world seems to be facing an economic and financial crisis of Biblical proportions – as Australia is not proving immune to the Corona crisis. A little over a month ago, on 20 February 2020, Australia’s ASX200 Index was at an all-time high of 7,162.5 points and the outlook was bright. On Friday 20 March the ASX closed 32.8% lower, at just 4,816.6 points. All because of a fairly weak, albeit novel, virus that, when it infects most people, can cause no more trouble than would a common cold virus.

The mainstream financial media and a lot of your social media feed want you to be pessimistic. Really pessimistic. However, short-to-medium term, we’re bullish.

Be optimistic, like us

Let’s give you several reasons why, in late March 2020, you should be optimistic and get ready to invest again.

The first one relates to the speed with which the market has crashed. If it took forever to crash, it might take forever to recover. Short, sharp crashes leave the field clear for a speedier recovery.

Secondly, there’s the level of fear that’s out there. Go into a supermarket in Australia and you’ll see panic and irrationality that makes 2008 look like a picnic. If that’s what the punters are doing right now, imagine what fear and dumb thinking is going through the collective minds of the investor class. Fear is a great creator of buying opportunities.

We’re reminded of Warren Buffett’s famous comment: ‘Be fearful when others are greedy and be greedy only when others are fearful’.

Then there’s the kind of economy at the back of our currently-panicked financial markets. Unless you just time-travelled here from the year 2050 or you were born around 1999, you would have noticed that the economy of 2020 is not the economy of 2007 or of 1987, as far as an advanced industrial country like Australia is concerned. Viewed from the perspective of the last big crisis in 2007-2009, it’s an Information Economy on steroids.

At Stocks Down Under we’re working from home, like so many of us, and not suffering noticeable productivity deficits, because Moore’s Law has put the tools easily, conveniently and cheaply at our disposal in a way that wasn’t possible for most even a decade ago. That alone makes an economy like ours more resilient that many would think.

Not only is the economy considerably more advanced, but this time around it is not under attack from a weak banking system. That problem was largely cleaned up following the 2008 crisis. In 2020 it’s just a virus – one that can be easily overcome with common-sense public health initiatives of the kind now being implemented by governments globally.

Help is on the way

And while we’re on the subject of viruses, it’s worth considering the advances that have been enjoyed by the biotechnology industry in recent years – an industry we know well, as one of our co-founders, Stuart Roberts, has been following it as an analyst since 2002. Medical science in the 21st Century, including the science of immunology, is enjoying overall doublings in knowledge every year or two. Couple that with a robust and innovative suite of commercial biotech companies that are eager to help – the fruits of the biotech revolution that first happened in the 1980s –and we predict it won’t take long before we have vaccine candidates being expedited into clinical use by helpful regulators.

Then there’s the policy response to the economic side of the crisis. If we could summarise that in a nutshell it would be ‘throw the kitchen sink at the problem’, from lowering interest rates to next-to-nothing, to allowing holidays on mortgage repayments, to governments spending huge levels of GDP to support the economy. A trillion here, and a trillion there, and soon it adds up to real money – and oh so quickly too, compared to a tardy response in 2008. We argue that all this money, while it gives us a debt problem in the future, has got to put a safety net under this market that is currently crashing.

Free economies are more resilient than they may seem

Finally, we want to say that many of our leaders and their advisers seem to under-estimate the speed with which our economy can get up and running again once Covid-19 has been consigned to the history books. The thing about free economies, which history teaches us again and again, is that if policy makers don’t hold back the animal spirits of entrepreneurs with dumb policies, economies can grow very strongly. Just crack open your old copy of Milton and Rose Friedman’s 1980 masterwork, Free to Choose, and read about how the sudden end of price controls in West Germany in June of 1948 resurrected that truly busted economy, and quickly too….the post-war German “Wirtschaftswunder”, or Economic Miracle.

Our economy in 2020 can roar back with German-style alacrity because the relevant skills won’t lie idle for long where people have been temporarily displaced by Covid-19, if only because their customers will be keen to get back to normal.

We’re here to help

Maybe this bear market has further to run. However, allow it to be as severe as the 54% downswing we saw on the ASX200 between November 2007 and March 2009. At the rate the benchmark fell between 20 February and 20 March, we’d get there by around 9 April, the day before Good Friday. That’s not all that long to wait.

Time will tell whether it was right for us to be optimistic in March 2020 or whether it was better to go to sleep until 2021.

One thing is certain though: Stocks Down Under is here to help you navigate these uncertain times with regular analyses of ASX-listed stocks and give you an information advantage to better invest and trade. 

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