Dear Clients and Friends,
On Wednesday, February 19th – after a spectacular 40+% runup that started the day after Christmas 2018 – the Standard & Poor’s 500-Stock Index closed at 3,386.15, a record high.
As I write mid-day today – Friday, February 28th – the Index is hovering around 2,900, about a 15% decline. This is officially “correction” territory and approaching the 20% decline that defines a “bear market”.
We have therefore been invited by financial media to suspect that the blended value of 500 of the largest, best financed, most profitable businesses in America and the world has “lost” fifteen percent – with more “losses” to come – due to the outbreak in China of a new strain of coronavirus.
Permit me to doubt this, and to suggest that you – as goal-focused long-term investors – join me in doubting it.
I do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. The human cost is, of course, tragic and I don’t mean to ignore this point. At the same time, 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. Clearly, this is nothing more (or less) than my personal opinion.
But if the rich history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis. This outbreak is the sixth such worldwide virus in the past 17 years. And each one was hyped by the media as the next “super virus” or “epidemic”.
I draw your attention to:
- SARS in 2003-04, also originating in China
- The bird flu epidemic in 2005-2006
- In 2009, a new strain of swine flu (interesting side note…my son and I are both swine flu survivors)
- The Ebola outbreak in the autumn of 2014
- The mosquito-borne Zika virus outbreak in 2016-17
Without belaboring the point: the super-spreader of SARS – a fish seller – checked into a hospital in Guangzhou on January 31, 2003, basically infecting the whole staff. The epidemic exploded from there.
On that first day of the litany of epidemics cited above, the S&P 500 closed at 855.70. Seventeen years and six epidemics later (including the current one), the Index stands at more than three times higher. I’m confident that you see where I’m going with this.
As always, I welcome your inquiries around this issue. 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.
Clients of Oxford are well-acquainted with our Power of 5 Investing philosophy. We believe that portfolios should be tied to your long-term goals, with an appropriate balance between Stability and Growth. Our retired clients have already set aside an appropriate cash reserve in their Stability Bucket that will sustain their upcoming withdrawals during this temporary market decline. If someone you know is considering selling their stocks at today’s fire sale prices, have them give us a call. We’ll be happy to help them design an appropriate goal-focused portfolio, and coach them to stay the course.
Erik J. Christman, CFP ®, CPA
Managing Partner, Oxford Financial Partners
p.s. 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.