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Submit ReviewThe media has started comparing the coronavirus pandemic to the 1918 Spanish flu. Jim points out that we can’t compare events that are 102 years apart, but that they have a similarity: they both are a ‘super-spreading event’. As soldiers started returning home at the end of World War I, they brought the flu with them and spread it worldwide. With the modern convenience of air travel, we are engaging in the modern-day equivalent of a super-spreading event. We could see wide-ranging effects similar to that of the Spanish Flu, but only time will tell.
Jim and I discussed some common questions being asked by everyone concerned.
‘R0’ (pronounced ‘R-nought’) is an equation that indicates how quickly an infectious disease could spread. Another way to phrase it is the average number of people who will catch a disease from a single infected person. The best-case scenario is the R0 stays below 1—signifying that the spread will likely die-out. If it rises anywhere above 1 it is likely to continue spreading.
We must preface this by pointing out that this is a variable and multiple factors impact this number daily. If people practice social distancing and isolate themselves if infectious, it can lower the R0 range.
At the time of recording, COVID-19 is at an R0 range of 1.4-3.9 with a variable fatality rate anywhere from 0.7% (in South Korea) to 5% (in Italy). Taking an optimistic viewpoint of the R0 and fatality rate calculation—based on today’s numbers—we could be looking at the possibility of 285,000 people dying from the virus. If you calculate it with a 3.9 R0 and a 1% fatality rate—we could be looking at 2.4 million people (in the United States) dying.
It is concerning, which is why the government is taking action to slow the spread of the virus. The more precautions we take to slow the spread, the lower the R0 will fall—lowering the number of people potentially impacted.
Everyone is wondering—is the market going to crash? Are we about to see a recession? I believe the probability is high. The window of opportunity is open and the Coronavirus is an outside catalyst that could push our market over the edge. A few months ago, this virus didn’t exist. Suddenly, it plunged the entire world into chaos. So how should you move forward with your investment strategy if there is an impending recession?
Firstly, you must always have a well-defined investment strategy. Humans are emotional about money. We work hard for it and feel the need to protect it—which can lead to poor financial decisions. So please find someone who knows what they’re doing to guide you. Gain a basic understanding of how the economy works.
Whatever you do, it is probably not wise to go completely out of the market. If you know what you’re doing and have a good investment strategy you’re looking at probabilities. The average portfolio is a 60/40 split between stocks and bonds. If you are 100% sure that a recession is coming, a defensive strategy would be to shift your portfolio to a 50/50 split. It can protect you in a downturn and psychologically helps alleviate your worry.
The bottom line is we don’t know what’s going to happen. The R0 could drop significantly, slowing the spread of the virus. We could see a vaccine come to market quickly. Warmer weather could slow the spread of the virus (similar to how the flu slows). The Astrophysicist Neil deGrasse Tyson stated “We’re in the middle of a very important experiment worldwide. The question is—will people listen to scientists?”. So stay educated, prepared, and vigilant. Don’t let the mass media misinform you or incite fear. Above all, listen to the people who actually know what they’re talking about—scientists.
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