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Weekend reading: Bring me sunshine

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What caught my eye this week.

Feels like only a couple of weeks ago I was reminding everyone via Weekend Reading that shares can go down as well as up.

Actually that’s because it was on a couple of weeks ago. Twice.

I needn’t have bothered. The past ten days – and most especially the past week – has provided an exhilarating reminder that stock markets can fall faster than you can say “no, for the hundredth time, UK government bonds are not riskier than shares.”

Indeed this has been the fastest decline from a high for the US stock market of all-time. UK shares are down 11% for the week, too, and the average UK pension fund has lost a whopping 5% to 6% of its value since Monday. Put that into your SWR calculator and smoke it.

Things were definitely feeling freaky by the fourth day of 3-4% declines. When the US market bounced higher into the close on Friday – perhaps on the expectation that central banks will make some sort of statement about interest rate cuts this weekend – you could almost feel the relief, even though all the main indices still ended the day in the red.

UK government bonds, for the record, are up.

Unstoppable

Just in case you’ve been living in a bunker – which is where we’ll all be in a few weeks, according to some – the cause is the novel coronavirus. COVID-19, as we groupies have started to call it.

This pesky not-quite-a-critter has been causing traders to second-guess their portfolios since it came onto the radar early this year. Only a few weeks ago I spoke with The Accumulator and revealed that I’d moved to my largest ever cash position in my portfolio, naughty active trader that I am. But in case that sounds clever, know that I’d halved this horde by the middle of the month when I saw the log graph of Chinese infections flattening out and thought, like many, that the end was possibly in sight.

Oops!

Below are two resources I’ve been glued to for weeks. You can take what you want out of the data they present – squint and it’s still possible to be optimistic – but for me that’s the beauty of them. Just the facts, ma’am:

I’ll keep checking in with those sites, but I suspect we’re in new phase now.

Everything changed for me (and many others, it seems, given the market sell-off) when it became clear that Italy had a major outbreak on its hands, almost overnight.

Italians are a warm, sociable, and tactile people with a beautiful country that people like to visit. I felt it was potentially game over for containment after that.

I won’t bore you with too much of my poundshop epidemiology. Suffice to say I have come to see the logic behind medical views like this:

Lipsitch predicts that within the coming year, some 40 to 70 percent of people around the world will be infected with the virus that causes COVID-19. But, he clarifies emphatically, this does not mean that all will have severe illnesses.

“It’s likely that many will have mild disease, or may be asymptomatic,” he said.

As with influenza, which is often life-threatening to people with chronic health conditions and of older age, most cases pass without medical care. (Overall, about 14 percent of people with influenza have no symptoms.)

The whole article is worth a read if you want to know more lore about COVID-19.

Incalculable

Perhaps the coronavirus will be with us for a year or longer, until it burns itself out.

Three months ago it didn’t exist in humans.

What does this mean for the world, for its economy, and for the future earnings of companies?

Markets are not falling because teenage traders are scared witless of a bogeyman. This seems much bigger than SARS and much deadlier than swine flu. To my mind the declines are a rational response, as investors try to discount three aspects of this health scare:

  • The economic cost of the disease and death it causes.
  • The economic cost of the attempt to avoid that disease and death.
  • A bonus uncertainty discount because this situation is novel and we don’t know how exactly different companies and sectors will fare.

Only a market actually has any hope of figuring this out, because it’s so darn complicated.

For example, people may think it’s a practical idea to close airports and send everyone home from work. But that would have a massive economic impact, with long-term consequences.

Tax receipts would be lower, for instance, and so spending on other deadlier illnesses stretched. The supply of food, drugs, and other essentials would be disrupted. You might kill hundreds of people out of sight in an effort to avoid a couple of hundred people catching COVID-19 and a dozen dying a month before they would have anyway.

This is a nasty virus and any death it causes is a tragedy for that person and their friends and families. We should take reasonable steps to slow it.

But look at who is most likeliest to be killed by the virus1:

*Death Rate = (number of deaths / number of cases) = probability of dying if infected by the virus (%).

Source: Worldometers

The blunt economic truth is many if not most of the small minority (c.2%) of infected people who may ultimately be killed by COVID-19 would probably have died of something else before too long, anyway2. It’s horrible to think in these terms, but this is exactly the sort of choice governments are forced to make when deciding how to respond.

It’s also what the market is trying to guesstimate. Actual deaths will probably not be too insanely disruptive in a strict economic sense, even if it becomes a pandemic. (Most of its victims aren’t working, and most of their consuming is done.) But trying to slow the rate of deaths could still cost global GDP at least a trillion dollars, according to one estimate by economists today. That’s a high price to pay for something that may not even be effective.

Singapore and China have seemingly had some success in containing the virus. However it’s hard to imagine Western populations following their protocols.

Slowing down the rate of transmission could get us to a vaccine with fewer COVID-19 deaths. That would be desirable, notwithstanding my earlier comments about unintended consequences.

But keep in mind this kind of virus mutates. So a vaccine may not be fully effective, and would probably need continual updating. Or it may arrive when the virus is close to extinguishing itself anyway, and ultimately be of little practical use.

Unwavering

To my mind then the market declines have been orderly and pretty logical, in the face of the potential disruption. Outside some extremely expensive-looking glamour stocks and some clearly threatened individual sectors (especially tourism), most markets have declined by about 10-12%. Sectors have similarly declined about 10-12%. Everything has de-rated a notch, in other words, mostly from high levels.

The market seems to be saying we’re all in this together. Not quite the spirit of Brexit Britain or Trump Towers, I understand, but probably true. So its best response is to knock a year or twos of profits off the spreadsheet and wait to see if there’s a reason to put them back on, or else to get more aggressive.

So much for the wisdom of crowds. What should individual investors do?

I can tell you what investors have been doing, which is trade. Retail investor favourites like investment trusts plunged on Friday morning before recovering as the day went on. And in the US, Friday saw the first ever $100 billion trading volume day in a single security – the S&P 500 ETF with the ticker SPY.

As I noted on Twitter on Friday morning:

At least one UK broker/platform seems to have frozen with today’s torrent of selling and is currently unable to execute trades. 2008 vibes. Please don’t panic. There are bad scenarios but there are also many scenarios. Hopefully your diversification is working. Take a breath.

In the follow-up I was asked what somebody should do if they were 10% down.

The midst of a panic is the wrong time to be asking yourself this question. I replied:

I understand it is easier said than done. Passive investing has delivered tremendous gains over the past decade, but when markets fall it can feel like you’ve set up your sun lounger in front of a combine harvester.

But weeks – or months or even years – like this are part of the deal when it comes to risk assets. We wouldn’t get those great returns without pain along the way, because if there was no pain then everyone would be at it and the gains would go away.

So stay calm. Stay diversified. Remember we’re playing a long game.

And have a great weekend! With a bit of luck the sun will come out soon. A bit of Spring might slow this thing down, if and when it takes off here.

More on Covid-19:

  • Yes, it’s worse than the flu: Busting the coronavirus myths – The Guardian

From Monevator

How to calculate the capital and contributions you need in your ISAs and pensions – Monevator

From the archive-ator: The simplest, most effective investment decision you will ever make – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!3

Two-in-five are draining their pension pots at a rate of 8%+ annually – ThisIsMoney

UK house prices rise at fastest rate for 18 months – The Guardian

Gains in UK life expectancy stall after decade of austerity, report says [Search result]FT

The data-heavy Credit Suisse Equity Yearbook: 2020 edition is here – Credit Suisse

Dollar cost averaging vs. lump sum: The definitive guide – Of Dollars and Data

Products and services

The Financial Times has launched a campaign for clear pension charges [Search result]FT

Freetrade has just cut the cost of Instant Orders to £0, so it’s now free to trade instantly – Freetrade [We both get a free share when you sign-up via that link]

ISA season will be another damp squib for cash savers – ThisIsMoney

“My investing firm won’t let me move half of my Isa funds to a rival without losing the tax wrapper”ThisIsMoney

RateSetter will pay you £20 [and me a cash bonus] within 30 days of you putting in your first £10 – RateSetter

Monzo and RBS to enable customers to check their credit scores for free, in-app – Finextra

Funds versus investment trusts: A simple 10-year test – IT Investor

Why a ‘best buy’ fund from a selected list isn’t a sure bet [Gasp!]ThisIsMoney

Comment and opinion

A crisis is the worst time to learn your risk tolerance – Pragmatic Capitalism

Warren Buffett’s sobering advice: ‘Reaching for yield is really stupid’ but ‘very human’ – CNBC

A rebalancing recap – Money Observer

Is £12 million enough to retire on? – Fire Vs London

You don’t owe your company your undying loyalty… – Slate

…sometimes you just have to ‘shed your skin’ and move on – Indeedably

Simon Lambert: Will the chancellor be brave enough to get rid of the 60p tax rate? – ThisIsMoney

A truly bold chancellor would scrap National Insurance and merge it with income tax – The Guardian

Markets have always been rigged, broken, and manipulated – A Wealth of Common Sense

Should index funds be illegal? – Matt Levine via The Big Picture

The easy path to retirement – The Simple Dollar

Naval Ravikant: How to get rich [Podcasts, with notes, two months old]Podcast Notes [hat-tip Zude]

Naughty corner: Active antics

Judging VC skill: The hardest problem in finance? – Byrne Hobert via Medium

The massive divergence between large growth stocks and small cap value – Alpha Architect

Warren Buffett’s 2019 letter to Berkshire Hathaway shareholders [PDF]Berkshire Hathaway

SSE: An investment in a greener UK power grid? – DIY Investor

The other dark side [Short US bonds]The Macro Tourist

Diageo is overvalued – UK Value Investor

How to start a hedge fund [Video, US]The Compound [Wish I’d thought of this name for a podcast!]

Politics and Brexit

Post-Brexit, Britain is going its own way. It looks expensive – The New York Times

Kindle book bargains

[Note: These deals will only run until the end of Saturday]

Lab Rats: Why Modern Work Makes Us Miserable by Dan Lyons – £2.99 on Kindle

Secrets of Sand Hill Road: Venture Capital—and How to Get It by Scott Kupor – £1.99 on Kindle

Hit Refresh: A Memoir by Microsoft’s CEO by Satya Nadella – £1.99 on Kindle

Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker – £0.99 on Kindle

Off our beat

Where did the weekend go? How work stole our Saturdays and Sundays – The Guardian

Why you can’t sell your business – Permanent Equity

Netflix’s Love Is Blind makes one wonder: Are straight people doing OK? – Guardian

And finally…

“The beauty of value investing is its logical simplicity. It is based on two principles: What’s it worth (intrinsic value), and don’t lose money (margin of safety).”
– Christopher H. Browne, The Little Book of Value Investing

Like these links? Subscribe to get them every Friday!

  1. From the site: This probability differs depending on the age group. The percentage shown below does NOT represent in any way the share of deaths by age group. Rather, it represents, for a person in a given age group, the risk of dying if infected with COVID-19. []
  2. Barring a mutation into something nastier. []
  3. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 78 comments… add one }
  • 1 Joe February 29, 2020, 7:30 am

    It has been a tough week, even for someone in the accumulation phase with 15+ years of buying left, like me. I have moved passed the start and the sell down brought about my first 5 figure lose in my portfolio. Even if I should be happy that my next months purchasers will be less, it still hurts and I even started second guessing myself. I managed to maintain my discipline and your weekend reading article has strengthened my resolve to continue with the Plan. Thanks

  • 2 Ali February 29, 2020, 8:12 am

    Typical. Last night me and the Mrs did our end of month financial spreadsheet.
    I hadn’t logged in all week for obvious reasons and I told her not to.

    Let’s just say it ended with her going upstairs saying “I hope you know what you’re doing”.

  • 3 C-strong February 29, 2020, 8:51 am

    I would have been fine with the correction as I had decided (always having been 100% equity) to move to 30% bonds but put 10% back into equities in the event of the S&P 500 falling below 2,750 (it hasn’t yet but touched 2,850 yesterday) – a little bit of cheeky overbalancing.

    The only problem is that I’m still waiting for a large transfer in from my old pension fund into my SIPP. I had three different funds and if it’s of interest to others planning this the transfer times were:

    Standard Life – 4 days
    Scottish Widows – 7 days
    Willis Towers Watson (where most of my pension is) – 5 weeks and still waiting… no idea whether I’m still in equities or am now in cash.

    That’ll teach me to try and time the markets!

  • 4 JimJim February 29, 2020, 8:57 am

    Interesting at work this week to see the reactions of various people in workrooms around campus towards the Covid-19 virus. I am a union H+S Rep and, as such, listen on a weekly basis to H+S concerns.
    The vast majority are just “business as usual, somebody else’s problem, I’m sure it will be OK, these things happen” . Perhaps 5% are demanding that management get pro-active with cleaning regimes, masks and plans for shut down, looking at vulnerable older staff, and a further 5% are in denial with glib statements like “5% death rate, I like those odds and one individual who surprised me with ” It’s about time we had a cull”.
    I think this perhaps is a reflection of the wider audience. Time will only tell if things play out as bad, worse or better than the market. So far my personal risk tolerance is holding. A long game is still my plan. I may be a new VW golf down on the week and I may be saying the same thing next week but I wasn’t in need of a new car anyway.
    JimJim

  • 5 Rob B February 29, 2020, 9:12 am

    An interesting week for sure. As a personal investor 18 months into his journey I was lucky enough to ‘find’ my risk tolerance about 3-4 weeks ago – lots of buying and selling beforehand incurring fees, worry, sleepless nights…

    Ended up 60% equities (75% in Fidelity Index World P and 25% in LS100), 10% gold (SGLP), 10% Short Term Global Bonds (Vanguard) and 20% Global ex-UK IL Bonds/TIPS (‘AAA’ only through the Real Return Fund). Low cost with the latter fund the sole ‘heresy’ in being active but relatively inexpensive.

    I didn’t expect the ‘acid test’ to arrive a fortnight later! Equity funds have taken a hit. More defensive measures have seen an incremental rise. I did nothing. No sales, no purchases (yet).

    Bumped into a friend last night who had sold out in the morning. It was his holiday spending money! I chose some appropriate words that were the opposite of what I was really thinking. Reminded me of the discipline needed to be an investor. Long term view, risk assessed portfolio (or acceptance that you will take a hammering now and again) with an annual rebalance.

  • 6 Stephen Taylor February 29, 2020, 9:17 am

    I may be missing the point or being a bit dense (it’s early!) but when I see comparisons between lump sum and regular investing it seems to assume having that lump sum already lying around ready to go.

    If you don’t have that lump sum ready, surely it’s better to drip feed into an ISA / Sipp rather than build up a pot over say a year and then invest in one go?

  • 7 Big Boss Man February 29, 2020, 10:00 am

    Ahh mate, I was roaring crying when I saw the stockmarket went down this week!

  • 8 Andrew February 29, 2020, 10:17 am

    My strategy is to ignore it all. Just keep plugging away £500 a month into my world tracker.

  • 9 xeny February 29, 2020, 10:38 am

    @Stephen Taylor

    Certainly if you’re accumulating then you invest as you go (possibly with the caveat of mimising fees if you’re using something like iWeb) so you inherently drip feed, but “what do I do with this lump sum?” is a common question on financial forums.

  • 10 Hospitaller February 29, 2020, 11:16 am

    (Looking out from under the rubble…) Not too bad so far. I had taken the view about a year ago that valuations were looking too high and moved to 45% equities. Not to say things looked wonderful this morning – they didn’t. But the portfolio is still in reasonable shape.

    The great question is what comes next. Months of doddling around at these levels or a brief period where bargain hunters prop the market up only for it to genuinely collapse?

    Perhaps oddly, I am hoping for the proper collapse so that I can redeploy heavily into equities.

    We will see.

  • 11 Vanguardfan February 29, 2020, 11:28 am

    I haven’t looked at my accounts. It will be painful, losses could easily represent several years’ spending. Normally I would be selling to use the CGT allowance in March, and buying in ISAs and pension in April, rebalancing with the purchases. I will likely stick to that (not much room for manoeuvre really, there is no point selling now, the window for that was 10 days ago) but I may choose to stagger the purchases if things are still volatile. I feel thankful that a) I am only 50% equities and b) I have a written asset allocation/investment strategy.

    I think deriving comfort from the age related mortality rates is a bit foolish. 15% mortality is pretty frightening, and most of those over 80 year olds are someone’s mum or dad. As well as the emotional angle, if you’ve ever had frail elderly parents you’ll know that looking after them in a crisis can take a lot of time and energy, especially if they live far away. So working age people will be impacted. Plus, if services are overwhelmed, that affects everyone, irrespective of the age of the people filling up the beds.
    And, although mortality is low in the under 50s, the infection rate is not, and every (known) infected person will be out of action, from the point of view of economic activity (producing or consuming), for several weeks.

  • 12 cat793 February 29, 2020, 11:30 am

    Oh dear! After a couple of months of analysis paralysis and general procrastination I had decided to rebalance a bit towards bonds and paying down the mortgage. I sold one equity fund and moved it into gilts but too late for the rest now. Fortunately a lot of my procrastination was reassessing my risk tolerance and the conclusion was that I needed to begin being a little more conservative but generally happy to stay exposed to equities as the investment is for the long term so not too stressed. I am still dripping money into the market so hopefully I will benefit from pound cost averaging.

  • 13 Foxy February 29, 2020, 11:32 am

    I quite enjoyed listening to Damodaran talking about “Fear vs Fundamentals”.

    https://www.youtube.com/watch?v=1vJdCpVxO7s

    No one knows how the virus will spread in the next weeks but as of 25th of Feb, he provided some estimates for the s&p 500 (3,000 pts, 12th minute) based on earnings drop assumptions and companies returning less cash to shareholders.

    Now we may research & analyze all day, but the market can overreact. Fear > Fundamentals in the short term.

    PS. Watched “Contagion” last night, great timing! 🙂

  • 14 Far_wide February 29, 2020, 11:36 am

    Although it’s mildly frustrating that this fall seemed very easy to predict (if I was to turn that part of my brain on), I know better than to do so.
    Yes, I might have been right if I had sold out a week ago. But, I wouldn’t have been right about selling when Trump was elected, or the Iran conflict, or Brexit, or after 5 years in a bull market……etc etc.

    And, I’d then have to work out when to get back in!

  • 15 The Investor February 29, 2020, 11:41 am

    @vanguardfan — You make some great points about the age related impact of the virus, and I agree with all the consequences you highlight.

    However from an *economic* point of view I think it’s unarguable that the impact will be much lower if an 80-year old with no dependents and a life expectancy of five years dies, versus if it was equally likely to kill a 40-yo with two kids and 45 years of work/spending ahead — let alone if it killed them at a higher rate like Spanish flu seemed to.

    I don’t say this with any relish or personal relief. My own mum has chest issues, and would be right in the firing line.

    I said it in the context of the market declines, and the attempts to estimate the economic hit from a pandemic.

    Cheers!

  • 16 cat793 February 29, 2020, 11:49 am

    @Vanguardfan
    “Most of those over 80 year olds are someone’s mum or dad” – yes you would think this point would be obvious but I have seen so many people commenting that they are unconcerned because they are young and healthy and not worried because if they are infected it will just be like a bad cold. Myopic and selfish! If they are infectious then carelessly spreading it could cost someone else their life or at least make them very ill and put a dangerous burden on health services. The authorities know of this risk and have to act accordingly to protect the vulnerable which could lead to more draconian controls. For this reason I cancelled a trip to Asia I was supposed to take. I am in the demographic unlikely to get seriously ill but I cannot risk getting trapped abroad due to flight cancellations, lock downs, quarantine etc.

  • 17 AVB February 29, 2020, 12:29 pm

    My work pension fell ~4%, I have it invested in default split of 60% equities and 40% bonds (with monthly rebalancing) so that helped somewhat with the bonds going up. I have the option of moving it 100% into equities which is tempting given the recent equity falls, but will probably leave as is and just let it do the usual rebalance. ISA on the other hand is down a lot more in percentage terms but as I only started that a year ago, in absolute terms it’s nothing to worry about. I’ve got £5k in a cash ISA and am thinking might not be a bad time to move it into an index tracker – or have a bit of a punt on Imperial Brands (buy and hold).

  • 18 Jim brown February 29, 2020, 12:30 pm

    I am 100% in equities with 20 years time horizon. I am tech heavy circa 20% of my portfolio. I have taken a massive beating this week. My Thursday I stopped logging in. I am down about about 15% for the week. I am all passive so I rise and fall with the market.

  • 19 AAJ February 29, 2020, 12:33 pm

    I know it’s bad. But the more the markets fall the happier I am. As long as I can make sure I have a job for the next 12 months, I am trying to get every penny I have into the market. Yes, stocks may have further to fall, but already it feels like Christmas has come early. Personally, I really hope the markets live in a state of fear for as long as possible *crosses fingers*

  • 20 xxd09 February 29, 2020, 12:36 pm

    Sitting tight with 30/65/5 -all trackers-Portfolio down about 2%
    Trackers doing their thing
    Aged retiree-73
    2 years cash in expenses-some of which I took 2 weeks ago even though not due to drawdown till after April 5-re tax(cashed in some funds for cash withdrawal-now sitting in SIPP)
    Market timing? -thought the market was so high that it could not last-was due to take this year’s withdrawals soon so why not do it now-aged investors instinct?
    So far so good as Wiley Coyote famously said!
    xxd09

  • 21 James Biles February 29, 2020, 12:44 pm

    guess it was too late to make the weekend reading, i did enjoy RIT’s post today entitled Perspective http://www.retirementinvestingtoday.com/2020/02/perspective.html

  • 22 The Weasel February 29, 2020, 12:52 pm

    A company demanding loyalty… Sounds like the customer of a, ahem… ‘pleasure’ worker demanding actual love from her.

    It’s just a transaction.

  • 23 AncientI February 29, 2020, 12:56 pm

    painful loss for me especially as I am just about to buy a property and was counting on some of the money for a deposit. Luckily I pulled out half my portfolio last week just before the big monday sell-off so things could of been even worse, still even when your only 50% invested this sell-off really hurt.

    Im now wondering if I should just put off buying a property until next year and just buy the dip!

    ftse100 trackers offering 4.8% yield is attractive.

  • 24 L February 29, 2020, 12:59 pm

    8% fall in my SIPP. Thanks to Monevator, I’d realised that 100% equities was too rich for our blood 2-3 weeks ago and we switched 21% into bonds.

  • 25 Ben February 29, 2020, 1:03 pm

    One important concept that’s often forgotten when choosing an equity allocation is minimum regret. By feeling slightly low on beta, you feel smug about these drawdowns. Kinda like Markovitz on being 50:50. It’s also a psychological benefit of pound cost averaging.

  • 26 gadgetmind February 29, 2020, 1:20 pm

    I just did our month end financial figures with graphs etc. I’ve been in drawdown since Nov 2018 and am taking 6.2% of my SIPP pa as I want to reduce its value before SP kicks in a decade down the line. We have ISAs etc. and we’re at sub 4% pa of the total pot. Still too much, but this will drop come state pensions.

    So after 16 months of drawdown, and the stock market drops of last week, I have 1% less in my pot than I started with. We wife’s SIPP isn’t fairing as well, but we’re taking 8% pa from that as I want to to be down close to zero in a decade.

    I also took a look at our ISAs, noticed we’d got far more cash than planned due to dividends, and did 3-4 trades in each to top up whatever equities were below plan.

    I guess I could flap/moan/panic etc. but this is what equities do and the volatility can actually help as long as you keep a cool head and rebalance.

  • 27 ZXSpectrum48k February 29, 2020, 1:27 pm

    The passive part of my portfolio took a hit in the last week. The equity funds (S&P, Nasdaq etc) lost around 11% on the week but EM bonds lost 1.1% and the long-duration UST fund made 6.7%. So net about 3.1%. YTD it’s still up around 5.9%, thanks to the 19% return from USTs. On a 12-month lookback, the portfolio is still up 24.0%, with the S&P up 10%, Nasdaq 23%, EM bonds 14% and long USTs 37%.

    The only thing I’ve done during the week to the passive portfolio was to access my margin loan, allowing me to sell out some of the long UST fund to buy 9x the amount of a short UST fund (i.e. a duration neutral switch, 18y vs 2y). The curve started to steepen as the market priced Fed cuts so I didn’t want to risk underperformance.

    Returns in the last year on all assets were just bonkers, so I find it hard to be surprised when a fraction of that disappears. I think it’s good for markets to feel a dose of genuine volatility again. Albeit I’d prefer the driver of that volatility not to be something that can kill my family or I.

    Relative to 08 and 98, both of which I sat through, last week was actually very orderly. By the end of the week derisking was being seen in all asset classes and the macro hedges started to fail (note gold down over 3% on friday), a sign that the underlying assets are being sold out. Liquidity didn’t collapse and very little in funding stress was seen. Of course, it doesn’t mean it will stay that way. I could have said the same about the Russia default in 98 and Lehman in 08 in week 1.

  • 28 Jim February 29, 2020, 1:55 pm

    As per Jim Brown I’ve prob got 20 or 30 years and am 100% equities with my lisa. I’ve not even looked, not really that bothered it’s the beginning of a long journey…

  • 29 John @ UK Value Investor February 29, 2020, 3:33 pm

    What Jim said. My assumption is that:
    1) Everyone will get the virus.
    2) 2% or so will die, heavily weighted to people over 80.
    3) There will be significant short-term economic disruption.
    4) There will be essentially zero long-term economic impact and therefore very little impact to equities 10 or 20 years from now.

  • 30 AAJ February 29, 2020, 3:51 pm

    John commented thusly:
    ” 1) Everyone will get the virus.
    2) 2% or so will die, heavily weighted to people over 80. ”

    That would be horrendous, and quite a pessimistic assumption John. I’m predicting science comes up with a solution before 2% of the UK die. That would be 1.3 million deaths after all.

  • 31 steve21020 February 29, 2020, 4:11 pm

    We live about one hour west of Milano and my wife sent me a Whatsapp from her skiing trip in the Dolomites to ask about food in the shops. I replied that everything is fine, plenty of beer, wine, gin etc. I don’t think she appreciated it. If you didn’t know about the virus, you wouldn’t notice any difference while driving around, shopping etc. However, schools and creches are now closed until further notice, sports matches cancelled and people have been warned to avoid large gatherings where the virus could be transmitted vary fast.
    Re. stockmarket drops, well forgive me if I’m wrong, but haven’t people been saying for years that the USA markets were overvalued and could burst at any time? Also, it seems like yesterday that I was watching the FTSE100 reach 7000 and wondering ‘What the hell..?’ The stockmarket is like gold, silver, house-prices (and maybe overpopulation); nobody bats an eyelid while they keep going up, but God help us if they dare to come down!
    Steve

  • 32 John G February 29, 2020, 4:34 pm

    OK, many many thanks to Monevator for pointing out a while back (Jan 7) that whilst shares had done well, bad things could happen. I found I was 75%/25% shares/bonds, whereas my strategy/risk/age says 35%/65% shares/bonds, absurdly out of kilter. The rebalance was immediately set in motion, took about 9 days to implement.

    What a saving, what a complete fluke. A scary moment, the principles not to be forgotten again.

    I’ll still be dripping into index funds though, no strategy change.

  • 33 Vanguardfan February 29, 2020, 4:52 pm

    @john and AAJ. A Harvard epidemiologist Mark Lipsitch suggests 40-70% of the population may become infected if the virus spreads widely, absent effective containment measures.
    As far as the mortality rate goes, the factor most likely to influence that is whether spread can be slowed enough to make the epidemic low and flat, rather than massive surges of infection that will overwhelm health services. A major aim behind the current containment measures is to render it possible for services to cope with the rate of cases coming through.
    It’s not ‘science’ that will save us, it’s effective implementation of very basic public health control measures. Simple but not easy. On the treatment side, again it’s all stuff we know about, oxygen, respiratory and other supportive care while the body fights back if it can. The main issue will be access (hence back to the need to delay spread).
    There may be some improvements to outcome if any of the ongoing trials of antivirals show significant effectiveness, but they tend to need to be used very early in incubation to be helpful. Similarly, a vaccine may help in the long run, but unlike influenza, coronavirus vaccines have not so far been very effective. Certainly it won’t help this year.

  • 34 BeardyBillionaireBloke February 29, 2020, 5:31 pm

    spelling: s in JohnS Hopkins

    All a bit awkward with my retirement in 1 month.

  • 35 Steve February 29, 2020, 5:39 pm

    Maybe it is a good time to also reflect from a non-investment angle. We have climate change happening, which is due to a mix of our habits and our sheer numbers. Maybe Covid-19 is nature trying to address the latter factor. Maybe its successors will be more effective. Mind you, in another way this is only history repeating itself – the Venetian Empire fell largely due to a virus apparently imported from their trading with China. I have an authentic Venetian plague doctor mask, which might yet be useful. The Venetians tried to stop it spreading by making vessels wait for forty (quaranta) days before unloading and hence the word quarantine. But it did not work and they lost around a third of the population.

  • 36 Marco February 29, 2020, 5:59 pm

    Well done. Always stay the course

  • 37 Marco February 29, 2020, 6:01 pm

    Best to only do the spreadsheet with your other half during market highs in future

  • 38 Marco February 29, 2020, 6:04 pm

    Have your learnt your lesson though?

    The problem with getting a market timing decision correct is it gives some the mistaken belief it was due to skill rather than luck.

  • 39 Marco February 29, 2020, 7:31 pm

    Unfortunately there is no cure for old age (and the multitude of associated diseases). Many people who die from coronavirus will be people with things like end stage dementia, terminal cancer, heart failure etc. There are worse things than death

  • 40 Marco February 29, 2020, 7:34 pm

    Maybe a wee tip as a thank you to monevator?

  • 41 Barn Owl February 29, 2020, 7:46 pm

    On the Guardian article about merging NI and income tax. I understand that the hang up in government about doing this centres on the fact that NI is currently per job. For example a cleaner with more than one job, each one having its own minimum NI threshold, doesn’t pay any NI. Any chancellor that does this merger has to explain why they are penalising people working all hours and struggling to make ends meet for their families. As Sir Humphrey would say “a brave decision Minister”.

  • 42 Greggles February 29, 2020, 8:14 pm

    100% equities here (sold at the peak and bought back into about 2% of the way through the dip because I remembered I have no particular insight as to the direction of the market, and gave myself a stern word about being too active). Overall 8-9% down from the week (though still roughly flat over a month due to my market-timing dabbling). Not having been through the 2008 crash, turns out that psychologically, high valuations give me more itchy-feet to sell than seeing my portfolio go down in value (fast).

  • 43 Matthew February 29, 2020, 11:51 pm

    I reckon that active fund managers won’t be able to justify staying out of the market for long, and will soon come back

    Wouldve been a good time to have transferred all to vanguard sipp (shrugs -i didnt want to be out the market!) but it was true then as it is now that we didn’t know and i cant time these things

    I would definitely want to buy, if I could

  • 44 Fatbritabroad March 1, 2020, 7:36 am

    100 % equity here. Aged 39. I bunged some money in after 2 consecutive 3% falls with the result the market of course fell another 4% just proving the adage that you can’t time the market. Now just wondering if I can justify dipping further into my emergency fund (which is all I keep in cash) to buy more. its funny while I’m earning I’m finding the drops now they are larger amounts easier to cope with. I’m 25k down between pension and isa a) it feels such a big number it doesn’t seem real b) I’ll have contributed more than that in about 12 to 15 months.
    In contrast I’ve been trying to calm my pensioner dad down yesterday who’s lost 70k from his portfolio (about 2m bear in mind) and is ‘putting in a phone call to his adviser to find out what he can do about it’ my response?

    ‘If it makes you feel any better ill tell you what your man will say if he’s any good when you speak to him. Stay calm stay invested. Yes it may drop further. No the world’s not gojng to end this will get better (and if it doesn’t look on the bright side your pension won’t make any difference as we’ll all be living in caves again). Things like this are a good test of whether you are too exposed to stocks’. I suggested he reviews his asset allocation

    I’ve got a v small part of my portfolio in 40 % equities 60 % stocks (which is why I’m basically 100% equities it’s just there for more short term needs) . That’s fallen about 2% so far. Much more palatable than the 16% the 100% equity has fallen

  • 45 gadgetmind March 1, 2020, 9:52 am

    Covid-19 is interesting in that – unlike H1N1 – the older people don’t have the advantage of partial immunity. However, I expect experiments with small molecule antivirals (as used against HIV, HEPC, Ebola, etc.) to find some that are effective (individually or in combinations) and these could be focused on the most vulnerable. There are also some signs that anti-malarials (such as chloroquine phosphate) are effective, and there are already distribution channels for these in the tropics. Data is already starting to arrive and we have large numbers of these drugs that have already passed all of the required safety trials and could easily to cleared for use against Covid 19.

  • 46 Jim McG March 1, 2020, 10:20 am

    Well, I wish I had some cash lying around to buy in now. But, while riding the equities boom, why would I have some cash lying around doing nothing, going nowhere? Most of my investments are in a Vanguard 80/20 pension which is being humped senseless at the moment, but so what? I don’t need to access it right now and, even if I did, I doubt I’d be taking out more than 4% of it, virus or not. So, my preferred strategy of “do nothing” is being tested, or it would be if I was tinkering around with my spreadsheets. Funnily enough, I’m hardly looking at them now as opposed to the almost daily glee of playing with the numbers when the good times rolled. It’s almost good to get a break from worrying about when the correction was going to come and to find myself thinking that even if the value of my portfolio is halved, well, I’ll just have to get on with it. Like everyone else.

  • 47 Brod March 1, 2020, 10:39 am

    Inspired by TA, I’ve been looking at a liability matching/glide path to retirement. At 54, I’ve got 13 years to go until I can claim the state pension and maybe a couple less to claim my small civil service pension. So over the last 4 months I’ve been moving from 100% equities to about 60/40. Last week I got a bit spooked an moved the final 10% ahead of schedule. Bad Brod!

    Each year extra I work, I’ll move 5% back into equities then into drawdown until I’m 90/10. Should be able to retire with about £17k of inflation linked income from state and civil service pensions in 4 years or so.

  • 48 Baldrick March 1, 2020, 11:00 am

    I decided to take early retirement at the end of last year so this drop in the markets feels much more personal than at previous times.

    In reality though, I don’t need to touch my investments for 2 years or so and the world will be a different place again by then. Plus you’ve got to expect that the markets will rise and fall, so just keep playing the long game.

  • 49 Conor March 1, 2020, 11:27 am

    As a passive investor since Jan 2017, regular monthly investing with a few lump sums thankfully 2018 came along and taught me a lesson about time in the market. At one point in 2018 my pot was worth less than I paid in but I continued to plod away. Before the falls of the last fortnite it had recovered to 17% more than I’d paid in and even after this week’s falls it still remains at just under 10% more, still better returns than if I’d left it in a savings account.

    If I analyse individual payments the news is even more heartening in most cases with only those of the last 6 months making a loss. The very first one I made is still up just over 17% at the end of this week, way better than any savings, not far off the “7% long term average” and still well in line with a 4% SWR.

    Time in the market definitely seems to be the way to go.

  • 50 Matthew March 1, 2020, 11:40 am

    Im hoping that my family will see how we ride out problems and lose their fear of the markets

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