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Weekend reading: Lockdown links for days

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What caught my eye this week.

I have seen a few stock market corrections and crashes up close. Yet it still amazes me the speed with which everything changes.

One minute (actually it felt like one decade) you’re arguing with people who proclaim that high-quality government bonds have become riskier than shares, or that the sustainable withdrawal rate should be 0.04% higher.

The next minute – WHOOSH! – the world’s major indices have fallen by 20-35% or more:

FTSE All-Share. Note the swan dive on the right. [Click to enlarge]

And it almost was ‘the next minute’ this time. The pace of the fall has been stomach-churning and the volatility something you’d expect from a child’s game about the stock market, not from real-life grown-ups trading billions.

Yet passive investors who’ve seen their funds fly up and down by 5% to 10% in a day (not that they should be looking every day) have been relatively swaddled in cotton.

Because beneath those choppy index waters – down in the Sturm und Drang of individual company shares where yours truly plies his masochistic trade – it’s been, well, to use a technical term, batshit crazy.

Individual shares have jumped up and down like a tray of loose screws on the bonnet of a misfiring clown car.

I’ve watched investment trusts worth hundreds of millions of pounds sink 10% one day and then rally by double that the next. Yet that’s as nothing compared to, say, firms in the travel sector, which just six weeks ago were updating investors about better margins or a new shade of red for their logo and who now find their market caps slashed by three-quarters and are, for example, trying to be rebranded as floating hospitals rather than plague ships.

More than once I’ve checked I’m not accidentally looking at monthly or even annual declines. But no – company X really is down 50% in a day.

Then there are the really weird things – strange anomalies I called them back in 2008 – which always make you wonder if the plumbing is leaking. Check out the ETF mini-special below for a taste of what I mean.

They say carnivores should never see how the sausage is made, let alone visit the abattoir. Similarly, I think most private investors should count themselves fortunate they’re not watching this crazed spin-cycle hidden within the moves of the major indices.

You’re more likely to stay disciplined, stick to your plan – and not sell – if you don’t spend any minutes wondering if any of this is rational.

Which matters, because mad as all this seems it’s nothing that we haven’t seen before – many times before.

And while the real-world economic challenge seems extreme right now and has barely begun, the odds are very good that markets will eventually get through it. Hold tight.

Funny money

Of course the real-world has also become riddled with strange anomalies, too:

  • The proliferation of masks.
  • The wide leprous berth you’re given (or not given) in the street.
  • The elbow bump instead of a handshake. The Zoom and Skype chat parties instead of an elbow bump!
  • The emails from companies you’ve long forgotten ever doing business with who nevertheless assure you they’re looking after your interests despite COVID-19, night and day.
  • The empty shelves at Tesco.
  • The 16 rolls of toilet paper your significant other stashed in your sock drawer.

Four weeks ago people mocked both the early market wobble and the significance of the coronavirus.

A month later nobody bats an eyelid when the government and central banks throw billions if not trillions around with the abandon of jazz musicians who’ve just discovered a new chromatic scale.

It reminds me of something it’s taken years of market-watching and active action for me to understand: very often prices move before the explanation.

Many people (including one Prez D. Trump) didn’t take the market crash or the virus seriously until the market had already crashed and the virus was finally here.

At that point the narrative caught up to explain why actually it was perfectly rational that the market had already crashed.

Everyone nods sagely – we had it coming – forgetting their buccaneering personas of a few weeks prior.

Back in early February they read articles about day traders pumping up the price of Tesla and Virgin Galactic and wondered whether they should get involved.

Now buying shares in even a utility is too racy for their blood.1

A nation of Houdinis

I was going to talk about all my friends who’ve emerged in the past week or two to ask me what on Earth is going on with the markets, and what they should do about it.

Some of their comments sound so textbook you’d wonder if I’ve made them up!

But I think I’ll save that for an upcoming post.

Like anyone else with a website and a strangely-cleared diary, I also wondered about donning my Internet approved virus-expert overalls and telling you exactly what Britain’s senior scientists don’t understand about epidemiology.

But instead I’ll just moan about how poorly the initial lockdown was implemented, at least in London.

For most of this week the lockdown only visibly manifested itself for me in journalists hosting their TV shows from their homes – Through the Keyhole on steroids for CNBC fans – rather than in much sign on the streets of social distancing.

At least where I live, the High Street remained packed with young invincible people and very old very-vincible people, all playing a game of chicken with an opponent they cannot see.

The inconsistent response of businesses – understandable perhaps, giving the vague initial government advice to the public to ‘stay away, er, maybe’ – was especially maddening.

Take cafes, which the government left to pick their own poison. Some near my house decided to close entirely, others shifted to a takeaway model, but a good many chose to trade as normal and so were extra-packed with coffee-seeking refugees from next door, spluttering their relief and who knows what else into each others’ virus-primed faces.

I’m as capitalist as the next financial blogger, but decisions like this in a national emergency shouldn’t be left to individual corporate policy. Friday’s belated change to mandating closure for all pubs, cafes, restaurants and the like couldn’t come soon enough, simply from the vantage of economic justice.

I’ll concede a vested interested here. I’m an investor in several unlisted London-based coffee and restaurant startups. Hitherto they were booming and growing fast. All will now have to fight for survival.

At the least let them fight on a level playing field.

Lockdown letdown

Deliberately freezing our economy by ordering workers to down tools and companies not to charge for their services is an extreme move that will cause a recession.

Given that, surely we should have been doing it properly? So uncommitted was the first week of lockdown that I wondered if the government was actually sneakily sticking to its original laissez faire plan in all but name.

From an investing viewpoint, the takeaway for me is to ignore people who are pointing out that China is now back at full capacity and becoming virus-free.

Its tough lockdown makes ours look like a measles party for Teletubbies. If Spinal Tap were running our virus forecast models, it feels like they could justify turning the mitigation setting up all the way to… maybe 3? That doesn’t seem anything like enough.

Therefore we’re on a different path to China. Less painful, maybe, but even if it works in our watered-down incarnation to hopefully prevent as many deaths, it will probably be more protracted as a consequence.

The US and much of Europe seem similar. It all implies this crisis has a long way to go yet. The markets will continue to gyrate in the face of these vast uncertainties.

Locked and loaded

I have a masive number of links for you this week – lockdown will do that to you.

Well you’ve not got anywhere else to be going, right?

To get started let’s follow @ermine’s lead with a bit of Leonard Cohen:

Enjoy the reads, and have a good – if lonely – weekend.

From Monevator

Pound-cost averaging: the buy low superpower – Monevator

How to prepare for a recession – Monevator

Monevator is an investment site, whatever the weather – Monevator

From the archive-ator: Coping with the guilt of losing money – 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!2

Pubs, clubs, theatres, gyms and restaurants [finally!] told to close by the government, effective now – BBC

UK government to pay 80% of wages of those not working due to coronavirus crisis – Guardian

Double-whammy for savers as Bank of England cuts Bank Rate to 0.1% – ThisIsMoney

U.S. virus plan anticipates 18-month pandemic and widespread shortages – New York Times

Britain’s small businesses have been trapped in a no-man’s land of restrictions – MarketWatch

Filthy lucre: Paper money shunned for fear of virus spread – Australia & New York

Extreme volatility tends to be a forward indicator of good equity returns – Of Dollars and Data

ETFs in the crash mini-special

Exchange-traded funds have shown signs of strain but not panic – The Economist

Vanguard’s $55bn fixed income ETF hit by price dislocation [Search result]FT

How bad have ETFs been hit by the chaos? [Podcast]Trillions

[For a few days] US junk bonds have been faring better than US Treasuries – Bloomberg

ETFs, born from 1987 market crash, are so far making 2020 less awful – MarketWatch

Bond ETFs face their toughest liquidity test yet in virus turmoil [From last week]Bloomberg

Products and services

Lenders banned from repossessing homes amid coronavirus crisis – Guardian

String of UK property funds suspend trading, locking up investors’ money – ThisIsMoney

Nationwide pulls tracker mortgages after historic base rate cut [Search result]FT

What are your rights if you’ve booked a holiday in 2020 now we’ve been told not to travel? – ThisIsMoney

Banks set out details of COVID-19 mortgage holidays – Guardian

Millions of vulnerable households set to get relief on their energy bills – Guardian

Comment and opinion

The myth of the panicky individual investor – Dan Egan

Stopping the motor of the world – Get Rich Slowly

Only high-quality government bonds have provided a refuge this time – Morningstar

Returns from the bottom of bear markets – A Wealth of Common Sense

Like old times – Humble Dollar

Merryn Somerset-Webb: Lessons from history [Search result]FT

Everything has seemed correlated at points in this sell-off – Of Dollars and Data

Volatile – Indeedably

Learning from Buffett and others during market crises – Valididea

Don’t buy and hold leveraged ETFs – ETF.com

Naughty corner: Active antics

Corporate insider buying has hit 2008 levels – Value Plays [h/t Abnormal Returns]

Investing in the time of corona – Meb Faber

A viral meltdown: Pricing or value? – Musings on Markets

There is no law of gravity in investing – Klement on Investing

Crisis investing: A discussion with Dan Rasmussen [Podcast]Invest Like The Best

Optimistic analysts and the value premium – The Evidence-based Investor

Stabbing at a market bottom – The Reformed Broker

The panic button has been pressed – Sentiment Trader

COVID-19 and politics

Britain has a steeper curve than Italy. Are we doing too little too late? – FT via Twitter

Coronavirus and your mental health – BBC

How Italy became ground zero for the COVID-19 crisis – WIRED

The UK’s coronavirus ‘Herd Immunity’ debacle – The Atlantic

This is bananas – The Belle Curve

Common enemies – Morgan Housel

Victory over COVID-19 is [even more] inevitable – The Escape Artist

A fiasco in the making: As the crisis unfolds we’re making decisions without reliable data – Stat

Social distancing may be needed for ‘most of the year’ – BBC

Expect more cases when you test more people – Value and Opportunity

As fearful Britain shuts down, coronavirus has transformed everything – Guardian

Will the global lockdown be worth the recession it will cost? –  Bennallack

Coronavirus deaths: What we don’t know – BBC

Gary Neville says NHS staff will stay at his hotels for free [Video]Guardian

Why the US is not overreacting to the coronavirus, in one chart – Vox

Pornhub usage trends [Good indication as to which countries really are quarantining?]Pornhub

The power of social distancing – Gary Warshaw via Twitter

Kindle book bargains

The 80/20 Principle: Achieving More With Less by Richard Koch £0.99 on Kindle

How to Get Rich by Felix Dennis [Will have to dust this off given the bear market!] – £1.99 on Kindle

One Up On Wall Street by Peter Lynch – £0.99 on Kindle

RESET: How to Restart Your Life and Get F.U. Money by Dave Sawyer – £0.99 on Kindle

Off our beat

When it comes to national emergencies, Britain has a tradition of cold calculation – Guardian

You don’t have to work all the time now – Slate

And finally…

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
– Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds

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  1. Perhaps rightly enough if they’re not going to be allowed to bill their customers… []
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{ 89 comments… add one }
  • 1 Prometheus March 21, 2020, 4:09 am

    ‘ …spluttering their relief and who knows what else into each others’ virus-primed faces.’

    Sums up the utter stupidity of people perfectly…..

  • 2 Richard March 21, 2020, 7:35 am

    Wasn’t the original government advice to the customers and not the businesses? They didn’t advise businesses to close but customers not to visit those businesses. Perhaps those that closed had staff they could easily lay off while those still open couldn’t so the ones that closed actually had the advantage with the financial package on offer at the start of the week. May have been on purpose not to tell them to close – in the hope of preventing more layoffs. Can’t have your cake and eat it.

    I still feel the plan is herd immunity. Lock down a bit but not enough to stop infections completely. Just keep increasing measures to keep the infection rate low enough to keep on top of deaths

  • 3 Snowman March 21, 2020, 8:16 am

    The Leonard Cohen song is perfect for the balcony singalong, thanks!

  • 4 JimJim March 21, 2020, 8:18 am

    At last, the government behaves more like the adult in the room. It took too long. Blood group A is, a study suggests, at a greater risk. And chaos in the supermarkets with them all “doin’ their own thang” and not co-ordinating the rationing well at all. (It will be interesting to see when the supermarkets have too much stuff again, surely we must eat the stockpile sometime?). Still busy NOT selling.
    Apocalypse music. Here is a bit of Talking Heads. https://www.youtube.com/watch?v=s3A5CKkbH1o
    JimJim

  • 5 Keith March 21, 2020, 8:55 am

    A link to the much called-for scientific advice on which the UK government has relied for its response to the epidemic would be worth including: https://www.gov.uk/government/groups/scientific-advisory-group-for-emergencies-sage-coronavirus-covid-19-response

  • 6 Richard March 21, 2020, 9:57 am

    Having just been out for groceries, it appears most of the coffee shops are still open. You can go in and takeaway but you can’t sit down. So closed does not really mean closed for these guys. So grab a coffee and sit in the shopping centre general space…

    Though I guess this is no more dangerous than going to any of the other shops that are still open

  • 7 FI Warrior March 21, 2020, 10:05 am

    This is a great time to be alive if you are curious about human behaviour. As long as I can remember, governments here told us there was no money to solve child or any other poverty, maintain infrastructure to a high standard, make public transport a viable alternative, remove the blight of homelessness, you name any other cause that benefited the 99.99% too. Yet cause for doubts arose when any war, no matter how dubious the given justification, had open-ended funding from allegedly cash-strapped parliaments that ‘had to be responsible’ by balancing the books, yes, no magic money tree. (MMT ? :))

    And now there is apparently a whole forest of them funnily enough, when helpful to the government of the day, containing much the same faces who a couple of years ago were rounding off a decade of shredding the poor and anything they needed, like public services, jobs and any other security. Right now, socialism in the form of helicopter money largely still for the better-off is de rigueur because of the scare of the day. How convenient. Meanwhile supposed democracies are rolling back piecemeal basic freedoms under the cover of protecting us, like needing permission to leave your house in France and Spain, the military assisting curfews in Italy, facial recognition technology spreading in the public domain in China, while millions everywhere will lose jobs, maybe their homes and certainly human rights.

  • 8 7upfree March 21, 2020, 10:34 am

    I keep asking the same question and cannot find an answer. What is the practical constraint to increasing ICU capacity. It’s not money, can’t be space, ventilators are ramping up. Is it people? Serious Q.

  • 9 The Investor March 21, 2020, 10:38 am

    Wasn’t the original government advice to the customers and not the businesses? They didn’t advise businesses to close but customers not to visit those businesses.

    I think this is fair comment Richard, and re-reading my paragraph (written at, eek, 2am!) it wasn’t really saying what I’d meant to say. The advice was indeed to customers not the businesses myself, and I was actually sympathetic to the dilemma this left businesses in. It shouldn’t have been down to them to choose whether people have congregated inside. I’ve modified the text accordingly.

  • 10 Jim brown March 21, 2020, 11:14 am

    This goes to show that geographical diversification is useless in times like these .

    If America falls the world falls as well.

    So why bother with asset allocation? Just stick it into the S&P 500 index fund and forget about it.

    Or if you still need asset allocation ,do a world index tracker that is equally weighted geographically.

    UK bias is detrimental to investment returns.

    Also where is the much vaunted hedge of active managers? As far as I know they are taking a beating.

    I am down circa 30%. I am all indexed.

  • 11 Jim McG March 21, 2020, 11:30 am

    Thanks Monevator, I’m looking forward to exploring the links. And this is such a relief from Brexit, with a feeling that as the UK we really are all in this one together. Let’s hope we can all agree that we need to be more united than divided, although I was blasted from my mates last night for not attending the village pub Friday night sesh (before Boris’s announcement that the pubs MUST close). I was a bit miffed by that but I’m sure we won’t hold it against one another – up until last night, it wasn’t clear what we should be doing. As for the investment side, I’m sitting tight and doing nothing, but I haven’t the foggiest if this is the best approach. All my funds are in global trackers because I gave up on individual shares year ago (partly due to your consistent advice.) Who knows how this will all work out, but lets hope we can all pull together and get through it. Oh, and just to counterbalance the soft and cuddly stuff, do you really believe anything the Chinese media are telling us?

  • 12 xxd09 March 21, 2020, 11:50 am

    Aged 73-17 yrs retd
    2 years living expenses in cash
    Age in Bonds in portfolio (actually 65%only)
    2 funds only-Global Equities Index Tracker and a Global Bond Index Tracker hedged to the pound
    Currently down 8.5%
    xxd09

  • 13 The Investor March 21, 2020, 11:55 am

    Oh, and just to counterbalance the soft and cuddly stuff, do you really believe anything the Chinese media are telling us?

    I believe some of it. They are typically very bad in the first stages of a crisis/emergency, but trickle out a generally true-ish line over time (certainly versus say a North Korea all-made-up machine).

    You can also track/verify what they say via personal contacts who work with China (I have some, which is why as a naughty active type I am still bruised from kicking myself for not getting more defensive, as I’ve already discussed) and through third-party stats on things like freight and pollution.

    I am very sure China has pretty much got back to work. Assuming they have mostly quashed the internal virus spread (and given they weren’t shy of letting the world know they’d locked down a whole city and built umpteen hospitals, I think it’s fair to say they probably have) then their challenge will be resisting reinfection from the rest of the world.

    They’ll also face the economic challenge of a downturn in global demand, of course. So it’s still a very bad situation for China all told.

  • 14 BBlimp March 21, 2020, 12:37 pm

    Re trusting China… kind of immaterial as Italy death rate has surpassed China and is still on way up. The measures China took to keep it confined largely to one province and defeat it likely not possible to replicate in the U.K

    On the plus side, with the govt underwriting wages, taking stakes in large swathes of the economy there’s absolutely no reason to extend the transition period – they’ve crossed the rubicon as regards propping up the economy through short term shocks… let’s go WTO !

  • 15 Hospitaller March 21, 2020, 12:49 pm

    Gosh, where to start?
    Investing-wise, all goes fairly smoothly. I have to talk to myself a lot to remind myself to do what I always said I would do when the crash happened. I had created a redeployable pot and a spreadsheet saying how much has to go into equities at -20% -25% -30% -35% -40% -45% drops. I have stuck to that religiously. I do believe that markets will recover one day. And if they don’t, my portfolio will be the very last of my concerns. Noteworthy over the last days, the corporate bonds began to crack but that is as expected. Gold was a decent hedge even if it then fell off (apparently because some naughty people had margin calls to meet). I had a chunk of GBP-hedged US governments and they have done nicely so far.

    Politically, I am furious with the government for leaving the NHS so badly equipped. Someone has to take responsibility for not having even vaguely the same number of ventilators as our European peers. That someone for me will be B. Johnson at the next election. I would like someone administratively competent and someone whose response to the situation is not like a C-list actor in a wartime movie.

    Socially, I am okay for now. I cannot see my lovely granddaughter in person but she waves at me through a screen.

  • 16 Far_wide March 21, 2020, 1:11 pm

    Whilst I’m otherwise (financially speaking) unperturbed at present, must GBP always fall like a stone when there’s a significant downturn? Whilst, OK, it’s cushioning my existing holdings, it’s making for a rather limp buying opportunity at present (looking at global trackers).
    Yes, I could buy IWDG and hedge it out, but I then start to feel like I’m trying to be a bit too clever. After all, GBPUSD fell -30%+ during the GFC, who’s to say this won’t happen again? (although that would leave us well under dollar parity, argh).
    Anyone else grappling with this? Any thoughts? I don’t want to be overly greedy in trying to buy on the cheap, and yet VWRL hardly seems a bargain at the moment in the circumstances (-23%)

  • 17 PC March 21, 2020, 1:19 pm

    Life Time Allowance, what Life Time Allowance?

  • 18 InvestorGeek March 21, 2020, 1:33 pm

    Excellent roundup, as usual.

    At risk of sounding bearish, it definitely feels like it could get a lot worse. US has only gone back months, not years. And, as Far_wide points out, worldwide equities are down by less than a quarter.

    Yet the USA doesn’t seem to have quite grasped the nettle yet – pace California. And you find yourself wondering if ten or more FTSE-100 companies could literally be wiped out.

    On a brighter (?) side, it is interesting that already commentators like Matthew Parris (Times, Saturday 21 March) are asking whether clobbering the (young peoples’) economy is more sensible than, instead, just locking up our 70+ year olds (and diabetics/etc). But even if the panic subsides quickly, the damage done already to the economy will be real – and valuations won’t regain January heights for a while.

    So overall I see lot more downside than upside in the near term.

  • 19 ZXSpectrum48k March 21, 2020, 1:43 pm

    With regard to GBP and at the risk of repeating a comment I made on a prior thread: Dollar cash is king. The USD has appreciated about 7.5% against a basket of other G10 currencies in less than two week (chart DXY).

    Now GBP has lost somewhat over 11% from it’s recent peak against the US Dollar. So it’s underperforming other major currencies but not all (such as AUD which has lost even more against USD). GBP though has major issues here. Unlike 2008 this isn’t a financial crisis caused by shadow banks; nonetheless shadow banks are suffering here from liquidity issues and credit risk, and GBP gets hit on that risk given it’s exposure to financial services. More important is that the UK has a current account deficit, and relies heavily on portfolio inflows and FDI. Those have just come to a standstill. Furthermore, the UK has somewhat EM-like economic features and all EM currencies are getting splattered right now.

    For me this underlines two facts I always have to bear in mind. One, I must carry decent foreign currency exposure. Yes, GBP is massively undervalued on long-term metrics and one day will mean revert but right now it’s going to struggle. Second, I look at my net wealth and returns in USD dollar terms, not just GBP terms. If I just look at GBP returns, I understate the damage I’m taking right now (and for the past decade+). I’d just be lying to myself.

  • 20 xxd09 March 21, 2020, 1:44 pm

    I do think this is a time where we have to assume some responsibility and competence for our selves if we weren’t already
    Blaming others including politicians is counterproductive and not going to help you get through
    Disease is no respecter of persons
    No doubt like all of us they are doing their best
    Rather like our investing-did we have our written Investment Plan in place
    Did we have our Asset Allocation right
    Did we have enough safe cash set aside for living expenses
    Did we have investments that could cope with a downturn
    If not-we must remove the beam from our own eyes before blaming others(such a human thing to do!) Etc etc
    xxd09

  • 21 RIT March 21, 2020, 1:52 pm

    My local supermarket this morning. 3 staff members managing a 1 in 1 out system and the queue that goes with that. 3 required because the local selfish rabble couldn’t self-manage something so simple with their ‘I’m alright Jack’ attitude along with yesterday a staff member being assaulted over a bag of potatoes. Then 1 member of staff inside designated as the toilet paper security to ensure only 1 packet per customer. So 5 staff members out of action which when combined with those self isolating results in plenty of food available to go on shelves but few able to put it there.

    My local High Street just now (I can see it from my current social distancing location) full of those most at risk from Covid-19 and very few of those least at risk.

    Part of the problem is we’re our own worst enemies.

    On the investment side of things down 18% in GBP (down 15% in the currency of our potential new home) and have just hit a re-balancing band which will require selling gold and buying equities. I’ll do it over the next couple of weeks in such a way to make use of my CGT annual allowance. Still sleeping much more restfully than I did pre-FIRE. Let’s see what the future holds but so far my FIRE strategy seems to be holding up albeit with some good learning on what’s important along the way.

  • 22 Neverland March 21, 2020, 2:19 pm

    It is an interesting question whether on the back of leaving the EU, a large current account deficit and a ballooning government borrowing requirement UK gilt yields could rise significantly and the pound depreciate further

    I personally wouldn’t be surprised to see near sterling / euro parity and eye-wateringly painful tax rises come the autumn

    Just think about it: if you were a multi-national and you had to close a plant in europe due to lack of demand – would it be a plant inside or outside the single market?

  • 23 PC March 21, 2020, 2:44 pm

    @neverland exactly, large current account deficit + ballooning government borrowing + own currency would normally = rising gilt yields and a falling pound. UK depends on the kindness of strangers as someone once said.

  • 24 Matthew March 21, 2020, 2:47 pm

    Bring back brexit!
    I think all this QE, government spending, and stockpiling, mean equities are the place to be, the QE in this country was like a base rate cut of 2% I read, how unattractive do you have to make cash? A lot depends on what QE america does too

    It is surreal though how quickly life can change, but now we’ll have better coping abilities for the next virus – perhaps better AI, more inbuilt ability to work remotely, etc

    It may even save lives with climate change!

  • 25 Neverland March 21, 2020, 3:11 pm

    @Matthew

    Gilts and cash can quite conceivably still be attractive at negative yields e.g. when return of capital becomes more important than return on capital

    Right now you know the Price on a stock but you have no idea what the Earnings are going to be

    As a random practical example if Ryanair can’t fly planes for the rest of 2020, can it stay solvent? If the airlines are all going bankrupt what about Boeing’s prospects?

    Personally I am slowly and steadily rebalancing and looking to overall add to our equity exposure but over a pretty long timeframe

  • 26 Matthew March 21, 2020, 3:37 pm

    @neverland – they have their purpose, cash& gilts, but I wouldnt be expecting them to shoot the lights out, so to say, or outperform equities over the medium-long term (even though hypothetically they could!), I do expect more QE to prop up everything so I see gilts & cash as safety that you pay for

    I assume next year will be back to normal, I assume that unemployment stays lowish or at least recovers soon, I assume that any companies lost are replaced in their market quickly enough, either by existing large competitors or new startups to fill the gap

    I assume that banks were forced to sell because of their own liquidity, which as a reason won’t stay. I assume active managers will be looking for a reentry point

    I assume that equities and properties magnify inflation into their share price by leverage, I see government spending, QE, and brexit, all as recepies for ongoing inflation – I see debt disappearing to inflation – and companies and landlords beneffiting

    A lot of assumptions, and Im not saying it wont drop more in the short term and there may be a financial crisis round the corner, but in the long term its a game of how you play inflation

  • 27 MrOptimistic March 21, 2020, 3:50 pm

    In terms of trying to gauge what might happen it is best to monitor the USA. New York has been out on lockdown ( all non-essential businesses to close). Everyday is interesting at the moment but I will be interested to see what the US market does in the face of this.

    ‘Gov. Andrew Cuomo announced Friday that 100 percent of non-essential work forces are now required to stay home, calling it “the most drastic measure we can take” as he said the entire state of New York was “on pause.”

    Two days ago, that decree applied to 50 percent of the non-essential work force. A day ago, it rose to 75 percent. Now it’s practically everyone; Cuomo said the escalation of the numbers gave him no choice but to further control density. The new order goes into effect as of 8 p.m. Sunday.’

  • 28 IanT March 21, 2020, 4:25 pm

    Having spent the last few years diligently reading the wise words of Monevator and positioning myself, in terms or risk,in what I thought was a comfortable position should there be a dramatic drop in values, I find that I’ve completely misjudged how I’d react to such a fall.

    I really am surprised at my reaction.

    I wasn’t taking ENOUGH risk!

    I’m much more sanguine about it than I thought I would be, and accordingly I’ve now dialled up the equity ratio to 80% as a result.

    I’ll come back in 6 months time and have another look.

  • 29 A March 21, 2020, 4:27 pm

    Can someone explain why long duration govt bonds have fallen so much in last week?

  • 30 Seeking Fire March 21, 2020, 4:42 pm

    Thanks for the great efforts with the links. I feel substantially more bearish than I did a few weeks ago. One important link missing (perhaps everyone already read it) is the imperial college report on anticipated modelling. If you haven’t read it please do

    https://www.imperial.ac.uk/media/imperial-college/medicine/sph/ide/gida-fellowships/Imperial-College-COVID19-NPI-modelling-16-03-2020.pdf

    As others have said no-one knows the outcome. But these people know more than me who really knows nothing. In it they suggest the UK will need social isolation methods for 2/3 of the time between now and the end of 2021. That really stopped me in my tracks.

    My base case therefore is in the UK a fairly difficult time over the next few months, things get better in the latter summer months and then come september, a relapse occurs as the virus bounces about across the world. Causes major problems as the UK population realise we are heading into a winter where this is still as big a problem as it is now. Meanwhile poorer countries or refugee camps without any ability to self-isolate, test or medically intervene suffer particularly badly and help ensure the virus can transmit. Deep global recession therefore.

    In that base case (agree it may not occur), the S&P 500 looks hopelessly overvalued imo with the resolution not being either until (a) a vaccine is found – circa 18 months minimum (b) enough people have had the disease such that it naturally dies back – circa 2 – 2.5 years. Again based on the link.

    That would suggest there is an awful lot of pain coming financially, socially and medically for which the UK seems woefully unprepared given (a) our current account deficit and (b) governmental planning that is slowly catching up (c) our liberal democracy that governs our way of life for which we haven’t really ever had such freedoms curtailed.

    I don’t have any intention to sell stocks but neither to do I have any intention to buy more (I will reinvest the dividends) at the moment. I am keeping a years expenses in sterling and 3 years expenses in dollars / 1 years expenses in gold coins. I feel that’s a decent enough firebreak given spanish flu lasted 2.5 years – however there were less efforts to suppress so theoretically this could last longer and of course the economic fall out could be longer. Further savings will probably go into building up my firebreak until the market falls – I appreciate this is market timing in a small way.

    Some huge potential ramifications here including (a) geo-political problems between China and US possibly even conflict (b) further acceleration of the decline of the west as our deficits leave us worse placed to deal with the problem (c) move away from capitalism in the UK to a more interventionist govt (d) and the obvious one being we are all a lot poorer.

    When I was younger, we used to smirk at countries that printed money to finance current account deficits – be it the roman empire, argentina in the 20th century, germany in the 1930’s and various african countries. And that’s exactly what we are doing. I’m not saying it’s wrong, I’m not saying we can’t do it with v low interest rates but printing money to finance current expenditure has never led to a happy ending. And it won’t do here imo.
    This combined with Brexit (I’m not a rabid remainer) makes me feel more short UK / Sterling than I ever have although much of the pain has already been felt.

    Finally, and maybe it’s coloured my thinking but one of my best friends contracted coronavirus last week in South West London. He is 43, male, v healthy, no underlying medical issues. He is also now on a ventilator with pneumonia. I only write this not to be sensationalist but to highlight that this disease is affecting young / middle age people as well as the elderly and is clearly far more serious than flu. Thankfully he got ill when there was hospital capacity and is likely to be fine soon given his age. Do your very best not to get ill between now and the summer to (a) take pressure off the system (b) give your self a better chance of survival given the triaging that is going to take place.

  • 31 Neverland March 21, 2020, 5:07 pm

    @seeking alpha

    “No one knows anything … Every time out its a guess and, if you’re lucky an educated one.” William Goldman’s famous quote about Hollywood is just as apt when applied to infectious disease predictions

    Equity investment works because you take equity risks – which includes getting wiped out on your investment

    And yeah I think all the S+P is down to is it’s level at the end 2018

    It’s quite conceivable that a lot of consumer facing companies will go bankrupt like banks did in 2009 but as a herd the stock exchange survived and did okay (well, outside the UK)

  • 32 tom_grlla March 21, 2020, 5:19 pm

    How’s everybody feeling? I think that even if you’ve resisted doing anything and stuck to your plan, it must be incredibly stressful (only a robot wouldn’t be wondering if they were doing the right thing).

    For ‘naughty’ active types like myself, I think I am starting to understand what 2008 must have been like. Even in normal times, every transaction makes you wonder if you’re doing the right thing, now that is magnified 100x. I find the past two Friday evenings have been a time to collapse in a heap!

    Investment trusts seem a place of opportunity, but those wide discounts might not come in again for years, and prices might still go down another 10% tomorrow. Even CGT has not been as much of a safe haven as I’d hoped.

    On the other hand, it’s encouraging to see some Director buying now, and the constant optimism of ‘clever’ people like Lindsell Train – a reminder of how if you’re looking at Cash Flows 10 years out, things look a bit better.

    The only thing I can see to do is: a) keep as calm as you can, b) have some cash, c) keep dripping in a bit more every time things go down a further X%, to take advantage / rebalance / whatever you want to call it.

    zxspectrum48k (& everyone): I agree with your last point wholeheartedly: the volatility of Sterling is a real issue for monitoring your performance. First off in 2008-09 the collapse in sterling flattered one’s performance if you had foreign equities, and ditto in 2016 (while in 2017 it was the reverse).

    For those who have e.g. the MSCI World tracker a la Kroijer, maybe you don’t look at performance, but if you do, I think it makes sense to have an ‘alternative currency’ to use to measure performance – one that’s more stable. Of course, these days that’s easier said than done – I suppose the CHF might work apart from the couple of times they put the peg in and then loosened it. Or maybe the US$.

    Hope everyone’s emotions and nerves keep holding up!

  • 33 W March 21, 2020, 5:49 pm

    @Far-wide “VWRL hardly seems a bargain at the moment in the circumstances (-23%)”

    Weakening GBP cushioning the fall has indeed reduced the opportunity to buy at the -30% sell off on the main indexes.

    Following on from your question, I would add if GBP eventually gains back some ground v USD will this then act as a brake on future VWRL gains later?

  • 34 Whettam March 21, 2020, 7:14 pm

    @ 7upfree I think it’s a combination of trained people being on full ventilation on an ICU ward is I believe much more complex than just receiving oxygen. Plus the physical ventilators themselves, the NHS only has a certain quantity, hence the request that more are built.

  • 35 Mathmo March 21, 2020, 7:33 pm

    Thanks for the links, TI, and I hope you and all readers are keeping safe and sane. I fear this is a marathon not a sprint. So any big news that might be the themes in the articles this week?

    I’ve particularly enjoyed the widespread outbreak of articles second-guessing the CMO and a splurge of WFH blog posts — as well as just about every CEO who every ran a company “personally” emailing me to let me know how he/she is getting on right now. Delighted also to note that the narrative style of calling people idiots and being unkind to our fellow man has not really moved on since the Brexit debate. Nothing pulls the other side round like invective and labelling.

    So thanks TI for explicitly not becoming an armchair epidemiologist (why didn’t they ban restaurants sooner? Because they are turning up the dial one notch at a time to see what is the least amount of muscle they need to cut in order to slow the spread: poverty kills more people than the virus).

    I’ve noted the two emergencies separately:
    The health emergency as an employer, father, son, politician — trying to act responsibly and to persuade my various communities to act safely and be supportive of one another. The advice is clear. I follow it and urge others to do the same. I wash’n’sing and elbow-open with the best of them. Staff sick policies improved and homeworking where possible in place. Community support groups instigated and mutual shopping (and humour) groups (amazing how much wholesale food access soon-to-be-ex-restauranteurs have access to; and how reassuring the local pharmacist can be). An attempt to be more polite to people I deal with who are equally scared and stressed. A quick note to the Police Inspector to send him and his team the best and offer any help. A note to my favourite barman to wish him well in hibernation.

    Meanwhile there’s the financial emergency. I was a little light US equities so bought some on the first big fall, but otherwise it’s all about the big picture asset allocation. I was just on my 60% allocation going in, having capitulated to hedged bonds in 2018. I’ve now bought on the way down, keeping my 60% balance. VWRL at 65 and 60 and I’ll overweight at 50, 45 and 40 up to 80% if it keeps going down as I believe it will (listen for the bell!). I’ve sold some AGBP and have Gold in reserve. Fascinating how these two stores of dry powder have held up — the hedged bonds surged and receded and has stabilised again. But all just a matter of 3% either way. Gold has also had its wobbles but generally massively up on 6 months ago and acts as a forex anchor (even if ZX48k would prefer USD!). I confess I’ve dumped all my P2P. The only slightly hair-raising moment was being driven rather swiftly in a sports car across the Scottish Highlands (before the “no unnecessary travel” ban) trying to trigger a rebalance on my phone. I’m poorer but sanguine. If you can keep your head while all about are losing theirs…

    Now it’s about hunkering down, working, and doing DIY in the sunlight and trying to read or complete Netflix when it’s dark. Never seen so many people walking in the local woods.

    In links, there’s definitely some bravado out there. The idea of calling the bottom (ringing the bell?) in TRB made me smile and I enjoyed TEAs gloriously optimistic “We’re going to Win” post. I think it will last longer than he hopes but I agree with the outcome. I’m really impressed by the scale and swiftness of the chancellor’s response. I’m sure more will follow, but striking to the core of the “economic time being frozen but financial time not” has been impressive. The loans are the usual sham, but the other measures are real and meaningful. Also interesting spectrum of responses from business — the banks offering a mortgage holiday and the hotels not offering refunds. A sobering call with my insurer this week made it clear that the nearly ten grand a year I pay him certainly wasn’t for having my back if it all went wrong in this particular way — I wonder how many more fires there will be.

    Meanwhile the sentimenttrader’s “panic button” seems somewhat superfluous, but it is surprising how fast this moved into a 20% drop. I see FvL has posted today calling it The Worst Ever (we’re only half way to the 2008 drawdown, I’m afraid), and that is a properly hair-raising ride there. The cost of complexity discussed back in happier days (a month ago!) is becoming much clearer — multiple trades across multiple sectors instead of a simple rebalance — the trading diary alone left my heart racing. Sale of distressed equities that will probably get worse seems logical in the face of possible margin calls, but whither the buy and hold advice? Seems much simpler to look at a single equity when things are moving really fast than try to time multiple sectors.

    Hope everyone stays well and calm, gets enough groceries and is not too badly impacted by the restrictions.

  • 36 Nick March 21, 2020, 8:44 pm

    How long do people feel the sterling crash is going to last? Just in line with corona getting worse?

  • 37 Edward March 21, 2020, 9:50 pm

    The govt is actually paying the entirety of people’s wages. 80% is what a basic rate taxpayer would see in their paypacket (e.g. £30k after tax and NI is a smidge under £24k, which is what they are paying)

  • 38 Edward March 21, 2020, 10:01 pm

    Interesting post Hospitaller – would you be happy to share what percentage of your cash is going back into equities at those percentages?

    I personally feel it has a lot further to fall, what with the virus still untreatable, many businesses forced to close and a recession/depression a certainty…

  • 39 chrissyb March 21, 2020, 10:05 pm

    I usually ‘buy the dips’ and did so a couple of weeks back.
    But no more, this time feels different. I think most assets have a lot lot lot further to fall when everyone understands what an economic standstill actually means and looks like.

  • 40 Learner March 21, 2020, 10:36 pm

    I have 12 months [bare bones] expenses in cash, plus another 4 years worth intended for a mortgage downpayment, and little else. Mentally prepared to spend half of that keeping a roof over my head if laid off in the near future. The unemployment figures coming directly out of some US states (ahead of the monthly BLS figure) are wild.

  • 41 The Borderer March 22, 2020, 1:37 am

    Ditched a large chunk of equities a few weeks ago, being a timid soul, and thankful I did. Now only 20% equity, nearly all VGLS, so only down 8%.
    Yet I feel the worst is yet to come.

    Regarding Covid-19, a visit to my local supermarket left me really p…s.d off with those greedy sods stripping the shelves bare, but with a little introspection realised I was p…s..d off because they got there before me! Then saw that video of the nurse coming off a 48 hour shift and unable to buy anything, which pulled me up pretty short.
    Sometimes I think we can all get our priorities out of whack.

  • 42 Vanguardfan March 22, 2020, 8:52 am

    Somehow missed this yesterday, that’s what lockdown does for you…

  • 43 FI Warrior March 22, 2020, 9:35 am

    Re: shop-stripping panickers, there’s your blitz spirit, in an age where individualism is worshiped above all else, blitzing the shelves to make sure I’m alright Jack. Though I don’t get why the supermarkets don’t just double up on deliveries and let people knock themselves out hoarding. There will be some limit they have to come up against, like running out of storage space, disposable income, pillaging time, attention span etc.

    It is more disturbing from the point of view that there has been no real signs of a loss of law ‘n order, yet people are acting like this already, so how little would it take to get widespread looting and chaos going. Very worrying for the old and other vulnerable, this is what may make people realise that individualism is enough on it’s own to survive, but we need others to actually thrive and be secure.

    Like several commenters above I also feel the economy is a lot more fragile than people think and there is more to drop, the fundamentals are still so imbalanced and not under state control. When faceless hedge funds, random global investors and other states own so much of your critical infrastructure because decades of governments have stealthily sold off most of the national assets, you’ve put yourselves at their mercy when their purpose is to chase the slightest profit. It’s the difference between pawning your valuables in hard times vs taking a loan from the local loanshark Jimmy-the-legbreaker.

  • 44 Penelope March 22, 2020, 9:46 am

    Our thanks go to FI Warrior for illustrating the benefits of not panicking.

  • 45 Simon T March 22, 2020, 10:23 am

    I might have mentioned it before but at work and my large client they are already talking about the “new normal” when things start clearing up. The big experiment we did a few weeks ago to all work from home was successful, and we are all now at home until at least August and after then it WILL change. That expensive office real estate is going to get a hammering next year.

  • 46 PC March 22, 2020, 10:50 am

    The big company I’m working at was always reluctant to let people WFH, they used to stress it was a privilege and only to be used sparingly. Now they have everyone WFH and I’m hoping they’ll see it works well and allow much more of it when this is over.

    Other companies already knew this. I worked at a different big company for the past year where WFH was the default and I only had to go into the office if I needed to, once in one or two weeks usually.

  • 47 Vanguardfan March 22, 2020, 10:56 am

    Sigh. So I caught last week’s bottom as I attempted my annual rebalance. Hindsight tells me I should have sat tight and abandoned this years CGT management.
    Now what to do. I have (a lot of) cash that my asset allocation tells me should be in equities, but if I buy back now I crystallise the losses. Thoughts? Buy back in quickly (next week or two) slowly (over next few months) or just pause for a few months?

  • 48 Al Cam March 22, 2020, 11:15 am

    @ Vanguardfan
    Perhaps though having too much cash at this time is not a real problem.
    Reminds me of a comment to a post (on another blog – do such things really exist?) from back in January:
    “And in due course, I guess, what it may come down to is a personal trade-off of the:
    a) opportunity cost of holding a lot of cash (or cash equivalents) in a bull market
    versus
    b) increased liquidity and security of holding cash in a bear market”

  • 49 Vanguardfan March 22, 2020, 11:30 am

    @alcam, that’s a vote for option 3 then. Time horizon for this money could be long if needed.
    I swither between ‘restore status quo now and accept the hit’ and ‘just leave it until things are clearer’. Problem with the latter is I am effectively playing out the classic behavioural mistakes playbook- sell out on a dip, sit nervously on the sidelines eventually buying back after the recovery…

  • 50 Far_wide March 22, 2020, 11:34 am

    @ZXSpectrum48k Thanks for the thoughts, as always it’s appreciated.

    @W – Yes indeed, a chance to buy high and sell low! Of course, if Sterling does continue to tank then we will continue to benefit. But when we’re at GBPUSD 1.16 from a high of GBPUSD 2.05…well…
    I’m yet to be convinced of what the right idea is in this regard, so for the moment I will continue to sit at my (now) 40% equity allocation and, I suppose, hope for further falls that make any such currency fluctuations a trivial matter. This doesn’t feel like a great plan though!

    As I haven’t talked about it for at least 2 whole weeks, I’ll also add that on the FIRE front I’m still feeling fairly happy. Have managed to offload the vast majority of P2P I had, whilst cash is tucked away in fixed rate savers. I hope things don’t get sufficiently cataclysmic to cause a problem with FSCS, that would be most unpleasant. (premium bonds anyone?)

  • 51 Mathmo March 22, 2020, 11:37 am

    @vanguardfan
    Have enough cash to spend per standard buffer rules. The rest is in your long term investment pot.

    Choose your asset allocation. Stick to it. Simples.

    In the long term, equities were cheap in Jan. Now they are very cheap. They might become extremely cheap, but eventually they will be expensive.

    Don’t really understand how you just rebalanced but are now long cash.

  • 52 Matthew March 22, 2020, 11:57 am

    We are 12 years into this bull run, after all

  • 53 Al Cam March 22, 2020, 12:48 pm

    @Mathmo:
    Agree with your final comment – why so much cash from a re-balance?

    @Vanguardfan:
    If it is a re-balance, IMO you are not really falling foul of any “play book” about selling out on a drop.
    If I recall correctly, you tend towards the floor & upside (F&U) approach.
    The F&U approach should be proving its worth through the current debacle.
    Providing your floor is secure, then it really comes down to upside management – which, of course, you can apply discretion to. The key static F&U mantra being never to functionally re-balance from the Floor to the Upside – but it is quite OK to go the other way – so called “raising the Floor”.
    It is your personal choice to make and FWIW my view is to go the way that allows you to sleep best at night.
    My upside has taken a battering – but, to date, it has not kept me awake at night. That, of course, may change.

  • 54 Vanguardfan March 22, 2020, 12:56 pm

    @mathmo, al cam – sorry imprecise language, not so much a rebalance as a managing CGT sale, I would rebalance if needed on the repurchase normally. So I am between the sale and purchase, realising that prices are higher than when I sold…
    Anyway if nothing else, my rookie mistake will give the wise a laugh and the fools a lesson! (should at least have done the sale in tranches given the volatility)

  • 55 Mr Slow March 22, 2020, 1:11 pm

    GBP is at historical lows and who can say whether it will continue to fall in the long-term or gradually rebound as we eventually come out of corona-virus and Brexit uncertainty. With this in mind I intend to buy a large portion of any new equity investments in currency-hedged form.

    =>Does anyone have a list of cheap currency hedged equity index trackers? I would be buying outside of a tax shelter and so ideally would like Income units to make tax calculations easier, I haven’t been able to find any so far so may have to use IGUS and IGWD accumulations unless anyone has found anything better?

  • 56 xxd09 March 22, 2020, 1:34 pm

    Do I detect a lack of written down Investment Plans?
    Also Asset Allocations that are to risky for the investor concerned?-age in bonds might let you sleep at night
    Rebalancing should not be a problem in Accumulation phase as your regular contributions buy more units
    If retired Withdrawals also rebalance the Portfolio
    If young with a secure job-no new action required
    If retired and saved enough-no action required
    xxd09

  • 57 Bob March 22, 2020, 2:30 pm

    @Hospitaler.

    Re lack or preparation (different from the disgusting underfunding) I absolutely agree and am puzzled.

    In a previous incarnation I used to attend multi agency refreshers for major incidents and national emergencies, including mass infection. We planned and performed exercises in what used to be Civil Defence. (Anyone remember Nuclear Ned?)

    There were vast emergency stocks of pretective equipment and contingencies for treatment of mass casualties. I admit the last time I did this was eight years ago. But what happened in the interim?

  • 58 The Investor March 22, 2020, 2:37 pm

    I feel there’s a lot of panic and gloom being expressed on this thread.

    I understand it and am not judging. But I am personally much more optimistic than 5-6 weeks ago, when I was writing/talking about Coronavirus to general disinterest and governments seemed oblivious.

    Now the response is beyond what might have reasonably been expected even two weeks ago. Rishi Sunak (future prime minister?) really seems to get it. Yes the economic hit is going to be absolutely massive, but these countermeasures are not in the history books.

    We also know what has to be done and can be done to curb the virus. It’s worked (in a more extreme version) in China. Worst case scenario (ex-mutation) we have been too slow and thousands die unnecessarily but it should not be hundreds of thousands and it shouldn’t mean a six-month delay to getting past it.

    I feel there is going to be loads of adaption. Lots of restaurant lays offs, say, but lots of delivery van hiring. Over time (hopefully) a steadily growing immune population is going to build up, which will help.

    It’s very early to talk about, for example, commercial property being destroyed forever due to working from home revelations. I expect a bunch of people will value their office more after two weeks at home with their family! But even if it does, companies like the big London-focused REITs would probably find much of their assets more valuable rezoned for housing. If people are working from home more, they will want bigger/more homes. Et cetera.

    Change and disruption takes, but it also gives.

    The gyrations in the market are scary but not inexplicable. E.g. US government bonds have sold off recently, but that’s pretty clearly a liquidity crunch, and private investors are probably also looking at what will be temporary discounts emerging in the bond ETFs. These will close. (Also, notably shows it isn’t all about the dollar — they are already in dollars). Cash is king as has been well reminded. But cash does not stay king for long, usually.

    Of course all companies face the issue of getting to the other side of the crisis without blowing up. Debt is a worry. It looks like governments realize the best way to keep everything intact is to try to standstill it with massive cash infusions, before we pick up where we left off etc. This is the best case scenario, leaving an uncertain future bill. (One inference might be even more temptation to inflate away debt in years to come. Beware sitting in cash/bonds forever).

    Finally, equity markets have already been smashed for six. Even the US markets are down c.30%. The UK markets — the perennial tubby kid with glasses who never gets picked for the sports team* — are down even more.

    The falls are rational, to some *unknown* extent. A year of earnings wiped out? Definitely. 5% of market cap goes bankrupt? Possibly. But a 40% permanent destruction of earnings capacity? I don’t think so.

    Early on I was lambasted for being insufficiently sensitive to death and misery in the following sentiment. So let me say again, I understand the horror of personal loss. My own mother has been isolated for two weeks and I have her washing her hands before and after unwrapping deliveries made at a 2m distance. I’m scared for her.

    However again, this is a virus that mostly impacts the old and infirm. I suspect when the data is unpicked we are going to see it was killing a lot of people who would probably have died soon anyway. It is horrible, but it can’t be ignored when considering the downside. YES YOUNG PEOPLE GET IT AND DIE TOO. I understand (and I am very sorry for the reader’s friend who has it in his 40s, and I hope that he gets better soon). But mostly it doesn’t. This means if we can contain the virus, then the long-term economic hit — which is what matters for shares, not for feeling good about the virus — should be contained.

    Again, compare it to for example a fast-spreading AIDS-like virus which was killing slews of breadwinners and parents with young kids. That would be absolute economic carnage. That is not what we face.

    I fancy the warmer weather is going to help, too. I know it’s not proven yet, but early anecdote and data is suggestive.

    This is bad. It’s worse than 2008 for sure. But it’s not a time for panic or despair. That’s not the magnitude of what we face here.

    Passive investors, stick to the plan. Do your revision with the passive pages at Monevator:

    https://monevator.com/category/investing/passive-investing-investing/

    Active investors? If you’re silly enough to be that, you do you.

    I am, and have been increasing equities and risk all last week. Nobody knows. But there’s a lot in the price already.

    (*Apologies for the un-PC quip — never mind, we know he probably founded a startup and got rich and inherited the world in the 1990s/2000s)

  • 59 The Rhino March 22, 2020, 2:39 pm

    Prob many will have is losing their job right at the point where the regular accumulating drop feed would be most potent!

    I think this will be the case for me, it’s very regrettable.

  • 60 Mathmo March 22, 2020, 2:49 pm

    @ti – if this is worse than 2008, then the markets have a lot further to fall.

    @vanguardfan – understand cgt sale, but no need for that to change exposure. Either rebuy inside tax shelter or buy equivalent exposure (eg swda for sold vwrl). Waiting the 31 days seems a touch excessive…

  • 61 TCA March 22, 2020, 2:53 pm

    With regard to the question of GBP strength/weakness, for anyone who’s concerned about this and invested in VWRL, the USD version VWRA might be worth considering.

  • 62 The Investor March 22, 2020, 3:27 pm

    @ti – if this is worse than 2008, then the markets have a lot further to fall.

    Sure, they could easily fall another 20-30%. I don’t buy markets often and I am very active.

    Equally, we might be near the bottom. Who knows?

    It’s not advice for passive investors. They should keep doing exactly what they’re always doing IMHO, assuming they had a sensible plan in the first place.

    When I say was than 2008 I mean worse for the real economy. We have to set against that the unbelievable government response, and I expect more to come.

    I’m far more worried about my unlisted London-based trendy cafe/restaurant investments than the stock market. Could easily lose all that I think. 🙁

  • 63 chrissyb March 22, 2020, 3:27 pm

    @ The Investor
    In 2009 the FTSE100 bottomed @ 3700.
    If now is much worse, the current FTSE100 @ 5200 just seems way too high. When investors wake up, properly, you could imagine it dropping below 4000 again, surely?

  • 64 The Investor March 22, 2020, 3:33 pm

    @chrissyb — You may well be right, I’m just sharing my views. I don’t believe I picked a bottom anyway in my comment.

    What I am saying is people have gone from giddy enthusiasm six weeks ago and bravado four weeks ago to absolute panic and fear right now.

    This time might be different, but that has very rarely been a bad time to buy with a long-term view.

    The next three months? Anything could happen, as always.

    One thing though — I certainly wouldn’t look at the level of the FTSE 100 more than a decade ago as a guide.

    For a start you need to adjust for inflation. A level of 3700 then (which lasted for about a day and was caught by very few, though FWIW I bought a little) is different in today’s money.

    Anyway, you do you. 🙂 I’ve spent five years listening to endless Internet commentators telling me the US market was massively overvalued while it doubled, and that there was no point in government bonds because they were riskier than shares shortly before shares fell 30% in a month.

  • 65 Al Cam March 22, 2020, 3:37 pm

    @TI:
    Agree with your sentiments re doom & gloom.
    And a couple of points if I may:
    1) “We also know what has to be done and can be done to curb the virus. It’s worked (in a more extreme version) in China. ” Sorry, but I think some experts may not agree with you. According to this study (https://www.imperial.ac.uk/media/imperial-college/medicine/sph/ide/gida-fellowships/Imperial-College-COVID19-NPI-modelling-16-03-2020.pdf): “The major challenge of suppression is that this type of intensive intervention package –or something equivalently effective at reducing transmission –will need to be maintained until a vaccine becomes available (potentially 18 months or more) –given that we predict that transmission will quickly rebound if interventions are relaxed.” Verifiable proof may emerge in due course that re-emergence is not the case. But until then I see no reason yet to doubt this.

    2) “I fancy the warmer weather is going to help, too. I know it’s not proven yet, but early anecdote and data is suggestive.” I hope you may be correct but there are a lot of countries in much warmer climes than the UK that are suffering too.

  • 66 tom_grlla March 22, 2020, 3:46 pm

    TI – thanks for your thoughtful, ‘balancing-out’ piece above. It’s good to have different perspectives.

    It has been an extraordinary week, and psychologically it’s been tough for:
    a) people with kids, who have no sense of when they’ll be back at school, and how to juggle work from now on (as childcare is also up in the air).
    b) people who’ve been losing their jobs.
    c) people who think they’re about to lose their jobs.
    d) older people who are increasingly worried about their health.
    etc. etc.

    I say this, knowing your piece about this being an investment blog, as I think all this impacts on the psychology of how people invest and their capacity for risk. I’m sure a lot of people are bricking it for the market opening tomorrow.

    It’s great to see governments taking action, though it’s disappointing that there doesn’t appear to be more global collaboration.

    I am debating whether Chinese & Japanese equities recover more strongly now they appear to be getting back to normal – I think there are some excellent funds for this area.

    Anyway, stay strong everyone, and thanks again TI for your writings and thoughts (not advice!).

  • 67 Mr Slow March 22, 2020, 3:48 pm

    Further to my above question on currency hedges funds available in income units I have since found IWDG and GSPX, still interested if anyone knows of a list of them though!

  • 68 Al Cam March 22, 2020, 3:48 pm

    @xxd09
    re “Do I detect …..

    On the other hand things actually do change, and, over time, new information emerges. See also http://www.theretirementcafe.com/2019/02/retirement-advice-from-prussian.html

    Personally, I find Floor and Upside to be a sensible approach … but nothing, and I really mean nothing, is absolutely 100% bullet-proof under all circumstances!

  • 69 The Investor March 22, 2020, 3:55 pm

    @all — I won’t be able to respond to individual comments, super-busy prepping the bunker for my girlfriend to come and lockdown with me!

    I’m not saying things aren’t bad. I am saying everyone now knows things are bad, which if you’re honest with yourself was not the case 4-6 weeks ago.

    I’m not saying the virus will be shrugged off in a month. But I do think we’ll get better at handling it, better at compliance, and certainly that better treatments will come along well in advance of a vaccine (there’s lots in test already, and this is a novel coronavirus but it’s not a novel threat). An effective easily manufactured and distributed treatment would be an absolute instant game-changer.

    Most of all I am saying think nothing about investments without thinking about where we are NOW not how you felt in January. That was then, this is now. Markets are down 30%+.

    Is your house worth 30% less? Is your own personal earnings capacity now diminished by 30% forever? I don’t think so.

    Of course as I say companies have to bridge the difficulty to get there. The very indebted may not, the highly operationally geared may not. Government support on the scale we’re seeing will help but it’s not a panacea. As I said a minute ago, I think it will be 50-50 for my lovely unlisted London investments that just two months ago were thriving and looking to expand. It’s already been terrible for many dozens of their staff. 🙁

    Perhaps markets will fall another 10% next week. Perhaps 20% over the next two months — every reason to think the slide will continue. But are you, honestly, an expert market timer?

    I’m very seriously as good as anyone at it as I’ve ever met and most I’ve read, and I am very bad at it. Most people are totally diabolical.

    Passive investors keep on passive investing. Active investors do your thing, but if your thing is waiting for a clear signal that the skies are blue, go passive.

  • 70 The Borderer March 22, 2020, 5:35 pm

    @chrissyb (63)
    You are comparing apples with pears. Adjust for inflation and then compare. Have a look at http://www.retirementinvestingtoday.com/

  • 71 Tony Edgecombe March 22, 2020, 5:45 pm

    Just saw this at the bottom of a BBC article:

    “The Financial Conduct Authority (FCA) asked all listed companies to delay plans to publish by at least two weeks, due to the disruption caused by Covid-19.”

    I wonder what the thinking is on that.

  • 72 Tony Edgecombe March 22, 2020, 5:54 pm

    @63chrissyb Inflation since 2009 makes those figures quite close.

  • 73 Seeking Fire March 22, 2020, 6:25 pm

    Thanks Investor, re my friend, he’s suddenly made a good recovery overnight. will be on an isolation ward for another seven days until no long infectious but fingers crossed on the mend. Seems to have been unlucky but also falls in the segment of 40 – 50 years old who need hospital treatment but then recover quickly when they have care. Thankfully it happened now and not in few weeks time. I remain bearish today on near term given base case need to isolate for circa 18 months per Imperial College report. I also have no intention to sell holdings given I cannot market time so your thoughts there are right. If people are selling then I think their asset allocation was incorrect to begin with! Thanks again

  • 74 A touch confused March 22, 2020, 8:17 pm

    Hi,

    I’ve seen a Monevator reader recommend IWDG as a GBP-hedged alternative to VWRL. As I understand, though, IWDG it tracks MSCI World whereas VWRL tracks FTSE All World, meaning IWDG is “developed world” only, whereas VWRL is more truly geographically diverse.

    All of these things involve a degree of active positioning, but my ideal would be a truly all world (including EM) ETF, which is GBP hedged, and has a reasonable TER. Does such a thing exist?

  • 75 MrOptimistic March 22, 2020, 9:48 pm

    @TCA. Not sure what you mean. Take a look at

    https://monevator.com/currency-risk-fund-denomination/

  • 76 The Investor March 22, 2020, 10:56 pm

    @Seeking Fire — That’s great to hear, thanks for letting us know. Fingers crossed for a full recovery.

  • 77 C-strong March 23, 2020, 12:27 am

    @ Mr Slow. There is also SP5G. It’s swap based rather than physically replicating, which means (I think – it’s curiously obscure for something that must affect a lot of people) that you avoid the 15% withholding tax charge on dividends at fund level. So may be cheaper even though it has a TER of 0.15% which is high-ish for an S&P 500 tracker.

    I agree with you about hedging at least the US exposure given how weak the pound is, though plenty won’t.

  • 78 TCA March 23, 2020, 12:52 am

    My apologies, you’re quite right. I’ve conflated my ticker acronyms. I’ll amend or reply to my original post. Thanks for pointing it out.

  • 79 TCA March 23, 2020, 12:59 am

    Apologies all. Ignore my mention of VWRA in relation to GBP hedging. Ticker acronym confusion. As posted elsewhere, IGWD would be an option.

  • 80 Mathmo March 23, 2020, 1:31 am

    OK. In the world’s most trivial point competition…

    “with the abandon of jazz musicians who’ve just discovered a new chromatic scale”

    Isn’t the chromatic scale the one with all the notes in it, so there is only one…? 😉

  • 81 Simon T March 23, 2020, 9:06 am

    I would have thought that there are 11 chromatic scales (octave -1). They all have the same notes but they all have a different root.

  • 82 The Investor March 23, 2020, 9:13 am

    Isn’t the chromatic scale the one with all the notes in it, so there is only one…?

    Morning! You can have alternative/non-classical chromatic scales. 🙂

  • 83 Vanguardfan March 23, 2020, 10:14 am

    Yes, what’s a semitone?

    So I have decided to repurchase relatively quickly back to (written!) asset allocation.
    The one useful piece of learning is that I will do it in tranches rather than in one hit. Volatility and fund trades are not a good mix! At least this is (can be) long term money even if I just destroyed some of it

  • 84 The Investor March 23, 2020, 10:51 am

    @Vanguardfan — I’m the first to encourage investors to assume responsibility for their actions, but I’m not sure you should beat yourself up here, unless I missed something. Didn’t you just happen to see your trade executed at a low? On a short run it could easily have been the other way around. If you’d sold at a local high for the market, would you be berating yourself for your process, even though you were in profit? Probably not! 🙂

    Again I may have missed some nuance but these are fiendish markets and hedge funds are going bust because of their very active decisions. An unfortunate roll of the passive dice is just that IMHO — unfortunate.

  • 85 Jura March 23, 2020, 2:55 pm

    @7upfree yes- people. Specifically nurses. There are challenges around equipment and O2 supply but these are minor footnotes compared to staffing.

  • 86 Matthew March 23, 2020, 3:31 pm

    Would we be correct in saying the Covid death rate is approximately the same for each age group as the death rate for aging 1 year?

  • 87 Brod March 23, 2020, 4:21 pm

    Well, I – ahem – accidentally over-rebalanced 30% and now this:

    https://www.msci.com/real-time-index-data-search

    tells me MSCI World is down 30% (my first trigger) so I’ve bought back in 5% (SWLD if you’re interested.) If it falls another 5%, I’ll buy another 5%. If it stays at -30% for two weeks, I’ll buy another 5%. If it rises 5%, I’ll buy 5% (not that I expect it to, but to make sure I’m invested if there’s a recovery.)

    So, I’m hoping to pick up shares cheaper than they were a month ago, but not being greedy by trying to time the bottom. If it goes all the way up, I’ve picked up 15% extra shares for my money. If it keeps going through the floor, I’ll pick up 30-60% extra.

    Let’s see how it goes. Down 0.79% after 30 minutes or so but there you go.

  • 88 Don March 24, 2020, 8:22 pm

    Good for you. For me it’s also been a time of reflection and I think I may Have a very high risk tolerance (risk ignorance?) and may be a hardcore contrarian. (Although, let’s see how I feel once we’re down another 30%…) It would certainly explain why I seem to keep getting into disagreements with people constantly. Hmm…

    Investing-wise, I started buying equities last Friday and plan to continue, especially if we fall further. Currently levered up slightly, less than 5%.

  • 89 Don March 24, 2020, 8:24 pm

    Sorry, previous comment was meant as a reply to IanT.

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