Investment success is primarily an exercise in managing emotions and so facing the threat of a global pandemic offers a great test of our commitment to our long-term investment game plan.
While the novel coronavirus is a serious matter for those infected, it is important that we don't let fear become overblown and cause us to make reactive short-term investment decisions that we may regret later on.
Last week I travelled to Singapore and Malaysia on business and found myself flying on virtually empty jumbo jets. It felt surreal, and even a little bit eerie to see so few fellow passengers passing through these normally bustling airports. There is no doubt that in the short term the coronavirus is having a massive impact on the revenue of airlines, tourist operators and international education.
And while it makes sense to limit non-essential travel in the short term, we must remember that the virus is really only a serious threat to immune-compromised individuals. That is not to downplay the tragic, global health crisis that coronavirus represents but if those who are at risk in the face of this virus take sensible precautions to quarantine themselves from harm, then the majority of people should be safe to go about their ordinary business.
According to NSW Chief Health Officer Dr Kerry Chant, 80% of people who get the virus will only have mild symptoms and it is predominantly people over 60 who have compromised immunity who are at the most serious risk with this particular virus.
Lessons we can take from the past
While we all need to be cautious, it's safe to assume that life will go on pretty much as usual, as it has done after the vast majority of previous global disease outbreaks.
According to the World Health Organisation, 3,119 have died to date from the Coronavirus out of 90,932 diagnosed cases, which is an approximate death rate of 3.4%. It's not the first time we've been through this challenge – we had the Bird Flu in 2013, MERS in 2012 and H1NI which killed up to 203,000 people in 2009. And then there is the annual seasonal flu which kills between 291,000 to 646,000 people every year. And in spite of all these challenges, economies have continued to do what they do.
The All Ordinaries (INDEXASX: XAO) fell almost 10% last week wiping out most of the previous year's gains with losses of almost $200 billion. Markets don't drop 10% or more in a few days very often. In fact, it's happened just 14 times to the Dow since 1928 according to US-based research firm Evercore ISI data. And in each of these cases, there has been a pretty quick bounce back thereafter. While some of that lost ground has already been regained this week confirming this trend, it's impossible to predict the precise bottom in any of these market shocks, at least until we have the benefit of hindsight (sometime down the track from now).
And while we can't know what is going to happen in the future, history has proven that most market corrections of this nature, especially in the absence of a general recession, tend to prove to be good entry points for share market investor.
It is wise to assume that this current crisis is no different to all the countless crises that have come before it, and the many future crises that we are yet to face. With this approach, each crisis could be viewed as a chance to pick up your favourite businesses while they're "on sale", boosting capital and cash returns as the animal spirits calm down and life returns to normal.
Foolish takeaway
Remember the Foolish way to invest is to develop a long term game plan and stick to it regardless of short term crises along the way.
Thinking with a 3-5 year time horizon will help you ride out short term noise that can distract you from the end-game.
