If you have been following the news, you may have a building feeling of unease in your stomach. Just how bad is coronavirus and how much damage will it inflict on my wealth?
With regards to the sharemarket, I find the most surprising thing being that the coronavirus was ignored up until last Friday. And now there appears to be panic. At the time of writing, the ASX 200 has dropped 6% in four trading days and the media is highlighting all the billions “lost”. There is also panic in the bond market with US treasury yields at all-time lows.
6% isn’t even a correction. And we need 20% to meet a bear market definition. That said, we may very well get to the 10% which meets the official definition of a correction. I have no idea.
What I do know is that my client portfolios are designed with crashes and bear markets in mind. Because I do know they occur, and that we haven’t had one since the GFC.
The reason my clients have a segregated cash account (as well as term deposits) is so pension payments can be made without the sale of any shares. It is only when you sell shares at depressed prices that you lock in the loss. Imagine being in a standard super fund where you are invested in a single diversified investment, such as a ‘balanced fund’. Every pension payment necessitates the partial sale of shares as well. And there is no ability to use some of the cash to buy shares on the cheap.
In addition, it is during corrections and bear markets that people start looking at the fundamentals of a business. They start questioning whether the latest ‘fad’ business which is trading on ridiculously high p/e multiples, is worth it. And this is why I have had a strong focus on ‘value’ fund managers rather than ‘growth’ fund managers. Established businesses which are valued on fundamental characteristics such as cashflow, distribution networks etc, and not promises and dreams, will better withstand turmoil.
If you are my client, I do not think you should be concerned. For this has been expected and planned for. It is just the cause of the sharemarket turmoil which was previously unknown.
And with regards to the coronavirus, be concerned and take precautions. WAToday reports that:
“Coronavirus poses a very small risk to healthy people aged under 60. “They will have an unremarkable illness comparable to a common cold,” Professor McMillan said. “But the virus’ mortality rate rises sharply for those over 60, and for those with heart disease, diabetes or lung disease.”
Stock up on required medications. Stock up on hand sanitiser, wash your hands frequently & don’t touch your face. Don’t go to places with large numbers of other people. Consider stocking up on food. Consider holding actual cash at your home. Don’t travel (and definitely don’t buy Qantas shares).