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Investment Opportunities

How to Play the Novel Coronavirus

  • Newspapers, television networks and social media exaggerate bad news for ratings and clicks – evidenced by the recent coronavirus coverage.
  • Today, Alexander Green explains why wealth builders don’t need to buy into the panic.

Over the past two months, I’ve written several columns explaining how the mainstream media hypes bad news and overlooks the good, undermining investors.

Reports of the novel coronavirus provide a near-perfect example.

There is nothing positive about a mysterious new epidemic, of course. (Unless you’re in the media, since “nothing good” is their stock and trade.)

Thanks to saturation coverage, most readers already know that…

  • There are already more than 6,000 confirmed cases of the novel coronavirus, and it has killed over 100.
  • The virus has spread overseas, including to people in Japan, Taiwan, Vietnam and even Germany who have never visited China.
  • Citizens are on lockdown in the city of Wuhan, the outbreak’s epicenter.
  • The disease has crippled China’s land, rail and air transport, and greatly diminished retail sales.
  • Entire Chinese cities have been shut down.
  • Several major airlines and cruise lines have suspended trips to that nation.
  • And major international airports are now screening passengers to make sure they aren’t carrying the virus.

These are the undisputed facts. But then, inevitably, the media’s “analysis” and speculation begins.

The Washington Post, for example, tells us, “The virus has the potential to be more deadly than the 2002-2003 SARS outbreak, which killed nearly 800 people and infected more than 8,000 others.”

The same article goes on to quote Ed Yardeni, the respected president of Yardeni Research: “If the current outbreak turns into a pandemic that significantly disrupts global commerce, the impact would be bad news for the global economy and corporate earnings.”

I could give dozens of other media examples, but you’ve already seen and heard them.

Given the reports’ panicky tone, it’s no surprise that the Dow Jones Industrial Average fell 454 points on Monday.

But then something odd happened. Over the next two sessions, the market snapped back.

On reflection, investors realized that the media had oversold fear and overlooked alternative outcomes.

The Yardeni quote above, for instance, appears cherry-picked to maximize anxieties.

Especially when you consider that this week Yardeni said this about the Ebola, SARS and MERS pandemics: “All three outbreaks were contained before they could have a significant impact on the global economy or financial markets around the world. We expect the same outcome with the current outbreak.”

That analysis – with which I entirely agree – is the opposite of the sentiment peddled by the Post article.

Don’t get me wrong. The coronavirus outbreak will get worse before it gets better.

It is already having a negative impact on Chinese businesses and foreign companies that do business there.

It is disrupting both the tourism industry and the intricate cross-border supply lines that thousands of multinational corporations depend on.

But the global economic impact will almost certainly be short-lived. Why?

The public has a long history of overreacting to health threats. (This is truer now since uninformed opinions on social media allow rumors to fly around the globe unchecked.)

In the modern era, every contagious disease outbreak has been contained. Medical experts at Johns Hopkins, for example, are already downplaying the current threat.

The scientific community attacks new illnesses with unprecedented speed today.

A week ago, the new pathogen’s genome was posted on an open-access repository for genetic information. Already thousands of scientists around the world are sharing data to treat the disease and create a vaccine.

Laboratories here and abroad are scaling up production of experimental drugs that were initially developed to combat SARS to see if they show promise against the new coronavirus.

What does all this mean to investors?

It means you should play the coronavirus scare the same way we played every doomsday forecast of the past two decades, including Y2K, the Greater Depression (that would soon follow the financial crisis), the so-called fiscal cliff, the imminent government shutdowns, the bird flu epidemic, peak oil, the rare earth minerals shortage and the impeachment crisis.

With a skeptical eye, in other words.

Peter Lynch, the greatest stock fund manager of all time, famously said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

History shows that today’s dramatic front-page headlines will soon be lining the birdcage.

Savvy investors don’t react to daily trivia. They understand that television news networks and social media sites exaggerate bad news to boost ratings and clicks.

This is not to suggest that the economy will always be roses, serious problems will get solved immediately or stocks will rise in perpetuity.

They won’t. Changes and setbacks can be rapid and dramatic.

But you can’t manage your portfolio effectively if you’re in a constant state of reaction.

Instead you need to position your portfolio in advance for unknown developments, both positive and negative.

In my next column I’ll explain how.

Good investing,

Alex


About

An expert on momentum investing, value investing and investing based on insider activity, Alex worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years. He now runs the wildly successful Oxford Communiqué, ranked as one of the top investment newsletters by Hulbert Digest for more than a decade. He is also the author of four national best-sellers: The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. He shares his wisdom in his free daily e-letter, Liberty Through Wealth.

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