Letter to our clients: Coronavirus and the Markets

Personal Money Planning |


I tend to write a lot and often long. This is probably going to be a lot of long writing. I’ve wanted to get something out to you, our clients, but the COVID-19 (for which I’ll use the more common description: Coronavirus) story has been moving rapidly, we were in the middle of the last major phase of portfolio strategy changes, and then the market decides to crash. (Actually, as I’m writing this it has “only” been a correction (10%+) not a crash (20%+) but I like the word crash better.

In our email newsletter you’ll be seeing reprints of my Times Record News articles on the subject of the Coronavirus and the markets. What we’ll cover here is a bit more in-depth and allows me to speak more freely.

Realize that the news on this is moving faster than I may be able to get information out to you. However, if my thoughts change, we’ll follow up. And, of course, if you want to talk, we are available. We still do have email, a phone system, and a nice conference room.

Perspective of the Plunge

Back in 1987 I had my first experience with a crash. I was taking time off from my career in nuclear power generation to finish up my college degree program. I remember coming home from classes, turning on the television, and seeing the bright red downward plunging graphs depicting “Black Monday.”

That was the famous decline which took the Dow Jones Industrial Average down by 22.6% in that single day.


Like hundreds of thousands of others, I tried to get in contact with the mutual fund companies with whom I invested but couldn’t get through. The phone systems collapsed with all the panicked investors wanting to sell. Only I didn’t want to sell…I wanted to buy.


Forward to the Tech Bubble Burst of 2000, the Terrorist Attacks of 2001, and the recession of 2002, and you can see that starting a new millennium is not always a smooth ride.


Forward more to September of 2008, one of the worst months for markets since the 1930s. I was rather pleased. I was watching a historic market event…often when you are in a historic moment you don’t know it…this time there was no doubt. Not only that, the stock market was having a fire sale that rarely happens. Can see how my spirits were doing fine?

Of course, my clients (many of you) might not have been quite as pleased seeing your investments, which represented hopes, dreams, and security, go tumbling down. But given the kind of investing we do—Situating the portfolios we manage to be able to take advantage of market rises and being able to sustain market drops without jeopardizing our clients’ goals—I knew that they needn’t worry.


If they did worry, which would be a natural human reaction, as long as they did not capitulate and order us to go to cash while the markets were down, all would be okay. That is why we spend some time in the beginning (and periodically) measuring your risk tolerance.


In these first days of March, we are seeing the market finish out a remarkably bad week of negative returns, including consecutive days of 1,000 point drops in the Dow and a resultant 10%+ correction in most of the major indexes. And no one knows where or when it will end.


As for me, I am concerned, not worried. Cautious, not panicked. And I hope that describes you as well. Actually, you really don’t have to even be concerned because that’s what you hire us for.


The reason I’m not worried or panicking is because, just like in those other market debacles, stock market losses are always temporary (as are gains). The concern and caution is because I don’t know how far down the drop will go, nor do I know the length of time it will take for markets to return to their pre-correction level (which I might remind you was at an all-time market high).

So, let’s move on to three topics:

  • What do I think will happen going forward?

  • What do you need to do to protect yourself from virus-induced financial harm?

  • Why are you seeing a LOT of trading in your accounts?

Where Is This Heading?

As I’ve mentioned, neither I nor anyone else knows just how bad the Coronavius is going to get. We don’t know how much it will affect the world’s economies. We don’t know how that will affect the markets. We don’t know how long it will take to recover.

That won’t keep people off of TV or radio or the Internet telling you what is going to happen—but unless they have had a prophetic moment, remember that they are guessing. Time and time again, research into the predictive power of market predictions shows them at best the same as mere luck, and most studies have the average pundit actually doing worse than a coin flip.


That includes me. Which is why this section should be read more as what could happen, not what will happen. In other words, I’m probably wrong.


The Virus

First thing, the Coronavirus will be with us for a while. No country has a handle on how to prevent its spread, and likely it cannot be prevented from spreading. It’s already on every continent save Antarctica. A vaccine is at least a year away. Things will get worse before they get better.


But let’s put that into context. As I write this more than 3000 people have died of the virus, putting its death toll at about 3% of those infected. But that’s a bit misleading as it only includes those that the governments know are infected. Likely many more are infected that do not go to a medical facility as their symptoms are fairly light.


In context, last flu season approximately 60,000 people in the United States alone died of the flu. The 2017-2018 season saw 80,000 deaths in our country. But let’s look at a worst-case scenario.


Let’s pretend that every single person in the world, including those scientists in Antarctica, is infected by the virus (which will not happen). And let’s pretend that the fatality rate is 3% (it will be lower). Given the world population of about 7.7 billion this leaves you with a bit over 230 million dead.


Now let’s put that 230 million deaths into perspective, about 60 million die every year to begin with, so 170 million additional deaths would occur worldwide in this worst-case scenario. This is a big deal if you are one of those people, or family or friends of those people. And, of course, 170 million deaths are incredibly sad. But, mathematically, it’s “only” 2.2% of the world’s population.


Imagine if you are a business. Could you recover from 2.2% of your employees quitting? Could you recover from 2.2% of your customers dumping you? I’d think so. And while this sort of calculation might seem a bit morbid and uncaring, it is what goes into determining the longer-term worst-case effects of this viral outbreak.


The Markets

While the longer-term effects might be small, the shorter-term effects are not. In the short-term the movements of the market are noise…and things are quite noisy now. Fear and panic get people to sell, causing the markets to go down which causes more fear and panic and more selling and more down and…you get the picture.


My guess is that the markets will continue with a slide down punctuated by short-lived rallies. Some of this is due to the virus. Some of this is due to the election (the average election year has the markets falling for the first part of it and then leveling off and maybe gaining in the months leading to the election). Some of this is natural at the end of a 10-year ridiculously good bull market. That this is the steepest correction in the market since the Financial Crisis brings fear; but in perspective, as of March 1 (when I wrote this), the market plunge had only brought us back to where we were 6 months ago.


Still, concern is warranted. The full human and economic toll is completely unknown and difficult to measure. Many businesses like theaters, restaurants, transportation, and resorts (to name a few) will see a permanent loss of a portion of their earnings. Many more will see earnings delayed. If Apple can’t get their phones built or Maytag can’t make their washers that halts their earnings until supply and manufacturing delays from the virus gets sorted out.


Lost or delayed earnings does reduce the value of a company. The markets going down due to this virus is not unwarranted. But the loss or delay of earnings does not represent a 10-20% or more loss of value. Wall Street tends to overreact in both directions as it digests new information as it comes in. Overshoots on the downside present a good buying opportunity. The question is when to buy.


That’s the rub, isn’t it? I’ve told you ad nauseum in the past that trying to time the market is a fool’s game. And trying to figure out when to buy into a market drop is fraught with problems. At the same time, I’ve also told you that buying is never a wrong decision because eventually the markets will recover and reward you. That is why, all things being equal, we would do our normal rebalancing. This means we would tend to buy into the stock market when it is down while selling when it is up.


However, all things are not equal at the moment. We went into this downturn a bit light on stocks. This is called luck, but we will take the luck when presented to us. Because of this the question for me is when to bring our portfolios back to normal.

I don’t predict anything as bad as the 2007-2009 Financial Crisis.


More on that when we get to my discussion on why you are seeing so much trading going on in your portfolios. But first…

What You Should Do

What you should do depends on what your goal is. If you never want to lose money, then you are employing the wrong financial adviser as the investing that we do will positively, absolutely, show a drop in your portfolio from time to time. When and if we will make that money back again, I cannot say (it’s frowned upon by the regulators who would swat us with a mighty fine for guaranteeing as much).


Yet studying the history of the markets shows that every other time in the past, indeed the markets recover and then go on to new heights. (I can say that.)


Protecting Near-Term Needs

That said, most of our clients would do well to keep some money out of the markets. These might be funds for the what-ifs in life, a new car this year, or a vacation the next one. In these scenarios you do not have time for the market to do its worst and recover in time before you do your spending. Many do this using a bank account. Some have us do that for them.


Because of this, one of the first things you should do is to make sure you’ve told us of any anticipated significant spending you plan to do from your portfolio over the next five years. Suffice it to say that if you are taking a monthly distribution, we already know about that. What we may not know about is your planning to donate some to your grandchild’s college costs or your child’s wedding. Us knowing that will help us protect your future need by carving out some of your portfolio and making it a bit safer, then moderately safer, then pretty darn safe as we get closer and closer to the time you will need the withdrawal.

If there’s something you forgot to tell us: Tell us.


Don’t Panic

Not only is this a reference to The Hitchhiker’s Guide to the Galaxy, it is a good motto for most things in life, including crashing stock markets. As I mentioned in a recent news interview, panic can make you do dumb things.

That said, there are plenty of people who may want to panic because they had all their money in the stock market. That is always dumb. But if you are our client you do not do that. At least you don’t do that with the money we are managing. So, in your case there is no reason to panic.


Even if you have an unexpected need to spend a chunk of your portfolio you need not worry (usually). There is almost always (note the word “almost”) something in there we can sell without generating a needless loss for you. In those rare exceptions where everything is off their highs (there were several weeks during the Financial Crisis when this was true), at most you would be giving up some of your recent gains, not locking in absolute losses.


Redo Your Risk Tolerance Questionnaire

A downward trending market, especially if it is quick or extended, tends to seem like it is heading to zero. Zero is not good. That zero would take most all the companies in the world to go belly-up at the same time. I can’t tell you that won’t happen, but really? Still, most people have a breaking point where reason is trumped by fear.


That is why we have run a risk tolerance analysis on each of you. It is also why we periodically update them. And this seems as good a time as any. If it has been a while since you last filled one out, you’ll be hearing from Brittany who will ask you to complete an updated survey.


Realize We Are Ready for This

While I did not know a pandemic was going to originate in China this year, I was well aware that a pandemic was probable at some point. Back during some of the flu scares regulators demanded that firms like us have a plan on what to do if we were caught up in it. We are ready to work from our homes and keep doing what we are doing. Heck, I do a good-sized amount of my work from home as it is.

Knowing that not just a pandemic, but a myriad of other events could take the stock market down is not a surprise at all (please see the intro to this letter for evidence of that). I was honestly getting tired of waiting for one to occur, for it is during wild market gyrations like we are seeing that we can add a lot of value with our work.


While we don’t know how to get you to cash before the market goes down (other than being in cash all the time), nor do we know how to get your money into the market before it recovers (other than being all-in all the time), we instead manage portfolios in a balanced approach. We want to participate in the gains while not exposing ourselves to losses that jeopardize your goals. Note the italics. We don’t manage to prevent losses we work to moderate them. (As this article from Dimensional states: “Amid the anxiety, decades of financial science and long-term investing principles offer guidance.”)

Trading, Trading Everywhere

Over the last many months, you have likely (depending on the specifics of your situation) seen a flurry of trading going on in your account. This is a continuation of what I talked about last time I wrote you: Getting your portfolio aligned to the changes to our investing model.


In late February, we were approved to use the DFA funds from the Dimensional. These funds can only be sold by advisers who go through a vetting process and they are not available to the general public. They fit a need in our model for investments that tilt toward smaller companies and those not selling at a premium. This is exactly opposite what up to now has been driving the market up for the last many years and our opinion is that no trend lasts forever. Much of the activity in late February is related to this addition.


At the same time, we were bringing on these funds the market turned rather negative. With buy-low, sell-high still a good strategy, a natural rebalancing is starting to get triggered.


In the midst of these events, we ended up with less stocks than normal and more in more secure assets. Again, this was not my brilliance in predicting when the market was going to fall. It was luck. But I’ll take it.


As mentioned earlier we are watching things closely to determine when to bring things to a “normal” allocation mix.



Just as the Tech Bubble Burst and the Financial Crisis are ancient memories, they are both instructive in that look at where we are now, even with the recent drops…way above where the market was during those days of panic. The same will happen with this event.


That’s all I’ve got for you for now, as you’re probably tired of reading this anyway. Normally we just do “stuff” and don’t bore you with the details of every market movement, because we understand your focus is on your own goals for your money. But this was a significant enough period of time that we thought you’d be interested in our two-cents worth of wisdom.


Even though a lot of attention has been given to the virus’s impact on the markets, the more important issue is the health of you and your family.  You—like us—should be closely monitoring the spread of the disease.  You should know that simple surgical masks will not prevent wearers from the virus.  Medical experts say that we should be conscientious about washing our hands and using hand sanitizer and cleansing wipes. 


Watch for the symptoms: fever, cough, runny nose, shortness of breath.  There is no cure, but experts recommend resting and avoiding overexertion, drinking plenty of water, using a clean humidifier or cool mist vaporizer, and taking aspirin, ibuprofen or naproxen for pain and fever.  In 98% of the cases, the disease is not fatal, but it does seem to be more dangerous for older people and those with underlying medical problems.


Our wish is that you and your family will stay well, and that the virus will not become the pandemic that many (including market traders) are fearing.  Historically, the best plan when bear markets present themselves is to sit tight, and our goal for you is to follow the best plan we know and wait for the recovery while we do our thing.


Your humble financial adviser,




Gary Silverman, CFP®