Coronavirus Reactions

A new year and another new scare.  We thought (hoped) that the impeachment proceedings would be our only (or principal) concern in the near term. But no…suddenly, we must think about the Coronavirus.

The virus has sickened thousands in China and resulted in just over 200 deaths as of 1/31.  The number of infections is increasing rapidly, particularly in China.  Approximately 98 cases have also been confirmed outside of China, but there have yet to be any fatalities (again, as of 1/31). Whether or not this turns into our generation’s Black Plague has yet to be seen; however, the initial market reaction seems to presage doom and gloom.  Of course, it always does.

Remember, how we were all going to die from SARS, H1N1 (the Swine flu), Ebola, and countless others? Since perspective is important, let’s review how the market (the S&P 500) performed a short time after those initial scares (courtesy of MarketWatch):

The reality is that the market has experienced tremendous gains (please refer to our 4th quarter letter), and it was about time for something to happen. This just happened to be that “something”.  We will continue to monitor things and will react accordingly if anything should change.

Trading
The portfolios for many clients are split between long-term passive holdings and shorter-term holdings that are more opportunistic in nature (either for defensive or offensive purposes).  The longer-term holdings are what we would call “all-in-one” securities in that a single security can provide exposure to the entire US market (small companies, large companies, value companies, growth companies, etc.). 

Over the next month or so, we will be selling the “all-in-one” holdings and purchasing many of the underlying pieces (again, small companies, large companies, etc.). 
The rationale is simple. We anticipate more volatility in the market.  Along with the volatility, we would expect that certain components will do better than others.  By expanding the holdings, we believe that you will benefit even more when we do our regular rebalancing as we will be selling some of the underlying pieces at relative highs and buying others at lows.

Ongoing Calls
Our Client Service team will continue to make regular calls to check in on you.  These calls are a helpful way to make sure that we don’t overlook any issues that might arise that you forget to inform us about or that you feel are relatively insignificant and not otherwise worth a call or email.  Regardless of these calls, please know that you always have a direct line (or email) to us, should you need something.