Kingsmill’s Investment Miscellanea: Friday, January 31, 2020

Jan 29, 2020 | Joshua Kingsmill


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This week, without a doubt, I was asked most often about the impact that the Coronavirus outbreak will have on the market.

All indications suggest that the measures being taken to stem this outbreak should prove helpful in mitigating the potentially global health risk. That said, it’s early days. No doubt headlines will continue to draw attention to these risks as more cases are reported. And, without a doubt, the markets sold-off based on fear of the unknown, and/or worst-case scenarios. For what it’s worth, RBC’s base-case scenario is that this outbreak will be contained with no large-scale impact on the global economy. Of course, the media and 24/7 press will remain on high alert for signs of an increase in the severity of the outbreak. Should conditions worsen, no doubt adjusting forecasts will be issued.

Some have said: “well look at what happened with the SARS epidemic in 2002/2003, didn’t the market go down a lot from when it was first reported?” The problem with this is that SARS coincided with the Iraq War, which posed and created far greater economic and geo-political risks.

So, when clients ask: “what should I do”, I highlight that when market volatility increases, there is a tendency to become overly focused on short-term movements. Often, this can lead to hasty decisions that interfere with the long-term objectives of investors’ portfolios. The key to avoiding these knee-jerk reactions is for investors (and me) to focus on the financial plan and asset allocation in place. Day-to-day market fluctuations, particularly those driven by health scares, are likely to have little impact on long-term investment strategies. Maintaining perspective is key to remaining on track. For now, I remain unconvinced that long-term risks will increase as a result of the Coronavirus outbreak.

This weekend is the Superbowl. My favorite team, the 49ers, are a lock to win in an exciting game. For those of you watching on Sunday in Canada, enjoy the game (without the US commercials).