Corona Virus: A Psychological Pandemic

Published on 28 February 2020 at 18:15

With the current knowledge of the corona virus, Covid-19 seems to be more contagious than the flu, but not much more deadly. Because we are so used to the flu, we tend to forget that hundreds of thousands of people die from the seasonal flu every year. Therefore, the huge precautions taken by politicians - and companies following in their politically correct, but scientifically incorrect steps - will probably have worse consequences than the corona virus itself. Shutting down airports, train stations and even entire cities is exactly creating the economic downturn the measures try to prevent. 

This means that the economic growth will be influenced. The effects on trade and tourism are already clear now.  Of course some sectors will be hit more than others. For example, the travel industry or the luxury industry. But many companies in other sectors already issued warnings about the effect of supply chain disturbances on their sales and bottom line.

As people are very vulnerable to negative news, they tend to believe the apocalyptic stories spread by the popular press more than the boring numbers and stats of scientists. The images of people wearing masks, empty shopping malls and people in quarantine, spread faster than the mortality rates.

Investors are not different, unfortunately (or fortunately for investors waiting for Mr. Market to be overly pessimistic). The fact that all stock markets are down by 15%, practically across the board - independent of sector or company - means that the mood of investors is not related so much to the economic situation of individual companies, but rather to general pessimism.

As we believe that the scientific truth will eventually catch up with the horror stories, we think these are interesting times to buy healthy companies at interesting prices. Some analysts advise to not try to catch a falling knife and that you should wait until the knife is on the floor. The problem is that by the time you can be certain that the knife is on the floor, you missed the best opportunity. It is simply impossible to time the market, especially when it is acting like an irrational person.

With strong companies that can be bought at a 15% discount or even more in the following weeks, for the investor who has a long-term perspective, these are indeed times to be greedy.


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