The coronavirus radiating globally is a humanitarian crisis. Yet the world’s stock markets are open. Shares are being bought and sold, with many are selling for much less than before the outbreak.
We cannot know how far or fast this virus will spread and can only guess at what governments and regulators will do as a result.
The cost of not being invested is far higher than being invested and riding the waves of volatility.Credit:Gabriele Charotte
In the face of this uncertainty, should we just sell and wait it out?
Not so fast. Investing is full of these sorts of uncertainties. If we didn’t invest when things were uncertain, we might as well close the stock – and property – markets now.
There will be another recession. We just don’t know when. There will be another technology slump like the dot.com crash and another form of the Global Financial Crisis (GFC).
There will always be health scares, geopolitical tensions and unexpected election results.
How do we know? Because that is what history tells us.
Brexit was supposed to have a big impact. Donald Trump’s election initially saw the share market fall hard. Chinese "hard landing" worries had investors wondering whether Australia would plunge into recession. Housing was going to crash. Quantitative easing was going to lead to hyperinflation.
In the face of all that, the ASX 200 is still not far short of its record high. In other words, the market has done exceedingly well – a near 25 per cent gain in 2019 – despite those fears.
However, coronavirus is different, right? Tourism has been hit hard and our economy is slowing.
Remember SARS? It is hard to summon up the emotions we felt at the time. It earned plenty of headlines, tourism was impacted and broader economic activity, too.
The cost of not being invested is far higher than being invested and riding the waves of volatility. That's easier to say than to do.
Humans are animals of action. We do not "do nothing" well, especially when confronted with risks. And the scarier the headline, the more we feel the need to do something.
While we don’t know how economically impactful this particular virus will end up being, it’s possible that it will be smaller than a fall in commodity prices or a move in interest rates.
In the dozen years since the onset of the GFC, there have been scores of things that could have impacted the economy and the stock market. During that time, including dividends, the ASX is up more than 350 per cent.
Any one of those issues could have caused the next market slump but they didn’t. That is why it makes no sense to try to guess whether coronavirus will, too.
Unless you have a perfect track record of selling before the GFC, dot.com bust or the 1987 crash, trying to "trade" the coronavirus outbreak is a terrible idea.
The exception might be to buy stocks that everyone else is selling in a panic.
Scott Phillips is the Motley Fool’s chief investment officer.
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