Don't get on an airplane, don't get on a train, don't get on a cruise ship, stock up on food and necessities, but don't go to public places where there might be crowds. The world is ending. The reaction to the coronavirus, SARS-CoV-2, outbreak appears to have moved into a panic over the situation. So one might ask why an investment person like myself is writing about this outbreak. The reason is my belief this is an unnecessary overreaction that is impacting the investment portfolio of institutions and individuals. The near cartoon places my thoughts in the proper perspective though.
I have written several recent posts on the extreme level of fearful investor sentiment, here and here. Reviewing the economic data to date suggests an environment where investors should be anything be fearful of the future. Jeff Miller, Ph.D. writes a weekly article that highlights recent economic data and expectations for the week ahead. In this week's article, Weighing the Week Ahead: Why it is Crucial to Use the Right Time Frame, he discusses some of the recent economic data and more. So why is fear driving the narrative. One author who seems to have an uncanny ability to put thoughts succinctly into perspective is Morgan Housel. His article from 2017, The Seduction of Pessimism, is a worthwhile read given the narrative around the recent virus outbreak. One comment that jumped out to me in his article is,
"We don’t just respond faster to pessimism. We coddle it for longer than is necessary. Optimism demands facts and is ditched at the first sign of trouble. Pessimism can be grown from a crazy thought and clutched indefinitely."
