Over the weekend, reports have come about that the Coronavirus has been spreading quite a bit outside of China.  New clusters have formed in Italy, South Korea, Iran, Israel, etc.  One concern is that they are having a tough time figuring out how they got the virus, as many hadn’t been to China recently.  The reality is that the virus is being spread person to person, and many people are asymptomatic for quite some time, but can still spread it.

I’m not a doctor, but I just want to keep you informed on things as of course they impact the markets.  Unsurprisingly, stock markets around the world are tanking today, as fear produces sellers.  My advice is this.  Don’t dwell on the news. Focus on the things that you can actually control and that add value to your life, such as your family, your health, your business.  Nobody should buy or sell stocks based on short-term news events.  Emotional investing is almost always a disastrous decision.

Any pandemic brings significant risks, but humans have been dealing with this sort of thing since the beginning of time and persevered.  Previously similar viruses, such as SARS had higher mortality rates, but the long-term impact was very mild.  Certainly, economies are being impacted severely in the 1st quarter, which will also hurt companies.  However, often we see a rebound after a disaster like this, as pent-up demand builds up.  We don’t own a lot of stocks that are highly reliant on China for their supply chains, but of course almost all companies will feel some impact.

Remember that with our strategy, we have multiple layers of protection.  The thing to keep in mind is that the full benefits of that will shine through, by January of 2021 as options expire.  Over the short-term, fluctuations in volatility will impact us for better or worse, but by the end of January next year, the only thing that matters is where the stocks are relative to the option strikes.  Even in the worst case where we are put the stocks, we are happy to own them at cheaper prices.

Lastly, I went to a few gatherings with friends this weekend and I brought up the Coronavirus with both of them.  While there was some trepidation among mothers worrying about their kids, overall, there wasn’t much concern.  I’d view this as a bit of a contrary indicator.  As people learn more about the economic dislocations, they will likely get more concerned as the global economy is very intertwined.  There is a reasonable likelihood that the virus will become more prevalent in the United States.

We deal with things like the flu which kills people all the time, but this is a virus we know much less about, so understandably it should be treated with much more caution.  Most people don’t trust the data coming out of China, so it will take time to get a better feel for the realities of the virus.  The healthiest thing to do is to let things process and if possible, get some cash ready to add to stocks at better prices.  If you are not in a position to add, don’t fret, as our strategy buys when stocks are on sale already, so hopefully we should be in good shape as things develop.  Don’t panic at scary headlines or listen to market pundits, but instead think about how things look for our companies 5-10 years into the future, as that is what ultimately determines stock prices.

Below are our three latest research reports, which I hope that you will enjoy!


AIG Research Report

ALLY Research Report

AGO Research Report