Investing

Plans and Perspectives on COVID-19

March 19, 2020

In response to the rapidly escalating COVID-19 pandemic, I wanted to connect with you to share our plans and perspectives as the situation evolves.

We will continue to communicate by email or phone, and any documents can be passed through our mail slot located at the front door. Our primary focus is to ensure the health and safety of our employees and to preserve our ability to serve clients and manage client assets in a highly dynamic market environment.

Given the state of the market, we cannot close shop. My staff will continue to be present at the office daily. I intend to remain connected with our investors and send regular emails to keep clients updated.

Market Overview

As some are aware, markets are down 30% since February 20. Below is a chart demonstrating the market effects of previous health scares.

Virus	Start date	End date	Trading days	S&P 500 return (%)	12-month return (%)
SARS	Jan-03	Mar-03	38	−12.8	32.2
Avian flu	Jan-04	Aug-04	141	−6.9	4.4
MERS	Sep-12	Nov-12	43	−1.3	16.7
Ebola	Dec-13	Feb-14	23	−5.8	16.7
Zika	Nov-15	Feb-16	66	−12.9	5.7

Source: Bloomberg Finance L.P., CitiResearch, FactSet, as of February 27, 2020. The starting date for the 12-month return is the month each virus was identified.

This event is currently deeper than any past health-related event. My take on this is the trading platforms are now more centred around passive investments in index funds and exchange-traded funds (ETFs), plus a greater degree of computer-generated trading that speeds up the trading activity and can create momentum for sell trading. With more sellers than buyers, the trading price adjusts downward with supply and demand rules. But for every seller, we have a buyer and the market trading fundamentals adjust away from the true enterprise value of the position. I am certain in months to come trading rules for these passive investments will be reviewed as the severity of this decline has been influenced by the above structures. The markets are currently creating a “trading price” which is significantly discounted to the enterprise value of the stock.

This economic contraction is not driven by imbalances in the economy as is usually the case, but rather a shock that came out of the blue. Recovery typically focuses on correcting the cause and effect of an imbalance. We have seen unprecedented policy actions by the Federal Reserve to support the economy, and I expect global central banks to follow. In terms of the fear of recession, it is becoming a more realistic outcome as global trade slows. Most of my readings indicate it will be mild and short, but we are in uncertain times.

Long-Term Impact

The long-term impact of this scare will permanently change our world, including the way we do business. Companies will reassess office space requirements and physical retail store locations. Business travel will be reassessed, and corporate policies shall evolve. I believe the move to re-platforming of technology, digital transformation of enterprises, cloud computing, cloud-based video, online retailing, marketing and internet banking will accelerate after the shock has passed.

As the crisis resolves to a point where “a hockey puck is dropped” or “a pitch is thrown,” there will be a once-in-a-generation opportunity for those companies that can adapt to the new business methodology. As I refer back to my email two weeks ago, I highlighted an emphasis on technology and the speed of data. We want to own those companies that invest in those required resources.

As a CPA & CFP, I am not an MD and cannot guess how or when the virus ends. I have confidence and belief in those that have the knowledge and research to affect this resolution.

My most important message of today is to stay safe and take every necessary precaution. Listen to professional advice and assist those more vulnerable and who require help.

Todd Campbell
President, RBA

Disclaimer

Plans and Perspectives on COVID-19

Market Overview

Long-Term Impact

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