I hope you and your families are healthy. Times like these also demand that we practice self-care when it comes to our mental health, stress and anxiety.
We have heard that many are sick. You may even know someone who has contracted COVID 19. What is undeniable, is that many more of us are sick with worry.
Preserving our mental health has never been more important. For by preserving a calm mind, we support our immune health. And, just as importantly the health of our community. We also make better decisions.
Yes, worry has its place. But when it is overdone, what is the antidote?
Bright Spots: One is to look for the good news: For example, did you know that on March 13, 2020, 110 new cases of coronavirus (COVID-19) were reported in South Korea. The highest number of cases confirmed in a day was on February 29, with 909 confirmed cases. Daily new cases in South Korea have been as low as 69. This gives hope that the strategy of intensive testing and containment works (South Korea has tested over two hundred thousand people). It’s also good news that the fatality rate of COVID-19 is likely to be less than 1% rather than close to 3% as originally feared. This decline is due to wider testing, which has increased the denominator, and given us a higher quality sample. Also, we note that a large number of people who were infected with COVID-19 exhibited only mild symptoms.
Another: Western democracies around the globe are taking the threat seriously. And though there are some voices who might argue tardiness, this is an impressive action. Remember these lock-downs are being implemented - and followed - by nations who many argued would not willingly submit to such protocols. See? Your fellow-man can, even in large groups, behave with responsibility.
And still more good news: Singapore, Taiwan and Hong Kong also appear to have brought the outbreak under control. Of the 48 confirmed cases in Vietnam, 16 have been cured and discharged. So it will be with many other cases. The largest numbers will recover. More still will remain healthy.
While focusing on these positive developments may, to some, seem willfully blind, I think it is the opposite. It can preserve, or even enhance our well-being. This has never been more important because stress factors are known to suppress immune response. Keeping up our spirits keeps up our immunity. And on this thought hinges one of our greatest defenses against COVID -19.
To preserve ourselves, by preserving our mental well-being is going to be the chief adjustment we need going forward. In order to do this, many mental health professionals recommend:
Temporal Distancing: Thinking past the pandemic stage of the disease, two years from now, for example, puts the current state of affairs in a different perspective. What would you want to be doing now? How would you like to see yourself reacting and behaving? How did you use this opportunity to slow down? How did you make sure to enjoy these moments?
Limit News Cycle: Even in the best of times this advice is great. As humans we are not well suited to the cortisol-inducing 24 hour news cycle. Our hunger for up-to-the-minute news seems to grow with our insecurity. Yet, beyond the proper precautions there is little we can do except drown ourselves in information. Many mental health professionals recommend 30 minutes per day - no more - of exposure to the news cycle. This is advice that I hope will carry through this epidemic and beyond.
Preserve Daily Routines: As much as possible, preserve your daily activities in-tact. Most especially eating and sleeping.
Do Not Isolate: Follow the examples from Italy! If you can’t sing to your neighbors, take advantage of appropriate social distancing or virtual means of connecting with friends and family.
Take Advantage of Outdoor Activities: Maintaining social distancing protocols doesn’t interfere with many outdoor activities, such as walking, hiking, etc. Just getting out of the built-environment has its own beneficial health effects.
Our habits of mind are important. We live in an age of “critical thinking”, a centerpiece of reason which is vital to human progress and intellectual life. However, through this almost-relentless consideration of what is ‘wrong’ and needs improvement, the constructive impulse this may marshall, can easily fall over into complaint and despair. We do this to ourselves, perhaps, most frequently of all.
But if we can use this opportunity to see all that is wonderful in this life; like our relationships, our non-isolation, and our tremendous human resilience, we will come through this epidemic healthier and stronger than we entered it.
What Are We Doing?
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. [He] would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.” - Benjamin Graham
As you may have guessed, or even thought to ask, the question above is the one we are getting most frequently. Fortunately for us all, I was reminded of Ben Graham’s quote in a recent WSJ article by Jason Zweig. It is a clear reminder that we should keep on doing what we have been doing. Business as usual. Well, with much heavier research load. You see, our goal has always been to find the best investment opportunities at the best prices. That is still our goal and what we are doing. It feels now as if we are besieged- not by bad prices, but by good (investment) prices. So we are doing our best to follow the guidelines of our mental health experts, and of our own considered judgement.
Preserving Daily Routines: Ben Graham has also counseled that “[t]he primary reason many individuals fail as long-term investors is that they pay too much attention to what the stock market is doing currently.”
If we think about this event properly, we must recognize that prices have gotten much better. Of course, they may continue to get better...and better! And in the near-term, this has been - and may continue to be - unpleasant. But if we can do what we have always done - search for compelling opportunities to invest well- and maybe even more of it, we will be better for it. So many wonderful opportunities are presenting themselves.
Temporal Distancing should be practiced here, just as much as it is in our daily lives. If we can imagine the world in 9 months, 1 year or even 2 years out, we might imagine that many - but not all - of today’s stock prices are record bargains. So many investments will have been hastily sold to meet cash requirements, margin calls, and the like. Fortunately, we are not in that position.
Bright Spots exist, too. While the S&P 500 Index is now down more than 23% YTD, we should first recognize what is working for us:
In the vast majority of client accounts we have held US Treasuries in the form of WHOSX (Wasatch Hoisington US Treasury fund), TLT (iShares 20 Year Treasury ETF) and ZROZ/EDV (Pimco Zero Coupon Bond US Govt ETF/ Vanguard Extended Duration US Treasury ETF). With YTD gains of between 18.9% - 26%, this allocation to US Treasuries has been a tremendous backstop and strong performer during the stock market selloff.
IOFIX, the AlphaCentric Income Opportunities fund is another bond fund, this one composed primarily of mortgage-backed bonds, has stood the test of a falling market. While the NAV (share price) has fallen - 0.8%, dividends have made up for that shortfall, keeping the fund positive YTD.
Gold has also occupied a familiar place in our client’s portfolios. Depending upon the expression of gold in the portfolio (i.e. how it is held, for example with GLD - the SPDR Gold ETF, PHYS - the Sprott Physical Gold ETF) you will find this position is down slightly, between -1.6% YTD -3,9%. So even gold has been working as a fair hedge.
In addition to cash balances, which we have kept at a higher-than-average level, these assets give us a welcome reserve for cash needs, and, importantly, function as a source of capital for more attractive investment opportunities.
Limit News Cycle: This is advice we have always taken to heart. Charlie Munger has joked that “Walter Cronkite is dead!”, by which he means to emphasize that what the 24-hour news-cycle has wrought is a deluge of narrative, and so-called thought-leaders to provide us (subject us?) with opinion, rather than fact-based journalism. The reactive nature of this enterprise means that one “news” outlet must scream louder than the next in order to be heard. Naturally, calm and considered opinion is drowned out.
Take Advantage of Outdoor Activities: This is advice we are also following, especially when we look at the prices of our holdings which have declined.
As much as we have investments which have stood up resolutely to the COVID 19 crisis, we also have some which have seemed to falter.
As a peripatetic thinker, I tend to work out the thorniest problems while moving my body and my mind. This should aid me when I think about the investments we hold which have not fared as well. For though our equity /stock market exposure was comparatively light, it was still there. Many of the equity positions we hold are underwater.
One bright example of this is the fall in CEF’s share price. CEF, the Sprott Physical Gold Fund, which holds a mixture of Gold (~67 % of fund assets) and Silver (~32 % of fund assets), was intended as a hedge, like those mentioned above. However, this investment has declined by about -13 % YTD, as silver prices have not reacted in line with gold prices. At least, not yet. Should we sell?
In addition, most gold-mining stocks, while initially bucking the stock market downtrend, seem to have fallen into the same ditch. Many of these shares are down 28% or more YTD. Yet many gold miners have been reporting their highest cash-flows ever. That’s right. Before COVID 19, and before their stock-prices plunged, most companies in this space were reporting massive cash flow increases. By the way, this was also at a lower-realized gold price than they can earn today. Should we sell?
This example provides us with perhaps, our greatest example of why we should resist the siren call of mainstream media. For panic-induced buying or selling rarely works to our advantage. Haste is not an investment virtue.
The recent crashing of the oil-price by an intransigent Saudi government qualifies as a rare and unsustainable event. As yet another example, we now have an opportunity to own very high quality oil majors with sound balance sheets. Owing to the recent fall in share prices, we also will likely be treated to richer dividend income while we await a share -price recovery. We are working diligently (and sustainably, we hope) to uncover these opportunities for you, our clients. We will continue to do so.
It is true that there will be more challenges ahead: the number of COVID cases will increase, and with it fatalities. Business dislocations will take a while to overcome. Many firms and small businesses will seek bankruptcy protection. Ditto many consumers. Of this we are acutely aware.
In addition to spending much more of our time on research, we at HBA, are, like everyone you’re reading about, taking all precautions. Conducting meetings remotely, rather than in-person. Washing, washing and washing again, our hands, our handles, and our counters. And, keeping a respectful distance. We are doing this all with love.
But we will not give in to this:
I hope you will not either. As always, I would like to welcome your questions and express my sincere hope that you are feeling safe and well. We look forward to hearing from you.
Principal | Senior Financial Advisor
Haydel, Biel & Associates Wealth Management
100 E. Corson Street, Suite 310 • Pasadena, CA 91103
Office: 626.529.8347 www.hbawealth.com