Photo by cottonbro from Pexels

A first cousin had warned us of the potential global threat from an infectious virus spread in January this year. At the time, it just looked like numbers on a screen with the knowledge that the world has seen epidemics before and resolved them without much damage. However, as he had warned this was different.

As the spread moved out of China and into other parts of the globe, the fear around the spread continued to rise, albeit at a measured pace. While there were those severely affected by the virus and dying, the majority of those infected seemed to have a mild infection. This is not a bad situation to have as far as infectious diseases are concerned. Hence, it was yet not disturbing to my mind. It’s a viral and if one gets infected you do what it takes to treat symptoms and assuming a healthy body, recover soon.

What was missed?

What I missed and what many across the globe missed was that the pace of infection or the pace at which the virus was latching on to humans; it is so quick that the pressure it puts on the medical infrastructure is unmanageable. Unfortunately, across developed and emerging economies, there is little capability of managing thousands sick all at the same time. Many who contract this virus have to be hospitalised as there is no medicine that definitely cures one. This then leads to further complications and increases the probability of deaths. Secondly, in the case of this virus, there are two more factors which have led to this fear psychosis. One that a human carrier can shelter the virus for up to 2 weeks without symptoms, thus, spreading it far and wide. Two, for those who are not in great health or the elderly whose immune systems are not working that well, this virus can be fatal and the time to death is very short. In other words, for those unfortunate enough to not to be able to battle this out, it’s a silent attack by the virus and a quickly lethal one.

To my understanding, this is the reason the world is panicking. In some parts of the world, the panic is measured and the precautionary measures are airtight, which helps. In those countries the rate of spread of the infection is low and the death rate is also very low.

However, in general, human behaviour is harder to render airtight, which, means unless the reaction from authorities is one of panic, most populations won’t bother being careful. No matter how careful or healthy you may be individually, your neighbour, the grocer, the flight attendant or the florist may not be and that can enhance the spread of this virus – putting the lives of your weaker (by immunity) loved ones at risk and putting the health care services under extreme pressure. This is what got missed by me and perhaps several leaders in the initial outbreak of information around COVID 19 and its spread inside the Wuhan district in China.

The money impact

Now coming to how this translates into your money life. In a bid to reduce the spread, governments across the globe have started to announce lockdowns one city at a time. This requires all physical work to stop, other than essential services. It requires people to stay at home where the chances of them meeting a human carrier or a person with the virus are low and hence, a better chance of breaking the virus chain. This, however, has an extremely detrimental impact on the trade, and the demand and supply chain.

For example, at the front end, people are being asked to stay home, car dealers have lower demand, plus to reduce the virus spread companies like Volkswagen have shut their manufacturing plants. Consequently, impacting the entire auto ancillary industry. Many thousands will be out of jobs and many others will have to contend with pay cuts. What has also contributed to the uncertainty is the lack of clarity on how much more the infection can spread and for how long given that there is no vaccine for it yet.

With this background to contend with, capital markets and risk assets across the globe are seeing chaos. Both S&P 500 in the US and UK’s FTSE have fallen around 22% since the start of this month and back home the Nifty 50 is down about 32%.

The double whammy

Downward trending capital markets mean wiped out gains from your investments. Combine this with the possibility of job loss or pay cut as economic activity pauses suddenly, you are likely to have a cash flow situation which is bound to be hard to handle. At a time like this, there will be anxiety around not only the value of your savings but also the future expenses. While some of us have more reason to worry than others, wherever possible you need to step back and do nothing.

Literally, do nothing physically and do nothing to your investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... portfolio. Just like you have to stay home, not socialise, not go to the office and so on, you have to stay away from any action on your portfolio too. First assess your cash flow situation, if and only if you are falling short of money for your daily expenses should you think about touching your investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... portfolio.

Now, if the virus spread can’t be contained as quickly as we hope, the slowdown in commercial activity can continue for longer. This is turn will mean pressure on wages and investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... returns for an even longer period of time. It is not out of the realm of possibility that if not now then a month or two later you can start to feel the tug of slowing cashflows.

What are you most concerned about?

Some of us may have just started investing, for others it may be the loss of years and years of accumulated profits. Whatever the concern, you may be tempted to stay away from the equity markets for now. However, that’s not the case. Whatever may be the reason for a market fall or correction, there comes a time in future where the reason reverses and the markets rally. Or sometimes the markets eventually find a new reason to rally.

The key is to be able to ride out this time of uncertainty. During this period, everything will seem gloomy and every day the news will be worse than the previous day by manifold. As far as your investments are concerned here is a list of five things that you need to follow:

1. Don’t constantly look at how much your portfolio returns have fallen. Monday, 23^rd March saw the benchmark indices in India fall 13.5%. This after a 20% fall already since the start of the month. Undoubtedly the impact on your portfolio will be worse. You don’t want to see that in actual numbers.
2. Don’t stop your regular investments into the equity markets; it is important to buy when prices are low. Buying low will help you gain more as and when things turn and holding on to these for a long period will help you create wealth. Moreover, in a severe correction such as this, good quality stocks with fundamentally sound businesses also correct sharply. Now, these stocks are available at a reasonably low price, find good quality and buy low. This applies to equity funds as well. Find the long term consistent performing funds and invest in those.
3. Don’t redeem now. The loss you see in your portfolio is a temporary loss, if you redeem now you make it permanent. Give the market time to settle and assess the impact. You may have to wait a few months or a year or more to see the green back in your portfolio, but that’s not so bad if you are a long-term investor. If you redeem now, you lose that money forever.

Managing cashflow

Your investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... portfolio aside, some of you may be having the first signs of cashflow issues. If you are on a regular salary, the forced lockdown means you will automatically spend less and hence, save more. If your salary or job is not secure, you will have to find ways to sustainably slowdown expenses even after the threat of the virus has reduced.

In the cases where you are contending with loan repayments, clam down altogether on any extra expenses and save up for repayments. Pause your SIPs too if need be.

Calculate carefully your cashflow needs for the next six months and ascertain that you have a sure way of fulfilling these needs. This has to be done despite whatever is happening in your investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... portfolio. It’s paramount that you manage your cashflow needs in times of crisis.

These are also extraordinary times when the value of things like health insuranceA comprehensive policy that covers for medical and surgical expenses that you incur. This includes hospitalisation expenses, pre hospitalisation expenses and other expenses incurred for all the illnesses covered in the policy. is better understood. If you don’t have one, plan to get one in place as soon as possible. Having health insuranceA comprehensive policy that covers for medical and surgical expenses that you incur. This includes hospitalisation expenses, pre hospitalisation expenses and other expenses incurred for all the illnesses covered in the policy. has a positive impact on your cashflow in times of crisis.

End of the world?

I would like to imagine not. The numbers on the virus spread don’t look good. In a public interview, an Indian epidemiologist said he expects 300-500 million Indians to get infected!

Wait a minute, he also said and several of the people infected will have very mild symptoms and perhaps won’t even come to know they caught the infection. The problem is handling the 3%-5% severe cases; it would mean at least 9-25 million in hospitals around the same time. That is serious pressure on the medical infrastructure of this country. Unbearable pressure perhaps.

That is why one has to be careful. If you are able to do just two things – not be physically close to other individuals (other than immediate family) or inanimate surfaces and secondly, be obsessive about washing hands and improving your infection resistance, then you have contributed well to breaking the virus chain.

The sooner the chain is broken, the sooner we go back to normal. While the infection itself can carry on for many months or years, the impact it has on human health, experts opine, is likely to reduce with time. Once the peak passes, if you continue to keep your standards of physical interactions and hygiene on point then you can hope to have some sense of normalcy without the panic lockdown situation. Having said that, one hasn’t seen the peak of the infection spread yet and individuals managing hygiene is not the same as managing hygiene for an entire population.

Change is always hard to accept and this change has been thrust upon us all too quickly. When the lockdowns open, don’t rush out to your nearest cafes and restaurants or crowded parks and beaches. Instead, call a group of your closest friends who you know are well and share a meal with them.

If the market continues to correct for months ahead, don’t panic and sell- you will simply convert a virtual loss into a real loss. Wait it out, patience is your only friend in such times.

When the market bottom seems to have hit and the trend turns, don’t rush out and buy whatever you can. Instead, search for quality and invest a little at a time.

It’s absolutely surreal out there, at times the reaction to this crisis will seem overdone and at times, not enough. Whichever side of the argument you are on, you will realise that it’s real and it’s happening. What is in your control is to not fall prey to fear and allow your actions to mimic the worst case. If there is anything that one learns from life experience, it’s that things never happen as expected and having a balance in life is paramount.

At the moment, there is an expectation of a warlike end to the pandemonium. Will it happen? I don’t know. However, in our individual lives, we have to balance the approach so that we maximise the good and the normal, minimise the extremes. What this means today is to take maximum precautions with minimum panic.

Fingers crossed. Happy investing.