At this point we all know what COVID-19/ Corona virus /SARS-CoV-2 is and how it has affected our daily routines and how it has forced us into quarantine, into a complete lock-down both physically and emotionally.
Physically is self-explanatory, emotionally however is perpetuating from the fear of knowing too much, in the world of social-media an hourly update on our phones about the number of new cases and new deaths all across the world is creating havoc in our 21st century minds. Some have already classified the entire 20’s as ominous. And this fear, in-turn has caused a significant blow to our financial market worldwide.
Since January 20th, Indian Market effectively represented by SENSEX, has seen circa 40% erosion of its net worth from its recent high. DOW JONES, which represents US, has seen 32% decline, FTSE (UK) showed 33% decline, HANG SENG showed 21% decline. Globally it’s been a red screen all through out with no market left untouched by this virus.
Now how do we find sanity in this pandemic currently or how do we cleanse our inner self of the fear and contemplate to achieve financial independence?
The key is to understand the historical evidences and correlate them to the current environment:
- Historically speaking, we have seen several economic & financial falls all throughout our existence as a species, but we have recovered stronger and smarter each and every-time. Be it the great depression, WW2, black Monday or from this century dot –com bubble burst or the 2008 Financial crisis. This time around, it could unfold the same way.
- This too, shall pass, an age-old adage, which is still helping us find our footing in unnerving times like these. Within this century we have seen likes of H1N1-Swine Flu, which affected 1.4B globally and killed over 300K+ people across the world (Contradictory fact- it affected only young people below 65). This was soon followed by Ebola Epidemic with reported 11k+ deaths . Obviously we have seen far worst with likes of Asian flu & Spanish Flu among many more which have scarred us but we still do stand tall and strong.
- The significance and the intensity of this financial fall is unparalleled and unseen, therefore it is appropriate to name it as a black swan event. As highlighted above the world faced similar event in 2009 H1N1-Swine Flu, which had far-reaching consequences on human-life (in terms of loss of human life) but financial market didn’t even blink an eye to account for it. This time, the mortality rate is only 5% of the 2009 Swine flu associated deaths. However we are seeing a far-reaching consequence today, this mainly could be based on 3 notions filtered herein below:
- First and foremost, technology has enabled us but also burdened us, with the far outreaching capability and interconnectivity we get from social-media, it has created a perfect ground for both euphoria and panic to play rampage in. Latter is what we are seeing, being played out right now
- Second notion comes from financial consideration that in 2009, Global Markets had just seen a massive sell-off from Lehman financial crisis in 2008 and the valuation of stocks had corrected quite significantly (SENSEX corrected about 60% from its 2007 high). Therefore there was no further room for financial distortion. Markets had closed its eyes towards this massacre of nature
- Euphoria of ETF’s (Exchange Traded Funds), this is the third notion, which in my opinion had created a significant valuation bubble. As fund managers failed to outperform the markets in recent time most of the investors had switched over and started investing in these passive investment tools, which out-performed the market return in short run. These tools by their very nature distorted the valuation as prices went up based on massive capital flow went through them rather than on fundamental analysis of each security. This could be the reason we saw a spike in PE’s across the board
The sanity, which we found among these observations, is quite intriguing. Foremost as we face this virus we need to remember our past and be assured with self-belief that humanity will come out victorious and stronger. Second that the cyclical affect of the financial market is always in play, as soon as the financial markets find the value in themselves, we will see a seize in this fall and head towards the sky once more. Most likely this time around the turn-around would be faster than anyone is anticipating similar to the fall that no one predicated as technology has yet to show us its euphoria. We may refer to it as a Golden Goose event when it does so.
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