4 learnings the pandemic reinforced

By Larissa Fernand |  01-04-20 | 
 
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About the Author
Larissa Fernand is Website Editor for Morningstar.in. She would like to hear from you and welcomes your feedback.

The scale and speed with which a global crisis can unfold is humbling. This time, what is stark is the trade-off between economic sustenance and human life. I decided to pen down what it has taught me.

There is nothing new about these four learnings, only that in my mind they have been vigorously reinforced and not undermined.  

#1. Some things are a given. Accept it as part of life.

I am of the personal opinion that the most quoted sardonic phrase is Nothing is certain, except death and taxes.

I have come across numerous sources for the original quote.

  • Tis impossible to be sure of any thing but Death and Taxes. – Christopher Bullock, The Cobler of Preston, 1716
  • Death and Taxes, they are certain. - Edward Ward, The Dancing Devils, 1724
  • Things as certain as death and taxes, can be more firmly believed. – Daniel Defoe, The Political History of the Devil, 1726
  • But in this world nothing can be said to be certain, except death and taxes. - Benjamin Franklin, a letter to Jean-Baptiste Leroy, 1789

(A variation, but one that never fails to bring a grin to my face, is the line from Margaret Mitchell’s epic novel of love and war, Gone With The Wind: "Death, taxes and childbirth! There's never any convenient time for any of them.")

To the certitude of Death and Taxes, I would like to add my own: Rejection, and Market Upheavals.

As humans, each of us would have faced rejection at some point in our lives: be it from parents, siblings, spouses, friends, lovers, colleagues. However, the intensity and its corresponding impact would vary, depending on the individual and the circumstances. This is not the space to delve into that subject, so let’s move on to the other addition.

Stock market upheaval is a broad concept. It could mean the inevitable cycles of bull and bear markets. Or, the market rallies during a bear market and the inevitable dips during a bull run. Or, frequent and tumultuous volatility. I actually meant ALL of the mentioned.

This is just what the market does. This is just the market being true to its character. There is no point wishing otherwise. Once you make your peace with it, it will not throw you off balance.

When it comes to your investments, emotions are a waste. Be coldly rational.

#2. Money is NOT only about investing and wealth.

A fair number of people tend to pigeonhole money into the income-expenses-investments paradigm. As a result, when a disturbance or distress (such as the coronavirus) externally impacts us, we tend to closely monitor the dramatic impact on our portfolio. Alternatively, if we are unperturbed by the fall, we may scout for great stocks at amazing bargains.

Absolutely nothing wrong with either. I myself am doing both.

But such times are a reminder not to lose sight of what is important amid the ongoing effort to build monetary wealth.

The pandemic has disproportionately hurt the poor. Rickshaw drivers, taxi drivers, labourers, construction workers, commercial sex workers – if they don’t earn their daily wage, they are in no position to feed their families or pay their rent. Their meagre savings, if at all, won’t take them far. Images of migrant workers trudging miles, looking exhausted as they carry their children, have brought that reality right into our living rooms.

While many of us reading this may witness a dip in our income, or at least a freeze on increments and bonuses in the light of a looming recession, there are many who are currently jobless and penniless.

In such a bleak scenario, I am deeply moved to see many individuals mobilize funds to provide some relief to those who have been dealt a cruel blow. Our monetary contributions and other efforts, however small, can go a long way in helping ease their burden.

Money can be a means of great blessing. Use it.

#3. Asset allocation is not just mumbo jumbo.

I checked my portfolio in January 2020 and was pretty smug. Last week, with a fair amount of trepidation, I decided to see how it fared in the crash.

I was humbly reminded of Warren Buffett’s 1997 shareholder letter: In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world.

I braced myself for a gut-wrenching dip, but was pleasantly surprised to see it down by just 11.11%. Diversification cushioned the blow of the market’s precipitous fall. My personal portfolio is allocated between fixed return investments (which includes my emergency fund), debt mutual funds, and equity (stocks and mutual funds). I have no exposure to gold, as of now.

I then looked solely at the equity portion of my portfolio, and saw that the dip was 25%. If my entire portfolio was a pure equity play, I would be quite miserable.

#4. There is no such thing as a once-in-a-lifetime crisis.

I am not referring to the fat-tailed risks and black swans that Nassim Taleb popularised. Neither am I adhering to white swans of Nouriel Roubini. I am talking of the glibly stated “once-in-a-lifetime experience” phrase that investors tend to spout.

Don’t believe it. It could well happen again.

The Asian Financial Crisis (1997), the Global Financial Crisis (2008), the Greek Debt Crisis (2010) and the subsequent Euro Debt crisis, and the Coronavirus Pandemic (2020). Each and every time I was told by someone that this is a once-in-a-lifetime crisis.

It reminds me of the witty statement of former U.S. Federal Reserve chairman Paul Volcker: “About every 10 years, we have the greatest crisis in 50 years.”

And the one made by Leslie Rahl of Capital Market Risk Advisors: “We seem to have a once-in-a-lifetime crisis every three or four years.”

The trigger and the ingredients of each crisis may differ, but the language and script tend to be familiar.

Bad things happen. They happened in the past. They will happen again. But life picks up, then we forget, and we go on. Till the next crisis hits.

So stay the course, but do reflect and learn the lessons. Don’t waste the crisis.

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Dhruva Chatterji
Apr 5 2020 03:05 PM
 Haha..the quote by paul volcker was a good one, larissa.

I agree on the asset allocation part. I learnt importance of asset allocation in 2008 and 2011, and i am sure post this ...many more investors will start taking it seriously. Although i gotta admit that deciding the asset allocation and dynamically adjusting it based on market condition is not an easy thing to do. Catching the top and bottom of markets is really difficult as we all know.

I too was significantly underweight equities before the crash. Considering only my mf portfolio (most of my portfolio)..and excl fixed deposits, provident ,fund insurance...my equity exposure was around 8%...now with the sharp fall i have increased equity exp from 8% to 25% in past couple of weeks. I will keep on increasing equity exp if the markets fall more. I have no idea whether this is the bottom.....but the risk/ reward is significantly more attractive now.

My advice to investors---- use common sense and discipline in investing...u dont realize how uncommon it is.
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