Thoughts on COVID-19

As investors, it's easy to reduce the severity of the virus to what's going on in our portfolio. To most, the virus simply manifests as a drop in wealth, a minor inconvenience, or maybe a chance to buy the dip and average out. But that isn't the case for everyone. The virus outbreak carries real consequences for a lot of people, and it is closer to all of us than we'd like to admit. People have lost more than I can imagine, and will continue to until the virus is contained.

This is still about investing, and the message above isn't a signal to panic – quite the opposite. Empathizing and analyzing risk from various perspectives is necessary to measure it properly. It's easy to dollar-cost average because "the common flu kills more people each year," but that's the wrong way to measure what's at stake. It is true that investors sometimes overreact, and buying the dip doesn't necessarily make you wrong, but neither does it make you right. For you to be right, another investor has to be willing to buy from you at a higher price than what you paid for it. Now this may happen eventually, but how long are you willing to hang on to uncertainty before giving up? We're used to the flu, not the virus. As investors, we need to be reasonably cautious and not get greedy. Not every dip is worth buying.

Personally, I don't think this is going to turn into a full-blown pandemic, based on the data I've seen. I'm not changing anything, and will continue my contributions to my portfolios as usual. At the same time, I'm not senselessly buying everything that looks cheap. I think the virus has the potential to do a lot more damage – it may even wipe out struggling companies with weaker balance sheets – but it shouldn't scare long-term investors. This response could have been different if I wasn't properly diversified; I may have panicked if not for my risk tolerance. But I'm not sounding any alarms because I spent most of the good times preparing for the not-so-good times. Now's not the time for rash decisions.

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