
March 18, 2020
What Has COVID-19 Done To The Economy? | Morgan Housel on Modern Wisdom #151
Check out the Modern Wisdom Episode Page & Show Notes
Key Takeaways
- In a typical recession, stocks can drop 15-20% in a single region; with the coronavirus, the market is dropping 20%+ across multiple geographic regions
- The economy shut down almost overnight—we don’t know what will happen next or what the recovery process will look like
- The headlines make it seem like everyone is pulling their money out of the stock market, but the truth is: >90% of investors haven’t done anything with their money
- During the August 2011 crash (when stocks fell 20%), 98% of Vanguard investors didn’t move their money
- The majority of people aren’t panicking over the market: “A lot of people aren’t even paying attention … Most of those people don’t even know the password to their brokerage account.” – Morgan Housel
- A total lockdown in the US isn’t likely, so it may take longer to restart the economy
- “The short-term hit that we take might be less, but I have a feeling it’s just going to be a much more dragged out process to both experience the downturn and then a slowness in the recovery afterward” – Morgan Housel
- Morgan keeps a large portion of his portfolio in cash (about 20%) to avoid huge swings in his net worth: “I don’t manage my money to achieve the highest returns; I manage my money to get the best night of sleep” – Morgan Housel
- “It’s exchanging the opportunity to make a killing in exchange for making sure you don’t get killed”
- “If you want to earn 10% a year on your money over the long haul, you need to put up with the fact that every couple of years, you might lose 20, 30, or 50% of it for a somewhat short period of time. That’s the price of admissions to the markets.” – Morgan Housel
Intro
- Morgan Housel (@morganhousel) is a partner at Collaborative Fund and a former columnist at The Motley Fool & The Wall Street Journal
- Host: Chris Williamson (@ChrisWillx)
Books Mentioned
- Morgan’s next book is due out on September 8th, 2020: The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
- Morgan enjoyed the book, Tribe: On Homecoming and Belonging by Sebastion Junger, which covers how people form strong bonds during difficult times
Impact Of The Coronavirus On The Stock Market
- In a typical recession, stocks can drop 15-20% in a single region, with the coronavirus, the market is dropping 20%+ across multiple geographic regions
- The economy shut down almost overnight–We don’t know what will happen next or what the recovery process will look like
- On March 14th, the US stock market fell ~10% in a single day–The two single-day drops worse than that was the crash in 1987 and the Great Depression in 1929
- “Quite a bit” of stock market sell orders are done automatically by computer algorithms and during volatile times, such as the current market, they can go haywire
- Public companies will not be as profitable for the next year or so
- The headlines make it seem like everyone is pulling their money out of the stock market, but the truth is that >90% of investors didn’t do anything with their money
- During the August 2011 crash when stocks fell 20%, 98% of Vanguard investors didn’t move their money
- The majority of people aren’t panicking over the market: “A lot of people aren’t even paying attention…Most of those people don’t even know the password to their brokerage account” – Morgan Housel
- During the August 2011 crash when stocks fell 20%, 98% of Vanguard investors didn’t move their money
- Morgan’s advice: Dollar-cost average into the stock market–Set a bit of money each money to buy stocks
Big Risk, Big Reward
- Morgan keeps a large portion of his portfolio in cash (about 20%) to avoid huge swings in his net worth: “I don’t manage my money to achieve the highest returns, I manage my money to get the best night of sleep” – Morgan Housel
- “It’s exchanging the opportunity to make a killing in exchange for making sure you don’t get killed”
- If you aren’t willing to lose 50% of your money, you don’t deserve 20%+ gains
- Link to Morgan’s tweet about how Charlie Munger deals with huge loses
- Snippet: “If you’re not willing to react with equanimity to a market price decline of 50%…you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.”
- Link to Morgan’s tweet about how Charlie Munger deals with huge loses
- “If you want to earn 10% a year on your money over the long haul, you need to put up with the fact that every couple years you might lose 20, 30, or 50% of it for a somewhat short period of time. That’s the price of admissions to the markets.” – Morgan Housel
- The biggest stock market risk is always the thing that no one saw coming
When Will The Market Stabilize & Recover?
- “Not a single person knows what will happen next…it’s possible that we way overreacted, that’s possible. It’s possible that we’ve barely scratched the surface.” – Morgan Housel
- One sign of market stability is seeing minor increases and decreases in the market instead of huge swings
- The stock market’s crash isn’t due to economics, it’s due to biology
- In 2008, the concern was losing your job. In 2020, the concern is getting sick and dying.
- If a vaccine is created soon, the market has the potential to rebound rapidly
- In 2008, the concern was losing your job. In 2020, the concern is getting sick and dying.
Dealing With The Coronavirus
- To combat the spread of the virus, China took their medicine early and lockdown ~50 million people almost overnight
- “That’s going to be the biggest economic hit because everything just came to a stop” – Morgan Housel
- Gambling revenue in Macau and car sales are both down 90% month-over-month
- The good news is that since China shut everything down, they contained the spread of the virus and are now in the process of restarting their economy
- Gambling revenue in Macau and car sales are both down 90% month-over-month
- “That’s going to be the biggest economic hit because everything just came to a stop” – Morgan Housel
- A total lockdown in the US isn’t likely so it may take longer to restart the economy
- “The short-term hit that we might take might be less, but I have a feeling it’s just going to be a much more dragged out process to both experience the downturn and then a slowness in the recovery afterwards” – Morgan Housel
Making Productive Use of Time at Home
- If you’re quarantined at home, instead of sitting around doing nothing:
- Read books
- Buy a Kindle
- Listen to podcasts
- Learn a musical instrument
- Get an Audible subscription
- Spend more time with your children
- Buy dumbbells and workout at home
- Do some home decorating or improvement
Additional Notes
- Choice is important–Going camping is fun, being homeless isn’t
- The coronavirus is uniting the world: Countries around the globe are working together to help one another out
- History doesn’t crawl, it leaps–The biggest events happen overnight