3 important lessons we learned from coronavirus
Since the first confirmed coronavirus case in Singapore on January 23, no one would have expected that things could get out of hand in just six weeks’ time. At the time I was writing this blog post, there were already 93,198 coronavirus confirmed cases and 3,203 deaths affecting 81 countries in the world.
There are at least three important investment lessons that the pandemic has taught us so far.
Lesson #1 The big boys are playing the musical chair game again.
Lesson #1 The big boys are playing the musical chair game again.
Last night the Federal Reserve suddenly took an emergency rate cut of 0.50 percent to a range of 1 to 1.25 percent – a pre-emptive move to protect the global economy from the impact of coronavirus. The Fed’s surprise move was backfired. Investors lost confidence in the central bank’s ability to contain fears in the market that sparked a frantic sell-off. US stocks rallied for merely fifteen minutes before plummeting to new lows.
Sometimes, doing nothing is better than doing the wrong thing.
The Wall Street had just briefly recovered from a nerve-racking week last week. All the three US indexes had their biggest fall since the 2008 financial crisis. The Dow Jones Industrial Average and S&P 500 plunged 12 percent and 11 percent respectively for the week. Dow Jones Composite index had a roller coaster ride from 52-week high to 52-week low in ten trading days – the shortest on record since the Great Depression in the 1930s.
Last Tuesday, gold surged to 7-year high as investors took refuge under the safe haven of the yellow metal. But four days later, even gold was in a sell-off mode. Investors were scrambling to sell whatever they could to cover margin calls and recoup losses. When people are desperate, they don’t sell what they want, they sell what they can.
Have you ever wondered why after the outbreak of coronavirus, share prices continued to set record high? Instead of being cautious, the market behaved as if the epidemic wouldn’t affect anything at all. Do you think the savvy investors didn’t know that coronavirus would paralyze China’s production, impact consumption of the Chinese, hit travel and tourism hard, and drag down the whole global economy?
This is exactly the reason why the big boys have to ensure that they make as much as they could, sell off everything in time before prices collapse. Greed runs the money markets. This is the typical mindset of “as long as I make my money, who the hell cares what happen to the rest of the people?”. Too bad for the ignorant who still enter the market when prices are record high. Sorry for those who fail to exit the market in time.
There is always an element of fools of randomness and crooks of randomness in matters of uncertainty; one has a lack of understanding, the second has warped incentives. One, the fool, takes risks he doesn’t understand, mistaking his own past luck for skills, the other, the crook, transfers risks to others.– Nassim Nicholas Taleb, Skin In The Game
Sounds familiar? The property market is also playing the game of musical chairs. See who ends up holding the hot potatoes when the music stops. Knowing the uncertainties ahead, developers and property agents are doing whatever they can to talk hesitant buyers into booking a unit and close as many deals as possible before winter comes. The developer just sold 70 percent and over 360 units of The M condo the weekend before the tumbling of stock prices last week. Expect a few more dead cat bounces in the coming weeks before a major correction comes.
Lesson #2 Know who to trust and what really matters.
Lesson #2 Know who to trust and what really matters.
The Chinese scientists and Wuhan doctors knew about the spreading of coronavirus since the first patient sought medical help on December 8 last year. But they were ordered by the Chinese government officials to destroy the virus samples and hide the news of the contagious disease from the healthcare workers, the patients and the public. To pretend that nothing had happened, the officials even joined an annual potluck dinner with 40,000 families from a neighborhood in Wuhan.
Should the first few cases of coronavirus be contained in time, history would have been re-written with China being praised as the hero to suppress a possible global pandemic. Coronavirus is not a natural disaster. It is a 100 percent man-made catastrophe.
Lesson learned: An open, transparent and honest government is more important than economic and technological advancement in a country. Respect for human lives is far above GDP growth of a nation. Our health, family and loved ones are much more valuable than our wealth.
As a world-renowned gastroenterology expert, Professor Joseph Sung was named by the Time magazine as an “Asian hero” for leading a team of healthcare workers to fight the SARS battle in Hong Kong. Reflecting on his ordeal in 2003, he described the experience as descending from heaven to hell and a humbling experience.
“Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money. Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes,” he quoted from the Bible.
An epidemic tells us that many things are not under our control. When we have planned many upcoming events, we don’t know whether they can go ahead. When we are being put under home quarantine, we can’t go out freely. When we are sick in a hospital bed, we don’t know how long and whether we can recover.
Next time when company spokespersons say how many percent they expect home prices to grow this year, or when property agents tell us the expected ROI and capital gain of the project after completion, we know that they are simply bluffing. Because these things are not under anyone’s control.
Our desire to control is so powerful, and the feeling of being in control so rewarding, that people often act as though they can control the uncontrollable.– Daniel Gilbert, Stumbling on Happiness
We heard from the news more than once that China shows signs of waning coronavirus as the country reports lower numbers of cases and deaths. As I was writing this post, the same old news re-appeared in an international media again.
But by now we are all skeptical of any news coming from China. Because trusting the Chinese government is similar to believing in the Singapore developers. The former has been under reporting infected cases in the country, while the latter has been over reporting sold units in new launches.
Lesson #3 Take “necessary” steps to prepare for the worst
Lesson #3 Take “necessary” steps to prepare for the worst
The OECD (Organisation for Economic Cooperation and Development) warned that the outbreak could more than halve global economic growth this year. A Cornell University professor said the coronavirus has put the world economy in survival mode. It will have long-term effects on growth even if the outbreak proves short-lived.
In reality, who knows whether coronavirus will fade in a few months’ time or last for the whole year and beyond? Who in this world can really tell the extent of the economic damage caused by this epidemic? We can’t even predict which country will be next to have a major outbreak and how fast the virus will spread in the community.
Being in the dark and out of our control, we can only pray for the best and prepare for the worst.
After collected over $200 million Qualifying Certificate (QC) extension charges, the government announced on February 6 that SGX-listed developers “with substantial connection to Singapore” can now be exempted from QC. However, unlisted developers and foreign developers are still subjected to both QC and ABSD restrictions.
To protect the jobs of Singaporeans, the government allocated $4 billion to help companies and sectors affected by the coronavirus outbreak. The minimum qualifying wage of employment pass holders was raised to $3,900 from May. Rules on hiring S Pass foreign workers were also tightened from July this year.
From time to time, companies are looking for ways to lower operation costs. The coronavirus disease provides a perfect opportunity to put it into practice. For management teams that are decisive in carrying out restructuring and retrenchment now, their timely actions can show the Board that they have taken necessary measures to protect the company’s bottomline from the damages of coronavirus. There are proper advanced planning and contingency plans in place to cushion foreseeable loss of business. They don’t need the hindsight to tell them what they should have done when the reports of poor sales performance and bad quarterly results are out. The announcement of their decisive measures helps to push up the company’s stock price.
In a nutshell
In a nutshell
Every time when a Black Swan (a high-impact unexpected event) happens, it helps us to understand better how our world works. Although the market tends to make most of us look foolish, it also teaches us many important lessons, both in investment and in life.
1) Be fearful when others are greedy. Be more fearful when some are still greedy now.
2) Doing nothing is better than doing the wrong thing. This is the time to sit tight.
3) Don’t buy on the dip and catch a falling knife. You never know how deep prices will dive before bottoming.
For these few months, there may still be figures showing private home prices being stagnant or even going slowly up. Because there is always a time lag in reflecting the actual property market performance happening right now at this moment. With retreating stock prices, over-leveraged investors are forced to sell whatever assets they have to cover losses and margin calls. Properties is a highly illiquid asset. It can take weeks to find a buyer and another three months to complete the transaction. The true picture will only be reflected in the property data released two quarters later.
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