The Spanish Flu And Coronavirus Stock Market Investing

When we talk about wild markets, we usually use the Great Depression and the WWII era as the benchmark for extreme market discussions. This is understandable, as the 1929-1932 was the most extreme market decline in the history of our country, with stocks falling 89% from peak to trough. Interestingly, perhaps because of the extraordinarily beaten down price that existed in 1932, stocks never moved more than 30% from any particular high or low between the start of WWII and the end.

My own view is that it is time to dust off the history books and use WWI as an example, particularly because it had the Spanish flu pandemic striking in waves during 1917 and 1918. When you look at the WWI-era stock market, there were 50% swings throughout the war. People who invested in shares of American business were called “stock cowboys” and Andrew Mellon was prompted to introduce the phrase “Gentlemen prefer bonds” into the Wall Street lexicon. The swings were so wild that owning stock was widely regarded as an inherently speculative endeavor (when, in reality, business earnings were stable but the sentiment and outlook for the buyers and sellers changed quickly). 

With the Spanish Flu, there were three waves of the pandemic. While there is no expectation that history will repeat, it is logical to brace for the long haul because: (1) either social distancing will prove ineffective and the outbreak of the Coronavirus will continue unabated; or (2) social distancing will prove effective, Americans will return to work, and then the process can repeat with the virus spread starting “anew” until a vaccine arrives. 

Throughout American history, the typical bear market has a tendency to last around 18 months. Some, like 1987, were very brief and in fact stocks ended 1987 higher than where it began that year. 

My own view is that the fall-out from this outbreak is not over yet and the United States may even seen an unemployment rate north of 20% at some point during the coronavirus pandemic (at first, these numbers won’t look as bad as they seem because many laid-off employees are done so with the understanding they will be brought back as soon as this passes, but the longer the coronavirus shutdown lasts, the more we will see “temporary job losses” become “permanent job losses”).

The implication is that I do not view the current stock market as something that requires “all available/investable cash to be deployed in March 2020.” 

I do not view the significant gains (presumably resulting from the $2 trillion stimulus plan) in recent days as the evaporation of opportunity. Rather, I view it as something where it would be appropriate to invest 15-30% of one’s available dry powder to seize some opportunities, but the remainder should be deployed in the months and maybe even year ahead. If there is a rebound that comes quickly, great, the opportunity of low prices was seized in some way. But if the pandemic continues and the bear market continues in a way that resembles bear markets historically and the last pandemic specifically, the opportunities will continue to flow. It is true that cash is like oxygen in that it is ignored when you have it but all you can think about when you don’t.

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4 thoughts on “The Spanish Flu And Coronavirus Stock Market Investing

  1. John says:

    It’s fair to say that the stock market in 1918 was more akin to today’s gray market than our modern exchanges. Opaque company financials, insider trading, pump and dump schemes, and other shenanigans were the order of the day, and any trader/investor without inside knowledge of how publicly-traded companies were doing was rolling the dice, often with the hope that a greater fool would come along and provide a beneficial exit. The “cowboy” moniker was apt, as it really was a Wild West with no sheriff (or at least none easily tempted), and what rules there were dictated by the barons of the time.

    However, you’re quite correct that the effects of the pandemic — coupled with the Russian-Saudi mischief — could play out in a number of ways, and the current challenge for investors is the rather opaque future over the next few months (or years). Your suggestion to remain calm, alert, and prepared is excellent.

  2. I, too, agree that the volatility will continue. No hurry as there will almost assuredly be many more opportunities to get in at lower prices. The last week for so has certainly demonstrated who quickly prices can move up from lows. I’ve been through 2000-2002 tech meltdown, the 2007-2008 great recession and now this. The previous two crashes were expensive lessons learned that i intend to apply to the 2020 Pandemic Crash.

    Thanks as always, Tim for the wonderful perspectives learned from history.

    1. Peter North says:

      Good content, it is the unknown that is the underlying factor. It would be wise to go back to previous years articles/re-posts and listen to the advice regarding oil stock investments. Good content there, too. At least this is a new post!

  3. says:

    Nice article! I can’t agree more with you. I also think that consumer discretionary will be longer impacted than the current bounce may suggest. I can’t imagine at all that Disney parks will have the same amount of visitors This year as before the pandemic. It takes time again before everyone feels safe again to go to such crowds places.


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