Since mid-January a new coronavirus has caught the world’s attention and likely contributed to global stock markets declines.

A coronavirus is a virus that’s transmitted between animals and people. It can cause the common cold, or more dangerous diseases like Sars (2002) and Mers (2012). This new one has not yet been named and appears to have originated in Wuhan, China.

Besides the human health toll and how to best protect yourself (surgical masks don’t help), which are beyond the scope of this blog, the outbreak and increased market volatility has investors wondering what to do.

Regular readers know I never want you to sell long-term investments for short-term reasons unless your financial situation has changed, and that you have to be ready, willing, and able to protect your portfolio from the news to make serious money.

Market corrections happen – basically every year.

They can be random or linked to specific reasons, but the story remains the same. We know they’re going to happen, we know we can’t market time and avoid them, and if you’re only investing money in stocks that you don’t need for a while the best thing to do is ignore the noise and move on (learn how to Protect Your Portfolio from a Bear Market).

But, isn’t that always the message from your advisor when these short-term events happen?

Can we do more than just dust-off the same charts while preaching patience? I’d like to think so, because I don’t want to get tuned out or write the same exact piece for the rest of my blogging career when markets hiccup. So, here’s what I’m doing instead – laying out how markets have performed after prior outbreaks, sharing thoughts from market experts I know and respect, and explaining what investing in stocks really means with the idea that you should go ahead and sell if you know that the current outbreak will be tougher on markets than the past, you don’t believe or trust the experts and have more subject matter knowledge than them, and feel like the future return stream from the stocks you want to sell will be broken by the virus.

Market Performance During Past Outbreaks

This MarketWatch article does a great job discussing how the global stock market performed during past outbreaks. Read it. This chart summarizes the 1-month, 3-month, and 6-month return for global stocks after 13 different outbreaks.

I know past performance is not a predictor of future results. It even says that in bold underneath the chart! However, if you’re going to sell now it should be because of what I said above – knowledge or strong confidence that this time will be different.

Expert Opinion

When it comes to finding expert opinions, we can always find someone to support any view. After all opinions are like…well something that everyone has one of.

This outbreak and what you should do about it is no different. So, in sharing these two posts I am in no way saying these are the only views. However, they are views expressed by two very thoughtful people I follow and respect.

Ray Dalio – founder, co-chairman and co-chief investment officer of investment firm Bridgewater Associates, one of the world’s largest hedge funds and author of Principles and Principles for Navigating Big Debt Crises.

Dalio reminds us that diversification is how we should deal with unknowns in this post.

“What we don’t know is much greater than what we do know.  When you don’t know, the best investment strategy is to be smartly diversified across geographic locations, across asset classes, and across currencies.”

In true Dalio fashion, he also extensively reviews the history of other events, including the Spanish Flu in 1918, and compares today’s outbreak to them.

Jeffrey Kleintop – Senior Vice President, Chief Global Strategist at Charles Schwab

Kleintop cautions travelers to be careful, but also feels that “investors may have little need to take action if their portfolios are diversified and aligned with their long-term plan” in this piece.

Stock Market Investing

Finally, when deciding what, if anything, to do now about the coronavirus, it’s important to remind yourself about the nature of long-term stock market returns provided to investors. When you invest in stocks, either directly or through mutual funds or ETF’s, you are buying parts of a business or a large basket of businesses. In the long-run, you should receive the underlying performance of the businesses you own – the cash-flow and earnings growth of your companies. Short-term prices fluctuate, but stocks are long-term investments. Selling now should be based on analysis leading to a reasonable level of certainty that the future performance of the businesses you own will be impacted in the long-run by this outbreak.

Where does this leave us all in the end? First, thanks for sticking with this longer than usual piece. Second, maybe this was just a really long way to say that thoughtful strategies put in place to deliver long-term investment results can and should be changed if needed, but that it should really only be done with equally thoughtful analysis of the situation driving you to make the change. If you know something about this outbreak that others do not, or trust someone’s expertise on the situation, and think the right thing to do to protect your long-term returns is to sell out of the businesses you own, you should. Please just make sure those are your reasons.