Much has been written about how our reactions to the loss of normalcy due to COVID-19 and social distancing is driven by the five phases of grief (denial, anger, bargaining, depression and acceptance).
While compelling, it doesn’t capture my uneven reaction to this bizarre environment. That may not be an issue with the stages themselves, as much as my imperfect understanding of them. Perhaps troubled minds latch onto what they understand best. For me, that’s investing and financial planning.
Momentum investing is an investment style where you buy stocks with strong recent returns and sell stocks with poor recent returns expecting both trends to continue. One explanation for its success is that people often underreact to news initially and overreact to it later. That fits my emotional reaction to COVID-19 to a tee.
I underreacted to COVID-19 when it was still an unnamed Coronavirus. Part of the good and bad about blogging is that certain thoughts are on record for my millions of readers to check (okay, not millions or even thousands, but who’s counting – besides me?). I wrote Coronavirus on February 4th, and the gist of what I said was:
I don’t want you to sell long-term investments for short-term reasons unless your situation has changed.
Market corrections happen all the time.
Previous epidemics did not rattle markets much.
Wearing masks won’t help (thanks for that one CDC).
Even with the hindsight of a bear market, I’m comfortable with bullet one. You can’t time the market. Long-term money should remain invested in a long-term portfolio. And I followed up in March recommending rebalancing into stocks (3 Things Investors Should Know Now), and April was the best month we’ve had since 1987.
Market corrections happen all the time causes me to wince.
Previous epidemics did not rattle markets much. Ouch. It turned into a pandemic that caused the biggest short-term losses in twelve years.
So, professionally the right long-term advice in the midst of a hefty underreaction.
I personally underreacted too, thinking that the call for social distancing, shutting down schools, closing offices, and cancelling events was unnecessary. I hate being wrong, and in thinking about it to improve my future decision-making, I have a few theories about my clouded judgment.
Things didn’t make sense: This is not political commentary, but the inconsistent initial response from authorities baffled me. If things were so dangerous that our landlord closed our office building, the NBA canceled games, college campuses emptied, our Governor mandated working remotely, then why wasn’t everything around us shutting down? I’m not partisan, and I’m not into conspiracy theories, so if certain authorities were taking more aggressive steps to contain this than others, it seemed reasonable to worry that those authorities were overreacting.
Gulf War all over again: I was born in Boston, but when I was ten years old my family moved to Kuwait. Five years later on August 2, 1990, Iraq invaded Kuwait. I was three weeks away from starting tenth grade and like every other friend I had at the time, spending the summer away from Kuwait’s scorching heat waiting for the school year to restart. It never did. And in a time before the internet, email, texting, etc. the hundreds of kids in my school who spread out across the globe every summer without a reliable or cheap way of staying in touch basically never saw each other again. A few reunited in Kuwait after the invasion, but the overwhelming majority did not and those relationships never resumed. That sense of disruption, lack of control, being tossed around for a few years based on external circumstances impacted many people. I’m sure a part of me underreacted to COVID-19 because I didn’t want to contemplate another stretch of uncertainty.
Being a baby: Many enjoyable events were canceled, including some of my favorites, like Celtics games, concerts, and social events and in-person meetings with clients. On this list was the book launch event we had planned for April 29th for Beyond the Basics: Maximizing, Allocating, and Protecting Your Capital with lots of clients, family, and friends planning to attend. Having one evening to thank people close to me and catch up with folks would have been cool. Given the current health crisis and tragedies unfolding every day, being a baby I know, but I’m sure it was running through my head as I grumbled about overreactions.
And now as we enter the crises’ second phase with social distancing guidelines being relaxed, and our commitment to it waning, I’m left wondering if I’ve shifted into the overreaction phase of my momentum driven response.
The evidence exists.
Now that I’ve seen how effective my company is at working remotely and have corrected my initial understanding of this virus, I’m struggling with when we should return to our offices.
I cringe whenever I see people too close to each other. I’m wiping down my groceries and washing my hands until they’re cracked dry.
I see it in others too.
Partisanship is up in both directions. There’s a lot I don’t understand, but near the top of the list is why your views on a virus would be driven by which party you think has a better vision for our country.
Protestors and conspiracy theorists on the one hand and people asserting that things will never be the same and that this is just beginning on the other.
Where’s the sensible middle ground? Is it between my initial feelings and later ones? Between the polarized views of others? Probably. That’s what each of us needs to figure out for ourselves right now. Since I’m not an epidemiologist, I’m going to seek out information and score it by focusing on the incentives of the people providing it and try to avoid extremes.