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  • Writer's pictureIshfaaq Peerally


A less gloomy day in the stock market as well as for our portfolio, which had a very bad January mainly with losses from GameStop $GME and from our $oil stocks Parsley Energy $PE and Concho Resources $CXO . A bad month happens to everyone, let's move on and now focus on the future.

Today, the best performing stock in our portfolio is Diageo $DGE.L with falling $GBPUSD . GameStop and Fitbit $FIT having a good day as well. Our gold miner Polymetal $POLY.L falls with falling gold prices $GOLD.


If there's anyone that will predict how the disease will spread and how this will affect the economy and the stock market, they are lying to you. There's no way that the effects of the coronavirus can be predicted. It is a Black Swan event, like a war, a natural calamity or a terrorist attack. But as good investors, we need to ensure that our portfolio is ready for that.

Fear sells and that's why there's so much fear spreading about the coronavirus. It's spreading faster than SARS but is not as deadly. But Wall Street is known to overreact and right now Chinese stocks are already down by 11% $China50 . The S&P 500 is down by about 2%, gold $GOLD is up by 2.4% and the TLT ETF $TLT is up by nearly 6%. This is the usual expectations of when Wall Street is fearful about the future. What we need to know is for how long this will continue.

Let's compare the coronavirus with other diseases, namely SARS, H1N1 and the Spanish Flu. Most of the data I've used come from Ray Dalio's latest LinkedIn article.

During the H1N1 pandemic, the economy was recovering from the great recession of 2008-2009 and so was the stock market. Everything was booming and the diseases was mostly ignored by Wall Street.

SARS happened mostly in China and Hong Kong stocks fell by 15%. In the US, stocks were going up since again it was during a recovery period after the dotcom bubble.

During the Spanish Flu, gold and bond prices were increasing. At the time there was also WWI, which affected the markets.

As you can see, the negative correlation between stocks and the coronavirus only exist when this is the main news but as soon as there will be something more important for Wall Street to focus on, the correlation will go away. We can already see it with individual stocks. Amazon $AMZN had a great day after great earnings. Just two weeks ago, there was the fear of a world war between Iran and the US.

The effects of this coronavirus can, however, be bigger on stocks compared to previous pandemics. It's because stocks are really expensive and any bad news will cause a selloff. Also, the world is more interconnected than ever. According to Goldman Sachs, the Chinese economy will lose 0.4% of its GDP this year because of the coronavirus. The US economy will lose 0.4% this quarter and then boom next quarter and overall for the year, it's going to be a 0.005% loss. I don't know how accurate these predictions are but we can already see an effect on travels. Numerous countries have travel restrictions in China. Apple $AAPL have closed their Apple stores. Oil prices $OIL has also been falling since there's less demand.

I see this as an opportunity to invest in China. Stocks were already cheap there and now they are even cheaper. What about ConocoPhillips $COP , one of the cheapest oil stocks? It is getting cheaper. The airlines will eventually recover as well. In my portfolio, GameStop $GME and Facebook $FB are having a terrible time but if you think about it, they have no business in China. They are being affected by other factors. The same thing will happen to other stocks in the long-term. In the short-term, most companies will be correlated with the coronavirus but after a few weeks, Wall Street will focus on another news and the correlation will go away. What we need to do as intelligent investors is to look for bargains during these times.

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