I started in this business on a very part-time basis in 1970, stuffing envelopes, typing addresses, drawing charts of stocks and calculating market-timing indicators—in short, working for my father.
I became a full-time employee in 1986.
And a little over one year later, on October 19, 1987, the Dow plunged 22% in one day.
We didn’t stare at our screens in disbelief. We had no screens to stare at in 1987 (though we did soon after). Instead we got updates on the phone from brokers, trying, in a state of shock, to understand what was happening.
But the market came back. Not all at once, obviously. But eventually, and irrepressibly, because that big one-day drop was an over-reaction, caused in part by program trading, and when it was over, the market was simply too low.
So the market came back. It has come back after every other crisis in the intervening decades (the S&L Crisis, Gulf Wars, a currency crisis, the popping of the internet bubble, 9/11, and the 2008 financial crisis) and it will no doubt come back again after the current scare is over.
Back in 1987, I didn’t know this. Sure, I may have known it intellectually, but I didn’t know it in my investing soul. Now I do.
Long-term, I know that the market will come back to hit new highs again, and that if I live as long as the actuaries expect, I have several more market cycles in front of me.
Why will the market come back? Because in the long run, the market reflects the growing value of the world we continue to make—our civilization—and I’m confident that mankind will surmount the current challenge just as it has surmounted every previous one.
What I Worry About Today
My wife has always been a big proponent of hand-washing, so I’m not doing much new in that department. Additionally, I’ve long made it a habit—whenever someone sneezed or coughed—to exhale for as long as possible while I turn and walk away. I’m rarely sick. So I’m optimistic that—even as I head toward the category labeled “elderly”—I will survive coronavirus.
What I do worry about is the coming recession, which is going to hurt people in ways no one currently foresees—a recession that is being triggered by intentional acts of the people in charge of events of all sorts that typically bring people together.
The Intentional Recession
Yes, these moves will flatten the curve of the spread of the virus—and that is good. But there will be a huge cost (just as there was a huge cost to the response to 9/11) and the resulting recession is going to hurt. And that—combined with the fact that the market was overbought just last month—is why the market is down in bear market territory.
The last recession was triggered by the collapse of the subprime lending market. This one will be different. They’re always different.
What is almost certain about this intentional recession is that unemployment will grow, our GNP will shrink (perhaps precipitously) and debt will become a problem for growing numbers of people and institutions.
The proven ways to cope with a recession, however it unfolds, include reducing debt, building cash and living within your means.
Eventually there will be a new bull market. There always is.
In the meantime, here are two healthy stocks of businesses benefitting from the current situation.
GSX Techedu (GSX)
GSX is one of many online Chinese education firms enjoying great growth. Its market share is growing significantly, and its ability to host massive classes (as many as 100,000 participants!) should help it take a big leap during this virus outbreak as more people look to learn from home. The company turned profitable in 2018 and continued that winning streak with its latest quarterly report. In Q4, GSX saw its revenues increase by a stunning 406%, while earnings per share of 11 cents were up a similar amount.
Zoom Video Communications (ZM)
Video conferencing was growing before coronavirus hit and now the technology is hot. In fact, CEO Eric Yuan recently told CNBC that the company’s products are experiencing “record usage” in the virus’s wake. In the quarter ended December 31, revenues were $188 million, up 78% from the year before, as the number of customers with more than 10 employees grew 61% from the year before to roughly 81,900. All told, Zoom is arguably one of the most popular video conferencing providers today, and there’s lots of room for this young company to grow.