Did the Market Catch a Virus?

​In his 1933 inaugural address, Franklin Roosevelt made his famous statement regarding the Great Depression saying, “…the only thing we have to fear is fear itself…”.  Throughout my career as a financial advisor I have had many opportunities to reflect on that quote. I have watched as investors have reacted with fear to the many economic and political cycles that have come and gone.
The emotion of fear is uncomfortable but necessary to protect us from the real dangers of our world. If we did not fear, we would not survive very long. I recently watched a documentary about an amazing man who spends his life in the dangerous world of free climbing. This is a sport where people climb steep rock faces without any ropes. As one who has a personal fear of heights, it was hard for me to even watch the movie of this man climbing those cliffs. At one point in the documentary he mentioned how he had no fear of heights and for the most part, was not afraid to die.  A little bit later in the show when the interviewer asked about his climbing friends he eerily and almost too casually responded that most of them had died in falls.
Somewhere between myself and this climber lies a healthy fear of heights. A little fear might help this climber to live longer. If I had less fear of heights I might better enjoy when a hotel gives me a room with a top floor view. Ironically the same emotion can save your life or be crippling.
Finding balance as you manage fear as an investor is a challenge. The problem is exaggerated by the constant and unavoidable barrage of frightening news. If we always respond with fear to the negativity, we could find ourselves unhappily locked behind the walls of our homes. If we ignore fear completely, we risk falling off a few cliffs. Fear can protect an investor or hinder them.
A real-world example of this dilemma is the current coronavirus scare. A cruise ship this week quarantined 7000 people because one passenger appeared to be infected. Now, suddenly people are cancelling cruises, airlines are refusing to give out blankets, and some stocks are falling. The fear seems to be outgrowing reality at this point.
Nobody knows how the Coronavirus problem will end or how it might affect investors. I suspect, like so many other “fears” it will run its cycle and eventually have very little effect on the worlds’ economy. As for investors I kind of agree with FDR that the fear of the problem is often more dangerous than the problem itself, because it can lead to poor decisions and even greater problems.
I encourage investors to be aware of the risks around them, while resisting the temptation to allow fear to take more control over their decisions than is prudent. FDR was only partially correct. Fear may not be the only problem, but too much of it can exaggerate the problem while hindering the solution.