This is the disaster scenario that terrifies a lot of investors.
Before last Tuesday morning, Jan. 21, many of us had never even heard of the Chinese city of Wuhan, or of coronaviruses.
But then, after the Centers for Disease Control and Prevention confirmed the first U.S. case of the Wuhan coronavirus, the Dow Jones Industrial Average dropped more than 100 points.
Then, after a “breather” on Wednesday, the index dipped another 145 points Thursday after Chinese officials canceled Lunar New Year celebrations, shut down Shanghai Disneyland and issued a travel ban that basically quarantined about 40 million people in and around Wuhan. That’s certainly the biggest public health quarantine in modern history.
On Friday, the Dow dropped nearly 400 points after a second confirmed U.S. coronavirus case — and it became clear this deadly flu was not going to be contained quickly.
Finally, yesterday morning, the Dow crashed nearly 550 points as investors reckoned with the likelihood that this outbreak will worsen and spread. Additional virus cases have popped up in Canada, France and all around Asia.
Pandemics and the Markets
As of Thursday morning, Chinese officials had acknowledged 7,711 cases and 170 deaths — although many experts, including former U.S. Food and Drug Administration Commissioner Dr. Scott Gottlieb, say the epidemic is likely much worse than what’s being reported.
“Global spread appears inevitable,” Dr. Gottlieb wrote in a CNBC editorial published Jan. 27. “So too are the emergence of outbreaks in the U.S …. When pockets of the outbreak arrive on our shores, we shouldn’t have undue panic. But we need to be ready.”
Clearly, the coronavirus is keeping health officials up all night as they try to contain it.
And it’s keeping investors up all night as well.
That’s because pandemics can shake up global markets and cause major turbulence in the days and weeks after they hit.
“We are in uncharted waters as a virus of this kind has not taken place in the more modern economy that China is today, with much wider transport networks and being more integrated with the global economy,” Danske Bank Chief Analyst Allen von Mehren said in a note Monday morning.
We don’t know what happens from here.
The coronavirus could end up being more deadly than the 2002-03 SARS virus that hit China.
However, we hope that Chinese and global health officials will contain it — and I believe that the resilience of the global markets that we’ve seen over the past decade will continue in the immediate future.
But it is always important to be prepared for the worst.
It Can Happen Again
On Oct. 12, 2007, the benchmark S&P 500 hit a new all-time high of 1,576.09.
At the time, the U.S. economy appeared to be thriving. It had recovered from the 2000-02 dot-com collapse and the recession that followed. Gross domestic product (GDP) was rising. Home values and stock prices were soaring, creating new paper millionaires every day.
You know the rest of the story.
The healthy-looking economy was a mirage. It was dangerously leveraged to an overvalued real estate market.
Individuals and corporations around the world were deeply in debt. The economy’s foundation was crumbling beneath our feet.
Then stock prices collapsed 57.7% … wiping out $11 trillion worth of stock market wealth.
Of course, something like this could happen again … and the current deadly virus sweeping China could be the trigger.
The world’s financial markets have been cycling through periods of boom and bust for hundreds of years. Times of economic boom and soaring prices are followed by times of economic bust and plummeting prices.
Here in the United States, the stock market has logged more than 30 bear markets (drops of more than 20%) since 1900.
And today, the economic and stock market conditions share some important traits with the 2007 version.
Despite our prosperity, the U.S. economy looks shaky if you examine it up close.
- Mortgage debt is once again close to the nosebleed levels it hit in 2008…
- Credit card debt has jumped to new all-time highs…
- Student loan debt has skyrocketed to triple what it was in 2007…
- And corporate debt outstanding is hitting new all-time records, just like it was in early 2008.
Still, despite these widespread signs of distress in the real economy, stock valuations are sky-high, just like they were in early 2008.
To be sure, the Chinese could contain the coronavirus, fears could dissipate and the stock market could keep rising over the next few months — and even hit new all-time highs.
But history shows that the risk of a severe selloff is high.
So, it makes sense to make your plan for surviving a bear market now — before it arrives.
That’s why I’ve outlined six key tactics you can use to survive any bear market or financial disaster.
Applying these tactics could be the difference between amassing a comfortable nest egg … or barely getting by in your retirement years.
But before I tell you about these tactics, let’s examine the overall philosophy and strategy that will guide your investment success.
An Oldie but a Goodie
That philosophy, stated simply, is: Buy low, sell high.
“Buying low” is the essential ingredient of every contrarian strategy that invests in stocks or sectors when they are depressed — and then sells them when they are riding high.
This strategy has succeeded brilliantly for decades, if not centuries. “Buy low, sell high” sounds so simplistic that it feels almost moronic. Yet few investors manage to achieve this objective consistently. Why is that?
The answer relates to those two key traits I told you every investor needs: discipline and patience.
Far too often, we buy too high … and then sell too low.
We know what reason says we should do, but we follow our emotions. We lack the discipline and patience necessary to pursue a prudent long-term strategy. To outperform the market, an investor must maintain the discipline of saying “no” to bad risks … and then keep on doing that until good risks come along. It’s not easy.
It’s hard to say “no” to high-flying stocks when everyone else is saying “yes.” It’s like leaving a cocktail party while it’s still going strong.
But you must have the discipline to say “no” to bad risks and the patience to wait for better opportunities.
Protecting yourself is your responsibility. No one is going to do it for you. As for my six key wealth insurance tactics, that’s what my book Bear Market 2020: The Survival Blueprint is about.
With the six tactics I show you in it, you’ll do a lot more than survive a crisis. You’ll thrive through any bad times the market throws your way.
These proven tactics are not complicated — and you can use them in any bear market, whether it’s caused by a dampening economy or a worldwide pandemic. Most successful investors have been using one or more of them for decades.
However, they require two key traits that many investors lack: discipline and patience.
That’s all you have to bring to this party. You can’t be sloppy or lazy. And you cannot EVER worry about the money you DIDN’T make.
With discipline and patience — plus my six survival tactics — you’ll make more money in the markets than you ever thought possible.
Find out how to get it by clicking here.
P.S. Folks spend their entire lives saving for retirement, but very few ever spend time thinking about how to protect their capital when things go south. Even a relatively minor decline of 20% could set your retirement back several years or more. That’s why, for a limited time, I’d like to rush you a copy of my new book, Bear Market 2020: The Survival Blueprint.
When it comes to the stock market, the biggest mistake most people are making right now is doing nothing. Don’t wait for the news media to tell you the stock market has fallen by 20%. By then it will be too late. Learn how to claim your copy of Bear Market 2020 by clicking here.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.