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The Impact Of Coronavirus: People, Economy And Your Portfolio

Mar. 05, 2020 6:54 AM ET7 Comments


  • It is very likely that the health impact of coronavirus on the US is not going to be nearly as significant as it was in China.
  • China's economic impact will be twofold, as a consumer of American-made goods and as manufacturer to the world.
  • In the long run, Chinese losses are an opportunity for other countries that will be jumping in to provide the needed supply chain diversity.
  • We do think the coronavirus is most likely a recession-inducing virus, with its own unique characteristics and extra-scary headlines. But despite all the uncertainty and human suffering, the financial consequences are likely to resemble those of a moderate recession (higher unemployment, lower earnings).


I cannot tell you how much displeasure I have experienced from what I am about to say. I'll be throwing around statistics of people dying as if I am talking not about people but widgets. My six-year-old daughter Mia Sarah had a garden-variety virus a few weeks ago. When my wife told me - a few minutes after I had been reading about coronavirus - for a second my heart sank, as virus to me meant coronavirus.

Even if Mia Sarah had coronavirus, the chances of survival were greatly in her favor. (Coronavirus, like the flu, is exponentially deadlier to older folks than younger ones.) However, when it comes to your loved ones, statistics lose their meaning and you start magnifying tiny probabilities into high-probability outcomes. The coronavirus statistics represent people's loved ones, but I don't know how else to write what I am about to write.

I am going to divide this letter into three sections: health and human impact (sometimes a tragic one), economic impact, and investment strategy.

Human tragedy

Let's focus on the human factor of the virus. I'll write about the US, but a similar analysis can be applied to Europe. Normal seasonal flu kills ten to sixty thousand people a year in the US, or about 0.05-0.1% of those infected. The coronavirus kill rate is estimated to be about 1-3%, or 20-60 times greater than seasonal flu. As of this writing, about 86,000 people are reportedly infected and 3,000 have died from coronavirus. Most infections and deaths have occurred in China, with South Korea a distant second with 3,526 infections and 17 deaths. Italy is third with 1,049 cases and 29 deaths.

The US has fewer than 100 confirmed cases, but because people can harbor the virus for weeks without displaying symptoms, and because US

This article was written by

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of Active Value Investing (Wiley) and The Little Book of Sideways Markets (Wiley).    His books were translated into eight languages. Forbes Magazine called him "The new Benjamin Graham". To receive Vitaliy’s future articles by email or read his articles click here.

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Comments (7)

VladPutin profile picture
Comarade, I love your research and analysis. Please keep up the quality work. I respect the effort and candor in your articles. Thank you.
07 Mar. 2020
Excellent article. Initially I thought concerns regarding this virus were overblown, at least from an economic/financial standpoint. I now think the prevention measures taken to slow the spread, while probably sensible, will have a greater affect on the global economy, at least in the short to medium term.A month ago everything was peachy and markets were richly priced. Now the major indexes are down about 10% and still seem to me to be richly priced. Financial, Travel and Energy sectors have been crushed leaving a few megacap tech stocks to keep the indexes up. I think it is certainly possible (likely) there is at least another 10% downside from here. Index Put Options (SPY,QQQ etc) are expensive but likely to get a lot more expensive if efforts to contain the spread fail.
NavyFMDoc profile picture
Agree with @T'pee - @Vitaliy Katsenelson, CFA - Bravo Zulu. This is the best perspective I have heard financially / practically / or even really medically (and I am a physician...) There is no doubt that we should be cautious with this virus and take action, especially for the most vulnerable (that are decimated by the flu every year), but it too shall pass.

I currently live in Japan and (knock on wood) the Japanese response has been admirable for being so close to China - caution but not panic. The number of Japanese cases has been climbing, but below newer countries exposed like Italy / France / Germany. America will pass Japan in cases soon. Looking at logarithmic charts of cases / deaths, gives a little bit better picture IMO rather than linear.

Most of my money is in index funds, so I am not sure what to do with those accounts but have a rather long time line. I do have some taxable funds that I am looking to buy MA / V if the prices can get to some margin of safety.

Thanks again. Will be sharing with friends and family.
Prati Management profile picture
Excellent article and great insights. Thanks for sharing a wise perspective.
Glockmod23 profile picture
Good article...BUT in the past history of the USA when things happen i.e. wars and so on, most of our "stuff" was made in the usa. No doubt our stock market will rebound, but I do believe it's going to take longer than most people believe. Wishing Good luck to all.
T'pee profile picture
@Vitaliy Katsenelson, CFA This is the best piece, hands down, on the current state of affairs I have read since this episode started. I think your assessment is extremely well balanced avoiding the platitudes of wishful thinking and the extreme doomsday predictions of those with short memories. To your point if this does against all indications end up to be truly catastrophic then having cash will not matter, but having enough on hand to purchase opportunistically to add to a robust collection of businesses sounds just right. You even managed to write this like a caring human being, well done sir!
Vitaliy Katsenelson, CFA profile picture
Thank you
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