Two glowingly positive articles about the state of humanity appeared in two separate publications at the end of December 2019. One — This Has Been the Best Year Ever — by columnist Nicholas Kristof was published on Dec. 28 in the New York Times. The other — We’ve just had the best decade in human history. Seriously — by Matt Ridley, author of the Rational Optimist, appeared the same day in the Spectator. What a glorious note on which to end the decade. My, how have times changed, and quickly at that.
Kristof in his article wrote that ”since modern humans emerged about 200,000 years ago, 2019 was probably the year in which children were least likely to die, adults were least likely to be illiterate and people were least likely to suffer excruciating and disfiguring diseases.” He also pointed out that the proportion of the world’s population subsisting on about $2 a day or less has dropped by more than 75 per cent in less than four decades to 10 per cent in 2015 from about 42 per cent in 1981. He gave many other examples of the extraordinary advances that have taken place over the years, too.
Ironically, at precisely the same time as these articles were published, public health officials in China informed the World Health Organization that they had an unknown, new virus that was causing pneumonia-like illnesses in the city of Wuhan.
In what seems like an instant later, the world has been turned upside down. The truly terrifying aspect of our new situation is that we don’t know much about this new virus, how long it will be a threat or what damage it will do to economies globally. The 2008 financial crisis, an experience that many investors now draw on for guidance in these uncertain times, was a near-catastrophe, but it didn’t involve the spread of deadly viruses. It was strictly a financial mess in both the United States and abroad when Warren Buffett took to the New York Times on Oct. 18, 2008, to air his thoughts in an opinion piece, Buy American. I Am.
A comparison between today’s economic situation and the one we faced 11 years ago reveals some parallels: rising unemployment, faltering business activity and huge government intervention. However, the situations are starkly different, just compare Buffett’s comments then and now.
In his 2008 Times article, he said, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors … But most major companies will be setting new profit records five, 10 and 20 years from now … I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
During a recent interview, he said, “I told you many years ago, if you stick around long enough, you’ll see everything in markets. And it may have taken me to 89 years of age to throw this one into the experience.” And in a March interview, he said, “This is a terrible event that’s occurring … We don’t know how terrible. It may not turn out to be that big a deal when we get through, but it may turn out to be a very big deal, and we just don’t know.”
Buffett has also said in the past that, “What you really want to do in investments is figure out what is important and knowable. If it’s unimportant or unknowable, you forget about it.” In the context of this statement, what he implies in his recent commentary is that we simply don’t know what the outcome will be, but we certainly do know that it’s important. What I am waiting for is for Buffett to make a statement similar to the one he made back in 2008.
Another big difference between now and then that must be pointed out is that stocks today are still far from the cheap valuations that we saw in 2008-2009.
Kristof and Riley were right: the advance of our civilization, especially in the past 250 years, has been nothing short of extraordinary for the average person. Now, as Buffett recently said, we face the unknown.
For the present, our position is that caution is warranted with plenty of cash in the kitty until the “knowable” becomes clearer.
However, my long-term conclusion is that we will defeat this virus at some point in the future. We will return to a prosperous, thriving world again. We have the scientific tools and medical technology to understand what we are dealing with, and those tools and our collective knowledge will continue to advance unabated.
During the 20th century, the world confronted what appeared at the time to be apocalyptic, insurmountable events. For example, the Spanish Flu epidemic (1918-20) was the most severe pandemic in recent history. It is estimated that about 500 million people, one third of the world’s population, became infected with this virus, which ultimately killed an estimated 50 million people worldwide, including 675,000 deaths in the U.S. We also endured two world wars, with the first causing an estimated 15 to 19 million deaths and the second killing 70 to 85 million people, or three per cent of the then-world population.
Having said that, we view the longer term with a sense of great excitement and opportunity. I have faith in our ability in the future as a species to confront these monumental challenges head on and overcome them, but it’s going to take time.
Hence, as conservative investors, we are naturally approaching the viral pandemic with heightened caution, while ensuring that we are prepared to act once the important facts become more knowable.
Larry Sarbit is a portfolio manager at Value Partners Investments in Winnipeg. He can be reached at [email protected].