It’s been my experience over the years as an observer of markets and human behaviour that our fear in response to possible outcomes is usually disproportionately (and incorrectly) weighed against its probability of becoming a reality.
For all the concerns about an issue they usually don’t come to pass. On the occasions where there is a bad outcome we fear an even worse outcome, which usually do not materialise. We are very good at being fearful, but we are not very good at allocating a level of rational probability to that fear.
In other words, things are never as bad as they seem, and investors spend far too much time worrying about unlikely events becoming reality. The opposite is also true. Rarely are things as good as we think. The reality is far more boring, somewhere in the middle.
With this new covid variant it is no different. Listen to the media and it sounds bad, but we don’t actually know anything useful at this point. The number of “what if” articles I am seeing in the media is ridiculous and just a waste of time and energy. We will deal with it if it is an issue.
A big part of the current reaction to the emergence of the new variant is that everyone is tired of it. Everyone has had enough of the pandemic and just wants to go back to living a normal life. So, we are more sensitive than ever to the prospects of going backwards. The media love it and are pushing those buttons hard. This is probably the biggest risk going forward, pandemic fatigue.
There are going to be new variants. We know that. We also know the drill about how to manage them. Until we have answers on a couple of key questions, I just don’t think it is worth worrying about. From an investment perspective there are two questions I need answered in relation to the new variant and that’s pretty much it.
Is it resistant to the vaccine?
Is it more deadly?
If the answer to these questions is “no” then it’s not a big deal and in a few weeks, everyone will have moved on and the rest is just noise.
If it is resistant to the current vaccines, then we go back to the original drill. It will take time for new vaccines to be developed and then distributed. But this time we know how it works and have the foundations in place to manage the next steps. It might set the recovery back 3-6 months (that’s a guess).
I hope to add to our positions in December if markets fall further and if the new variant is vaccine resistant, I expect to buy again in January if the market overreacts.
There are going to be new variants. There will be more of them next year too. At this stage we should know the drill well enough that we can wait and see if it’s a problem. Then make rational decisions to deal with the actual situation. Life will go on. We need to stop jumping at shadows.
This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.