MARKET CRASH – OR OPPORTUNITY?

​It’s been a wild week on Wall Street with the Dow average falling about 12% over five days. At times like this I look at history for perspective. I got my introduction to market volatility in October of 1987 when the Dow average fell almost 23% in a single day. By today’s standards that would have been a 6,000 point drop. Yet the markets recovered quickly and those who had cash to invest after that day recovered even faster.
 
The real question is not whether the virus that started this decline will cause economic pain because it already has. The real question is whether the effect will be long term or just a short interruption. As I consider that question my mind turns back to my first snowstorm after my family moved to Canada in my youth.
 
Coming from Southern California you can imagine how excited we were to see our first snow hit in early October. We were more excited to learn that school would be cancelled that day. The next day was a Saturday and so our snow holiday continued through the weekend. The snow also meant we couldn’t do our outside chores. No school and no chores. It couldn’t get any better. 
 
Unfortunately, the fun ended on Monday when we arrived at school and learned we would be getting extra homework to make up for the missed day. Later that day, under clearer skies, our dad sent us to take care of the chores we had missed due to the storm. The snowstorm didn’t make our work disappear, it just postponed it.
 
When you evaluate market moving events, it is critical to decide if the events will have a lasting effect on consumer spending, (the number one driver of the economy) or if they will just postpone it temporarily. It may be that analyzing your own personal plans will yield as good an answer as any. If you are afraid to go shopping, will you eat less food or will you deplete what you have and restock your shelves at a later date? If you need a new cell phone but there are none available, will you just keep your old one or will you buy a new one in a few months when inventories return? If you cancelled a vacation you had planned, will you still take one once the danger passes? Our family is not planning any changes to our annual spending. We just might postpone a few things until later this year.
 
But here is my real question. We have had many very dangerous viruses over the years. Why is this one getting so much more attention? Is it possible our instant and mostly negative news is creating more fear than necessary? Consider this – In 2009 the H1N1 flu pandemic killed as many as 500,000 people (over 12,000 in the U.S.), yet it was an excellent year for the stock market. Could fearful investors today be opening up investment opportunities as they did in 1987? I believe so.