Podcast: COVID-19 and the Financial Markets

corona-virus-financial-markets

Roger Gainer:
… And she started the conversation with, “I’m really worried about the coronavirus. I really don’t know what to do.” Now, this woman has so many issues that she’s dealing with right now and here she’s not thinking about herself.

Clark:
You’re listening to Retire Happy with Roger Gainer, President of Gainer Financial and Insurance Services Inc. Thanks for joining us, I’m your host, Clark Buckner. When viruses and pandemics happen, like what we’ve seen with the coronavirus, how does that impact the world including the global economy? We know it impacts airports and factories, but could it impact your retirement or savings? In this episode we discuss global events like this and how to think about your own strategy in the midst of global uncertainty. For more content like this, head on over to gainerfinancial.com. Enjoy the show. Roger, how’re you doing?

Roger Gainer:
Doing great. And yourself, Clark?

Clark:
Doing well, doing well. I always love getting together and we’ve been having just a wide variety of topics over the last several months. We recently did a conversation around what the next decade is going to look like based on what we’ve seen in the past. We’ve reflected on several different topics, but something that’s been happening in the world has a lot of coverage, a lot of fear, a lot of big things happening that’s pretty scary is this coronavirus.

Roger Gainer:
Oh, yes.

Clark:
And over the years, I don’t know, we’ve talked about this before, there’s been a lot of different global health events that have impacted markets and just the overall public interest in the coronavirus, where there’s someone who’s listening to this recently after the coronavirus has been on the rise or maybe someone listened to this a year from now, there’s lessons to be learned and things to be thinking about. I’m really curious when you see things like this, what’s going through your mind and what are the big things to be aware of? It’s of course, it’s a heavy topic and people have died and it’s really… I mean the toll has been continuously rising at the moment, we’ve been recording this. But what kind of impact does this have to folks who are thinking about how it impacts the surrounding world and so forth?

Roger Gainer:
Okay. Well, since this has made it into the news in pretty much the last three weeks or so, we’ve seen a few days where particularly the stock market has reacted negatively to news of more of the spread of the disease and increases in the number of people infected. They’ve shut schools and factories and eliminated sporting events. Even in Japan, they’re eliminating sporting events. They’re supposed to be some pre-Olympics tournaments there to test the facilities. They’re being canceled at this point, several of them have been canceled because there’s this fear of putting people together.

Now, I’m a guy who likes to look at history to give us a guide to the future. We talked about this quite a bit as we look forward in the next decade and you can’t always take history on the surface. You have to drill down a little bit just to make sure how these things impacted. But if we look back at some of the great pandemics of the last 30 or 40 years, like the granddaddy of them all was HIV and AIDS. When they announced that it was in fact HIV and it started to spread, that had a negative impact because it spread very quickly and it took a long time to exactly figure out what was going on.

If you count June of 1981 as the beginning, the markets reacted negatively over the next 12 months. But if we look at other things like SARS, which a lot of folks have equated this virus with SARS, the SARS virus had virtually no impact. In fact, over the next 12 months the market was up over 20% but SARS only sickened 8,100 people in 2003 and 774 have died in that outbreak. This one has already a factor of three or four beyond those statistics, so the potential for effect has the possibility of being much more severe here.

We look at some of the other ones, avian flu, swine flu, and these are all kind of flu related. We had the Ebola back in 2014, markets went down after that pandemic. There was another one of those last June, we still don’t know how the markets will do over the trailing year. Ebola, markets were up and so I don’t expect this to be the catalyst to knock markets on their butts, okay?

A lot of folks, all they know is they got a flu shot and we got an N95 mask and that’s my protection but we don’t want your portfolio to become infected with the coronavirus. These statistics are starting to bleed into the economic situation in the entire world. Over the weekend, Apple announced that it was going to miss its profit numbers in the first quarter because several of the factories that produce iPhones, and the iPhone 11 has been their best one in terms of sales.

Clark:
Right. It’s been huge.

Roger Gainer:
And it’s pretty much like running into a wall. Lots of the things that are manufactured import parts from China. I spoke to a client this morning who was getting a startup off the ground. They had a manufacturer that they had contracted with in China and because of this everything got pushed back and they still haven’t received shipments that they were supposed to get a month ago. And when you’re working your supply chain like that it can have a very, very serious effect.

If it continues to spread and if China continues to increase the controls over school work, putting people into isolation, making people be shut into their homes to try to get out in front of this virus, they’re still not sure what the incubation period is. Is it five days? Is it 14 days? Is it 28 days? Not real sure here. There’s a lot of big decisions being made about do we keep this business closed? Do we let groups of people come together? They just flew a bunch of Americans out off of one of the ships that had an outbreak-

Clark:
Those on the cruise ships, right?

Roger Gainer:
The cruise ship, right. And they-

Clark:
People were trapped in their rooms for-

Roger Gainer:
They were trapped in the rooms and they said, “Oh, you folks can leave.” And then on the bus on the way to the airport they found out 14 people that were going to be on this flight tested positive, so they put them in an isolation chamber-

Clark:
Jeez.

Roger Gainer:
But they’d sat on a bus with all the other people on this plane. So now those folks are going home, they’re going to be quarantined for another couple of weeks but they might have all been infected, we just don’t know. I would say to our listeners, if you want to stop the infection you need to protect yourself. And the first line of protection is just paying attention to the symptoms. Just like when we’re in flu season and everybody around you seems to be coughing and sniffling, I hate getting on an airplane…

Clark:
That’s the worst. And you hear it happening around you and…

Roger Gainer:
Yeah, you hear that, especially when somebody right behind you just can’t stop coughing and you just feel this cloud of cough is settling everywhere.

Clark:
Settling everywhere, you’re right there.

Roger Gainer:
It’s amazing how often you feel ill a day or two after a long plane ride but I’m pretty sure that’s their reason. Anyways, it’s more monitor to see if there’s symptoms starting to appear. Those symptoms would be the news talking more about the correlation between the virus and stocks. We had a couple of days where the stock market was down three, 400 points the last couple of weeks ago and I was like, “Oh, because of concern,” and we got a bounce back each time because is it a concern that’s a major concern or is it just because we like to worry?

A lot of people like to worry and given media availability these days and how it can dominate headlines, a story, and really make people feel a certain way. We have to pay attention to, is it hitting the top of the news every time? Are people panicking in our streets or in other countries outside of China. We’re starting to see little bits of that, we want to see how far that goes. But that’s when it’s time to really start thinking about, “All right, should I take some profits? Should I take some chips off the table if as it were?”

I know a lot of people don’t like selling stuff. I met with somebody last week who said, “Oh, we have this great portfolio, we just can’t sell anything.” And I said, “Why not?” And they said, “Well, there’s too much capital gain in the portfolio so we’re just going to have to ride all these stocks.” And I said, “Well, how much of that gain are you willing to give back to the market?” Because without that kind of discipline and strategy, they’ll ride it all the way back down. And that’s a different sort of tax, it has the same effect, right? If I pay Uncle Sam 20% capital gains tax and my portfolio loses 25%, if I had sold I’d have been ahead, right?

Clark:
Mm-hmm (affirmative).

Roger Gainer:
It’s the math. So I would recommend our listeners review what they’re doing, talk to their advisor, if they don’t have an advisor give us a call. 415-331-9030, we’ll be happy to talk to you about steps to take to protect yourself. N95 masks are kind of hard to find these days. But there are… that’s not going to help your portfolio, but knowing for example, what shares am I going to sell if it comes to that. What I mean by that, if there’s in a retirement account, it’s very simple. No tax ramification in selling anything, doesn’t matter how appreciated it is.

Roger Gainer:
But when you have stocks that you own outside of a retirement plan, in other words, not in an IRA 401(k) profit sharing plan, SEP or one of those types of accounts, every time you sell something, there’s the potential for attacks to happen especially if you have highly appreciated stocks. And I know you hear all the time, it’s timing the market, not timing the market, but would that have made sense to hold on to GE all the way from a share price in the hundreds down to where it is today in the teens? It’s stuff like that and it happens all the time.

Clark:
Right.

Roger Gainer:
So probably the single hardest thing for people to do is to sell, to know when to sell, because they lament, “If I sell and it goes up more, I’ll feel stupid.” And I hear that all the time, “Oh gosh, I sold last December I was really nervous and gee, well, the last three weeks have been great.” I heard that a week and a half ago from a client and I said, “So why?”

Clark:
It reminds me so much of what you have been talking about over the last several months and beyond is how people make decisions and how fear can play a role in that. How people can start to feel paralyzed or feel stuck, and then when you aren’t sure what to do, then you can act irrationally. So by having a plan and being strategic about some of these different scenarios, when we do see these global events take place, having a plan in place will help be your guide. And it’s almost kind of like how you hear so many people do drills and scenarios in real life, whether it’s fire drills or anything like that. I’m not saying this is a fire drill, but-

Roger Gainer:
Right, great analogy. Fire drill-

Clark:
What do you do when this happens?

Roger Gainer:
Like how do I put CPR on my portfolio, right? On my retirement.

Clark:
Right.

Roger Gainer:
And it’s going to be different for different people. There are ways to limit losses in virtually any asset class, but sometimes it’s kind of like getting a stroke. If you use the treatment early then you might have a full recovery. If you use the treatment later you might have permanent damage if you hesitate. They say if you’re having a stroke, get to care right away. If I’m having a heart attack versus I’m having indigestion because I ate a bunch of spicy food and barbecue for dinner, knowing the differences can make a huge impact on the outcomes.

Roger Gainer:
If I’m out to dinner, I want my wife to know how to do CPR. Luckily, knock on wood, it hasn’t been an issue thus far but it’s funny we were just talking about this the other day. So if there is a potential for something to go wrong, when I work with clients one of the things I say is, “We want to identify all the question marks in your plan about everything that could mess it up, then we want to remove as many of those question marks from your plan because only then can you approach retirement and not be victimized by outside factors.” It really is that simple. Now, it talks a little simpler than it executes. You still need to consider and again, as you point out in almost every one of our podcasts, the Thought Organizers really helps you start with all of that.

Clark:
Yes.

Roger Gainer:
Go to our website, download the Thought Organizer, give it to a friend and start to organize your thinking about what is this all for? What is it all for? And again, that will make your decision making easier. If I’m going to spend, retire in the next five years and I’ve got a whole bunch of small cap and tech stocks, I have to think about what are they going to do for my retirement? That’s just one example. Because most tech stocks don’t pay much in the way of income, right? They don’t give a big dividend and so if I just own it, then I just own something.

And it was great when I was growing my assets and I was living off a paycheck, but now my assets are going to be my paycheck and it’s not like I can just walk into Safeway with a stock certificate and say, “This is worth $150, I’m going to go shopping now.” Around here people’s houses are so valuable. I explained to them, you can’t knock a couple of bricks off the porch and walk into Whole Foods and say, “There’s a $100 worth of my house, give me those steaks and this bunch of veggies over here.” We have to exchange this stuff in the dollars to spend.

It’s no different with stocks. When I was talking about the question marks before, it’s some of those question marks are, “How much can I afford to lose and how do I prevent my losses from exceeding that?” If that’s zero, then you really have to have some tight strategies in place to protect yourself. What a tax is going to do in the future you’ve no idea. I can guarantee you one thing though, they will be different than they are today, we already know that, right? We’ve talked about this before.

Will I get sick? I don’t know. Will I need long-term care? I don’t know. But having a plan in place knowing who are the people who are going to care for me, giving them instructions as to what to sell, how to raise income, what are the tools that I have in my portfolio that are designed to deal with these things when they happen? Most people that are listening probably know how to reach their homeowners or car insurance company, right?

They have that stuff in place, there’s a little 800 number on the back of your car insurance, sitting in your glove box. You’re in that accident, you know exactly how to call them. And if you’ve reviewed your coverages you know exactly what’s going to happen. It’s that sort of thing where you can approach with confidence in your retirement and really have your time and attention dedicated to those things that are going to make the golden years really golden for you. The great memories, the trips, the experiences.

Clark:
That’s what’s it’s all about.

Roger Gainer:
The learning, the accomplishments, writing the great American novel. I have clients doing all of these things, screenplays…

Clark:
That’s so cool. I love thinking about it, that’s what it’s all about. And so much it is, how do you prepare, how do you plan, how do you sleep better at night and have these big achievements?

Roger Gainer:
Yeah, that’s exactly right.

Clark:
Using the words that you’re describing.

Roger Gainer:
Yeah. I have a client that I hope listens to this. She called last week to talk about something and she started the conversation with, “I’m really worried about the coronavirus. I really don’t know what to do.” Now, this woman has so many issues that she’s dealing with right now, with health issues, disability issues, financial issues, stressed out. And here she’s because of this headline, media coverage of this event, she’s not thinking about herself. She is thinking about, “What was me? What if I get this disease?” There’s less than a couple of hundred people infected in this country, we have some that are outside the country. But it’s we got to keep it in perspective yet respect it. Does that make sense, Clark?

Clark:
Yep, that makes sense. This has been good and I’m glad we’ve already mentioned the Thought Organizer, but again to wrap things up, how can someone fill that out, connect with you and take that next step?

Roger Gainer:
Well, you go to the front page of our website, scroll down to the bottom and there’s a little box that says, “Download a free copy of our Thought Organizer.” And by the way, we’re constantly refining this tool to make it more effective for people. If you haven’t seen it in the last six-eight months you might want to download a new copy. We have some new questions on there, we’ve removed some of the old things that didn’t make as much sense to a lot of people as they made sense to us. We’re making it a more user-friendly tool all the time.

Roger Gainer:
But that’s it. If you have a significant other that you combine your economic life with, whether it’s a spouse or just a long-term partner that you do share economic issues with, each of you should fill one of these things out separately and then compare your answers and have a nice discussion so that you can reconcile and respect how each other feels about those areas that you’re not seeing things the same. I read articles all the time about otherwise happy couples whose relationship just runs out and the relationship turned sour because they weren’t on the same place over money.

Clark:
Money.

Roger Gainer:
Right? It’s hard to find great people, so don’t let the money thing get in the way, anyways.

Clark:
That’s good. Another great conversation. I always love how we can take anything that’s happening and learn from it here in the show. Well, thanks Roger.

Roger Gainer:
I think if you go back and you listen to some of the podcasts we’ve done over the last few years, I think you’ll find that there’s some pretty common themes that run through this. And probably the single most important one is if you know what you’re all about, if you know where you’re going, you can make decisions with much less stress and you can deal with these curveballs much easier.

Clark:
Well, thanks again-

Roger Gainer:
All right.

Clark:
I’m looking forward to our next conversation here on Retire Happy.

Roger Gainer:
All right, take care and we’ll talk soon.

Clark:
Roger L. Gainer, RICP, ChFC, California Insurance License number 0754849, is licensed to sell insurance and annuity products in California, Illinois, Arizona, and Nevada. Roger L. Gainer is an Investment Advisor Representative, providing advisory services through HFIS Inc, a Registered Investment Advisor. Gainer Financial and Insurance Services Inc. is not owned by or affiliated with HFIS Inc. and operates independently.