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moneysense.ca, 29/04/09
Guide to the Avian Flu
When the Avian Flu story lingered in the headlines in 2005, Don Coxe and Sherry Cooper wrote An Investor’s Guide to Avian Flu for BMO Nesbitt Burns. The report looked at the effect of a global pandemic on the economy and what (if anything) investors can do to be prepared:
The 1918 catastrophe was over in months. Soon, the world had entered the roaring 20s, and from that sustained outburst of economic activity and a booming stock market, there were hordes of newly-rich people… and many of the Old Rich had become fabulously rich.
They were the lucky survivors.
This time around, it will not be necessary to rely on luck to protect the value of one’s portfolio. Cash, put options on volatile stocks, high-quality bonds, and high-quality dividend-paying stocks of companies with minimal exposure to the risks we have described will be the best survival packs. They will provide the survivors of the pandemic with the capital to take advantage of the wide array of cheap assets that will—however temporarily—be available after the virus has joined its predecessors in whatever resting places the world has on offer.
With reports of the swine flu outbreak dominating the news, it may be useful to dust off the report and read it again.
moneysense.ca, 29/04/09
No disrespect to the hundreds that are dealing with the Swine flu and their families, but I can’t think of anything that will have less impact on investment returns. Investors should 100% disregard it.
3 years ago it was bird flu that was going to cause the end of the world.
6 years ago it was SARs that was going to cause the end of the world
in 3 years forward it will be something else
the media loves this stuff – when SARs came out, the news was acting like the apocolypse was here and people were falling dead in the streets. To this day, I don’t know anyone who had SARs and I don’t know anyone who knows anyone who has SARs.
people get sick and the markets deal with it – investors can do themselves a service by remembering that their spending is not changing in any way in response to this ‘crisis’
in this case, tourism gets a little less business and the medical industry gets a little more – the market will take care of this just fine
Rob: I’m not so sure. If the latest H1N1 strain should turn out to be an epidemic or God forbid a pandemic, it is almost certain that there will be a huge economic impact, especially in these recessionary times. The fear with the Avian Flu and SARS was justified in my opinion. Until it was known that the strains of these two viruses don’t spread easily between humans, it was hard not to be concerned. Even then the fear was that the virus could morph into something that does spread easily. To add to the concerns, during SARS there was widespread concern about emergency preparedness. Despite its ultimately limited impact, SARS did have a huge economic impact on Toronto where tourism ground to a halt and many countries advised travelers not to visit.
Fortunately, media reports indicate much better preparedness this time around. Hopefully, the swine flu effect will turn out to be rather limited.
This just sounds like a poor strategy to try and time the markets.
I agree with you, Rob, that SARS and probably swine flu didn’t/won’t have a major impact on the markets…
As much I love to rag on the media, and as much as the media probably over-reacted (which had a very negative impact on Toronto’s tourism business that year), SARS did certainly have the capability to become much worse than it was, it was a scary time. It was a disease that was very contagious — one estimate is that the chance of catching it was 6% every time you walked into an infected person’s room with a surgical mask on (which is what lead to the switch to the so-called SARS masks). It had a fairly high death rate, even amongst initially healthy people.
The quarantine steps worked, however, and it was contained largely to the health care setting.
SARS did give us an awesome concert in Toronto though.
It sounds kind of morbid to say, but we’ve clearly discovered that a large loss of credit affects the market more deeply and fundamentally than a loss of life. And not just with a pandemic. The market sure dropped on 9/11, but steady investors won out after the panic had subsided.
@xenko: Don Coxe is a fund manager, so unsurprisingly, he is talking about active management.
For the record, I’m not making any changes other than washing hands more often than usual. Put this post down to spending time on Wikipedia and reading up on past pandemics. Scary stuff.
For me, there is one big difference between SARS and swine flu. When SARS was raging, I had quit my job. This time with the swine flu, I got laid off. Either way, I am off work in both scenarios, so it’s not a good time for investing.
On a more serious note… Other than travel & tourism which are negatively impacted and health care which is positively impacted, I also don’t think there’s any sort of investment thesis to be had on global pandemics or outbreaks.
@Phil: I’m sorry to hear about your job loss. Hope you can find something soon. If there is a pandemic, I think there will be a tremendous economic impact with the economy practically shutting down. The report suggests that the effects should be temporary but who knows.
The media may be at fault for sometimes using hyperbolic language, but for pointing out the updates to facts on a virus that can mutate every 10 minutes, I’m glad to hear as much as we are hearing. There are important reasons that make H1N1 qualitatively different from your average seasonal flu. And I bet that if more people had been hit by SARS they would have appreciated those updates too.
Thanks for mentioning this book, I’ve read several about the H5N1 virus, but not in regard to investing.
Swine flu may or may not be the “big one” but pandemics have periodically killed millions and millions of people. It is only by treating each outbreak cautiously that the worst can be avoided. If the current strain mutates to become more easily transmitted and more deadly, which is possible but not certain, then watch out. We should not engage in the conceit that “it cannot happen to us”. I’d rather see over-hype and over-reaction by authorities on this issue. (Nothing ever happened with the year 2000 bug precisely because it was so hyped that every organization took corrective measures and prevented failures, yet some say this meant the problem did not exist) Read the report to get a glimpse of the possible reality.
As for investing defenses against flu effects, the report also mentions gold and t-bills as safe havens.
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