"Risk is what you don't see." So wrote the fine financial writer Morgan Housel on January 14.
On January 17, coming off one the best years in a long time, the S&P 500 hit yet another high. No one was saying the future was unclouded — there are always concerns — but many investors were feeling pretty good.
Who knew that within two weeks, the market would have a case of the jitters and be down by more than 3%? And last week, despite stellar earnings reports from Amazon, Apple, and others, the market would suffer its largest one-week decline in five months,
The main culprit — unforeseen just weeks ago — is the coronavirus emanating from China. The World Health Organization has declared a health emergency and the U.S. State Department is issuing international travel advisories. And investors are nervous.
Caught off guard
Of all the economic and market risks discussed by pundits as the new year began, I can't recall anyone warning of a possible pandemic.
Risk is what you don't see.
Of course, it may be that this outbreak will turn out to have a minimal impact on the world economy and investment markets. I've been around long enough to know that early reports (and early predictions) often turn out to be overly pessimistic. And markets tend to overreact.
Although what the outcome will be is anyone's guess, we do know that both the SARS epidemic in 2003 and the Zika outbreak in 2016 had limited effects on investment markets."In both cases, stocks were sharply higher a year later," notes the financial newspaper Barron's. Past performance, however, is no guarantee of future results.
The coronavirus in only the latest in a long list of things that caught most investors — yes, even the "experts" — off-guard. Others in recent memory include the Trump electoral victory and voter approval of the Brexit referendum, both in 2016. You just never know what might happen.
The things you can control
So how do you prepare for the unexpected? Our February cover article, The Core Building Blocks of Successful Investing, is a good place to start. It lays out the crucial things you can control about your financial life and your investing strategy. If you attend to those things, you'll be able to "roll with the punches" regarding all the things you can't control.
As we say in the article, "Focusing on the things you can control is an effective counter-weight to concerns about the market (or the economy, or the Middle East, or the next election, etc.)." Or the coronavirus.
Also, review Matt's piece from a few weeks ago (posted just after the U.S. drone strike that killed Iranian General Qassem Soleimani) titled It's Always Something. There will always be something somewhere that rattles the markets. If not today, then tomorrow, or perhaps next week.
But if you focus on what you can do, not on external events, you're more likely to come out ahead, and enjoy greater peace of mind along the way.