Saturday, February 08, 2020

Coronavirus and Malicious Intent

The coronavirus from Wuhan has the world on its feet. We now have close to 35,000 infections and over 700 deaths and the numbers are rising. This is the worst pandemic since SARS 17 years ago and looks like it will get worse. In Singapore, panic ensued. For reasons unclear, we believe our city state will fall under siege. Not from any military invasion nor terrorist attacks but from our own fears. Singaporeans last night raided supermarkets for essential supplies. Shelves at NTUC, Sheng Siong and other large retail outlets supplying instant noodles, rice, biscuits, masks and toilet paper went empty. Of all the essential supplies, why toilet paper? 

NTUC raided

This is human psychology. We are programmed with this herd mentality. We don't want to lose out and we shun things when we see others shunning it. This is the reason behind bubbles and crashes. At the height of the Tulip Bubble in 1673, one tulip was sold for 5 hectares of land in Holland. Then when it crashed, nobody wanted to touch any tulips. We then saw the same bubbles over and over again. The British stock bubble in 1720 that caused Sir Isaac Newton to lose a lot of money. He then quoted the following:

I could calculate the motion of heavenly bodies but not the madness of people.

Then we had the US stock market boom in 1928 which was followed by the Great Depression (1929 to 1938). In recent times, we saw the Japan property bubble (1989), the dotcom bubble (2000), the bitcoin bubble (2017) amongst others. Alas, to be able to make good return at investing requires us to do the opposite. We cannot buy when share prices are sky high and we need to find gems when others shy away from certain sectors or industries. This is not easy. When we see everyone buying masks and the stock is running out, we panic and go on Amazon and pay up $50 just to secure some supplies. 

To become better investors though, we need to think out of the box and find better solutions to win the game. This is also what Howard Marks coined as Second Level Thinking. The stock market has followed the pandemic with China related and affected stocks crashing while masks makers and healthcare names are rallying. The following charts of SIA Engineering and Raffles Medical tell the two tales well.

SIA Engineering, falling in tandem with our beloved national carrier Singapore Airlines, hits a recent low in the last two weeks. 

Meanwhile Raffles Medical, with its Chinese hospitals, see a slight pop before succumbing to heavy selling. Then in the last two days, global stock markets rallied in the midst of the coronavirus pandemic because China decided to push forward the lifting of the trade war tariffs. However, this is a very myopic view. As the crisis unfold, the global supply chain will be affected. We are seeing impact in the electronics and auto industries. It could be more widespread. China is still the world's factory, right in the middle of the global supply chain. Some other stuff might be affected. This could be a small reason why some smart aleck want to secure supplies of toilet paper in Singapore. Just kidding. 

Maybe, they are trying to use toilet paper to make masks? Ok, lame... As mentioned, prices of masks has skyrocketed. People with malicious intent buy to stock up supplies and mark up to sell to others. This is very unfortunate. It is worth spending a few paragraphs discussing this as investors as well. As responsible investors, we should also not harbour malicious intent. It is a subtle but yet important point.

The coronavirus does not have malicious intent. All viruses are programmed to propagate. They make their hosts sick but they do hope to spread, find more hosts and multiply. They do not intent to kill their hosts. Death is a side effect. From the virus' perspective, what's the point of destroying your world? However, as mother nature goes, some viruses get very good at killing hosts, like Ebola or SARS. Once in millennium, humans do suffer big deal. The Black Plague kill 100 million people. But it is important to note, viruses, animals, mosquitoes cannot have malicious intent.

Don't hoard masks!

The hoarders of masks hoping to sell for profits had malicious intent. The Wuhan authorities trying to cover up during the initial days might have malicious intent. The US media going out of their way to blame China has malicious intent. Humans, unlike all living things, are the only species that can harbour malicious intent. The thing is, malicious intent, however small, is detectable. There is no quarantine possible. 

As investors, we must also be mindful. We may not have malicious intent 99% of the time. We just want to make money right? But when we buy tobacco stocks, what does it mean? If we short Singapore Airlines now, can we say we have no malicious intent? This goes for startup investors and entrepreneurs as well. If we are building a startup just to sell bitcoins and trying to make fortune for ourselves, knowing the business is crap, does it mean we have no malicious intent? Who did we trick into buying our bad business? Remember, malicious intent can only cause harm and is easily detectable. 

So, in the new era of sustainable investing, we need to be responsible investors and not make investment decisions that could imply malicious intent. To the mask hoarders, the world is already a horrible place, do more good please. We must strive to have no malicious intent, all the time. The wuhan virus will test many of us. We have already seen heroes and malices. Alas, this blogger also has no new good investment ideas for now. Maybe we can buy 3M, maybe buy SIA Engineering if it falls further. Meanwhile, stay safe, wash and sanitize, use more alcohol wipes!

Wuhan Jia You!

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