People were talking about the possibility of an economic collapse for a few years now. Over the last two or three years, whenever I visited a bookstore (yes, I do that) I saw countless books from economy professors, advisors, and other professionals talking about the next crash. I read some of them and I agree that there are many valid arguments that could justify a market crash. But I don’t ever recall reading anything about a possible impact of a pandemic on the world economic system.
I should probably have read the “Gates Notes” more often. Bill Gates is obviously a guy you want to follow. He is smart, he is rich, and he likes to share his ideas. And yes, we should always be open to learning from the best, whatever our personal opinion about that person might be.
Bill Gates had a Ted Talk back in 2015 presenting a simulation of a very comparable scenario and urging governments worldwide to invest more into possible preventive measures to fight such a pandemic. His experience due to his work at the Gates Foundation together with his experience in the software industry gives him a unique set of skills that qualifies him to make valid assessments in this field. Additionally, he is well known as one of the richest people on the planet. So if anyone could grab some attention on this kind of topic from governments across the globe, it would be him.
He wasn’t as successful as he hoped for, so the Gates Foundation followed up in 2019 with the support of a simulation of such an event. The target was to highlight the impact of a pandemic event on every possible part of society, economy, politics. For those interested, search online for “Event 201”. It is quite impressive. Most things that were simulated during this event are right now developing “live” pretty much according to that playbook.
While some are already bringing up conspiracy theories, the truth is that this is just what scientists do. This is the power of science. A few smart people, computing power, and big data make it possible to foresee and to predict possible events, impacts, effects, and results. Those who see conspiracies at play here are those who don’t understand science.
So while the President of the United States of America keeps repeating that no one could have seen this coming, the truth is that many people did. They just didn’t have the audience, they didn’t get the government support, and they didn’t have access to the cash required to prepare the world for what we have to get through now. Even for Bill Gates alone, this check would have been too large.
Back to the markets
But enough politics, let’s get back to the markets. My income portfolio is currently down 40%. That hurts. My speculative portfolio is down 34%. My portfolio here in Thailand is down 35%. It’s looking not great. And all of this happened only during the last 4 weeks.
So what am I doing? I am losing lots of sleep. Not because of the losses on paper, but mainly due to the time I am spending now on analyzing where I am going to invest next.
I don’t want to rush into it, especially as I think that this recession (yes, we got into a recession by now) might hold on for a little longer. But, as soon as the virus situation starts clearing up markets will start to recover. And there are lots of companies out there that will get back on their feet.
The big question & the strategy
The big question is of course which companies will get back on their feet faster and stronger than others. And while I am analyzing and working on this almost daily, there is a simpler alternative for everyone who doesn’t have the time and knowledge to do that: Index ETFs.
It’s almost impossible to time the market. I don’t know when the lowest point will be reached. No one does. The recession could hold on longer. It could also end as quickly as it started. History has just no precedence to compare this with.
And this is what makes Index-ETFs so attractive. Instead of picking a company, I trust in the market. I intend to invest half of my available cash in just two ETFs. One ETF focusing on small & medium-sized companies in Germany. And another one focusing on major dividend-payers in Europe. I don’t buy them as a one-time investment. Instead, I set up a savings plan that will stretch over the next 8 months putting in equal amounts of cash into each ETF every first day of each month until the end of this year.
The second half of my available cash will be distributed in US and Thai stocks. I can’t say yet which companies I will choose, but to give a direction, it will be mostly in the technology sector. Software. Digital payments. Digital marketing. Telecommunications. But I am looking also at some companies that offer essential services, like food, water, energy, waste management. If anything became clear during the current crisis is that in any event, these are the companies that will sustain their operations (and cashflows) the longest.
More updates will follow soon. But no matter how the next few months will turn out, I see this as a great opportunity. I might of course also be wrong, but if I am right, then this will give my FIRE goal the kick that comes only once every few years.