Travel bans. Cancelled meetings. Crashing markets. Frazzled clients. The old handshake industry culture is disintegrating. Get ready for the new world.
Despite the virus and the market mood, Wall Street is as packed as ever with people going about their daily business. I’m talking about the physical place, a few ancient blocks near the tip of Manhattan.
The mood doesn’t feel apocalyptic at all. The bedrock is as eternal as ever. But farther away, where the exchange is only a symbol of the wealth cycle, people are nervous.
Goldman Sachs cancelled its partner meeting because a third of the firm’s big players are stranded in Asia. Other global institutions are banning executive travel.
JPMorgan, UBS and other banks are keeping their people home to avoid spreading contagion across borders. If you work with people who live in Westchester, there’s a non-trivial chance your office is closed now.
Whether you’re working at home or staying closer to home, it isn’t business as usual. After all, the disease is especially dangerous to older people.
That includes most traditional clients and a lot of entrenched advisors as well as many of the industry’s leading lights. The people we work with are most vulnerable to getting sick right now.
Remember, Jamie Dimon is 63. David Solomon at Goldman is a youthful 58. The Warren Buffetts of the world are pushing 90.
Investor or advisor, both sides of the table are exposed to the risks. And basic risk management dictates fewer face-to-face meetings to keep either side of the table from spreading contagion.
You want firewalls to slow the disease. Face-to-face meetings are out. More business gets done via more intermediated channels: teleconferences, email, the old-fashioned phone.
It’s a great metaphor for the market itself these days. We need more silos and more firewalls. We don’t need speed or immediacy.
A little quiet would be nice.
Do no harm
Sick people make mistakes. Working through a period of diminished capacity raises the odds of doing real damage. You don’t just stall at that point. You lose ground.
And tired people make mistakes as well. It’s a lot like being sick. You don’t think as well or react as fast. Accidents happen.
Right now we’re all tired of a sick market and odds are good a lot of us are still at least a little sick. It might be coronavirus, it might simply be the flu or overwork.
Because we’re all interacting across the network of the marketplace, our individual errors become an overall drag on the system and ultimately on each other. We’re infecting each other.
For most of us, it’s no big deal. We’re used to compensating. The statistical models can tolerate a little extra drag from a bad market season. It all balances out.
I saw that on Wall Street last week. The global “Wall Street” was melting down and the people on the pavement didn’t let it slow them down.
The subways were as crowded as ever. Traffic was heavy. All the town cars were full. The hotels, restaurants and bars were busy also.
Brooks Brothers was a little slow because my demographic is too busy to shop. But the all-night Apple store stayed crowded well after midnight.
Life goes on in what’s become one of the biggest coronavirus outbreak centers in North America. People are still having meetings, planning for the future.
Are they being careful around vulnerable people to avoid spreading germs? Sure. Hand sanitizer stations have become ubiquitous in the big office buildings.
Once you get through the lobby, the open plan offices themselves are as bustling as ever. It looks nothing like the end of the world.
For some people, it’s always close to the end of the world. We all hit our limits. Extending our personal time, health and capital is what counts.
That’s what drives a lot of billionaires. And that’s what drives gigantic institutions. They’ve got the scale to surf through the outbreaks.
I don’t know how many meetings Warren Buffett is having right now. Presumably the Diet Coke that’s replaced his blood is immune to any biological threat.
But I know he’s investing in the long haul, buying into the airlines. And he loves Occidental Petroleum, which is down 65% YTD. This is business as usual by his standards.
Berkshire Hathaway is a juggernaut that is not vulnerable to a little volatility. When people start flying again, it will make a lot of money.
Of course Berkshire Hathaway is not all about innovation. Some details of the world are changing. Travel budgets rarely come back fast.
Once we build habits, they’re in place until the world gets in the way. Face-to-face client meetings that drop off the schedule become permanent webinars and Facetime calls.
The clock keeps ticking. Survivor bias ultimately gives way as the landscape refreshes itself.
Do handshakes disappear? Are face masks the new business casual? We’ll find out.
Should Warren Buffett buy Zoom? That’s crazy talk. It’s not his style. People are still chewing gum. That’s what he likes.
When there’s no money left in gum, we’ll all have other things to worry about.
Beyond the viral metaphor
Extreme correlations often attract viral metaphors. When securities track too close together for too long, trades get crowded and one sick stock can poison entire portfolios.
That’s what we’re seeing. The process of uncoupling healthy companies from the sick ones creates a lot of disruption, especially when index funds ensure that all stocks are tightly linked.
Medical contagion works a little like that. Once you catch a cold, you tend to be more resistant to the next infection.
Likewise, in a tightly linked global economy, viral impacts can circle the globe before we even know anything is wrong.
One genius I talked to in New York has a theory: we’ve all already caught the coronavirus. It’s been incubating in the air for months.
We thought we had an unusual late-season flu. Most of us recovered and got back to work with some level of immunity.
But now, we’re all witnessing the limits of herd immunity. Sharing the same air as everybody else makes vulnerable people dangerously sick.
Some financial plans are equally vulnerable, especially in a world of broad-based index funds. The funds are gigantic and institutionally immortal. They catch cold from time to time.
Vulnerable investors literally catch pneumonia. When things get bad, they need intensive care. And they should be insulated from infection.
Every correction is metaphorically a gut check. Every outbreak is literally a gut check.
Can a given individual stomach typical risk scenarios? Is hypothetical drawdown too dangerous to tolerate? If so, special measures are warranted.
Protection is good. Caution is good. There are plenty of investment solutions for these clients: annuities, fixed income, even bank products.
I have to say we’ll see a new wave of these products come out of this, like hand sanitizers proliferating in Wall Street lobbies.
Safety means something different now that rock-solid Treasury debt pays 1.5% less than ambient inflation and foreign bonds are worse. Geniuses are working on the income products of tomorrow to face a new world.
And for the rest of us, there are still rewards to be captured from taking on a little risk. The future looks bright. We just have to keep faith that it’s coming. Then we have to get there.
Feel free to take it a little slow for the next few weeks. Reach out to clients who might be medically or financially vulnerable. Gauge their temperature.
