​The Covid Haircut

By Brad Thomason, CPA
 
When you are working as an analyst – professionally, or in your daily life, even doing something mundane and inconsequential like sorting through Yelp reviews while looking for a place to eat lunch in a town you just happen to be passing through at lunch time – the fact that you are looking at data makes it easy to lose sight of another fact: every one of those data points within the set came from somewhere.  Every one of those data points is the result of something actually experienced by a firm or an individual.

COVID case numbers come from real people, sitting at home with an absurd fever, thinking that this stuff really is as torturous as they say.

Unemployment data represents people trying to find work to feed their families, and not being able to do so.

Even those Yelp reviews (presumably) represent actual food put on actual plates and enjoyed, or not, by actual people; one meal at a time.

Point being that while data in its accumulated form is a practical way to get general impressions, it necessarily strips out much of the information associated with the origin story of each data point.  It sort of has to, if you think about it: otherwise, the analyst would be overwhelmed with information and not able to do anything in the way of drawing conclusions and contemplating decisions.

But in the face of all that, it is nonetheless important that, while the data might differentiate simply between employed and not employed, there is a whole lot more to the story.  Every story. Every single one of them.  Perhaps millions or even billions of them.

So with that as preface, at the level of data, what can we say about the impact of the last 17 months?
We can say that it has been a period where the productivity of the human race was reduced.  On that score, I don’t really think there could be any legitimate argument.  I also think any reasonable person would have to admit that is a monumental event/development/occurrence, one which is likely to have truly far-reaching impacts which in some way or another touch many lives.

But which touch points? And how many of them? Well, that is the question, isn’t it.

Our particular interest in this space is the impact on investors, both retired and preparing.

Some investors will experience changes in income dynamics of interest payments or dividends.

Some investors will see changes in valuation, and these may not be completely sensible, nor single point events. Some will see asset prices drop to levels that seem ridiculous based on the fundamentals, while others will see the opposite.

But those seeing the opposite shouldn’t rejoice too soon, because a frequent trick that the market likes to pull is the run-up-and-stall. It seems like huge growth in one year, but it’s followed by a period of essentially nothing (in other words, some wobbling – quivering? - but no net movement).

Or worse, it comes back down later.

Project-oriented investors might have to delay their development timeline. Business owners may have to re-capitalize, switch product mix, or adjust employee complement up or down.

And so on. What this means is that we should a) expect pretty much everyone to be impacted and b) expect that the particular impact to differ literally from one person to the next.

​I also think the financial ramifications of this period have not fully played out. So even if you haven’t yet felt any negative impacts, you shouldn’t be surprised if some show up later. Hope for the best but be aware it could still go the other way.

It is at these times that the value of a well-formed plan is most obvious. When unexpected events occur – good or bad – having an unchanging portion of the picture is extremely useful in figuring out how to react. Having already worked out what you want to do ahead of time, you can simultaneously wear your analyst hat, trying to discern what happened to everyone, as well as your data point hat (because after all, your particular story is one of the ones that makes up the data set), tracking which decisions are most important to consider and which actions are most important to stay, or get, back on track.
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​Alternately, if you don’t have such a plan, now is a good time to form one. After a disturbance is actually a more calm place to operate in than you might imagine. Moreover, it sets you up to be in a better position the next time the dealer tosses out a wild card; an event history tells us we should assume is coming again at some point, in some form.