As the second week in March concluded, the real-life ramifications of COVID-19 came into closer focus and the financial markets continued to react in a way that challenged investors.

Rise in COVID-19 cases

The COVID-19 disease started to affect everyday life in North America in a more pronounced manner due both to its spread and also to the burgeoning efforts to contain it. For example, all travel from continental Europe to the US was suspended for 30 days, the NBA and NHL both suspended games indefinitely, Ontario announced it would close all publicly funded schools for two weeks following the March break, and the Canadian Prime Minister’s wife, Sophie Gregoire Trudeau, was diagnosed with COVID-19.

As the week ended, the Bank of Canada cut its target interest rate another half-percent and the Canadian federal government announced $10 billion of additional credit to businesses affected by COVID-19. The US federal government declared a national emergency, which will allow up to $50 billion of federal aid to be directed to state and local governments. We expect worldwide efforts to contain the virus to continue to intensify, along with additional government programs to help blunt the economic impact of the containment efforts.

How long will the economic impacts last?

Economic activity will change as a “new normal” comes into play - for a while. The widespread curtailment of travel and large gatherings, the much larger number of employees working from home, and the quarantine of those diagnosed with the illness will undoubtedly lower economic output. However, all these measures will be temporary: we don’t know how long it will take, but the virus’s threat will eventually pass, and the same goes for the containment measures and their economic impact.

What happened in the financial markets?

Stock prices swung wildly as investor sentiment alternated between panic and euphoria. For example, stock prices fell 10% the day after the US travel ban was announced. The next day, after the US federal government’s declaration of national emergency, the same prices rose 9%! Stock volatility (choppiness) is every bit as pronounced now as during the 2008 financial crisis.

Keeping things in perspective

It’s important to note that most investors’ portfolios contain a large complement of bonds and so are much less affected than headlines indicate. As of Thursday March 12 (before the Friday upturn), Canadian, US and overseas stocks respectively were down 18%, 22% and 26% for the year if measured in Canadian dollars. The Compass^TM Maximum Growth portfolio, which holds only equities, was down nearly 21% as well but the other Compass portfolios’ declines were noticeably smaller. For example, the Compass Balanced Portfolio was down just over 11% for the year, and the Compass Conservative Portfolio was down only 3.5%.

What to do

At the risk of sounding like a broken record (for those who remember such a thing) or a CD on auto-repeat (for those of a slightly younger vintage), we reiterate our mantra that panic selling is the investor’s enemy and the destroyer of portfolio value. In contrast, sticking to a long-term investment plan - a plan that readily acknowledges the bumps that will occur along the way - is the proven path to investment success.

Conclusion - Walking our talk

Former heavyweight boxing champion Mike Tyson famously quipped that “Everybody has a plan until they get punched in the face.” Indeed, that’s why a workable investment plan must include the prospect of getting punched in the face!We don’t give advice to others that we’re not prepared to follow ourselves. This isn’t the first time the Compass Portfolios have been ”punched in the face” by sharply falling stock markets, and each time we quickly got up “off the canvas” and adhered to our own investment process and long-term plan.For example, as the US financial system collapsed between September and November of 2008, Compass’ stock holdings were gradually increased to their maximum weights in order to take advantage of declines that left many companies’ share prices barely half that of just a few months earlier.

Similarly, after the recent stock market drop, three times in the past two weeks we sold some of the Compass portfolios’ bond holdings and used the proceeds to buy stocks, in order to bring the portfolios’ stock weights back up to their targets. In the midst of financial market panic, we calmly followed our plan. Instead of futilely trying to guess the stock price direction for the next day, we executed a plan designed to work for the next decade. In short, we follow the same advice we’ve given investors, during the bad times and the good, over the last seventeen years.