COVID-19’s ‘Forever Changes’

Ever since COVID-19 began spreading globally, headlines speculating about how the pandemic will forever change the world have spread almost as fast. Consumer behavior, the retail industry, travel, voting, handshaking, religious worship, city life, office life, even beer drinking—pundits say all these and more may never be the same. Are they right? Your guess is as good as mine—or theirs. With governments taking unprecedented measures to control a virus researchers are only beginning to understand, uncertainty abounds. Enduring changes are possible. Many may seem to carry investment implications, too. But good investing relies on identifying what is probable—not merely possible. Counting on drastic, permanent change amid such uncertainty is a dangerous practice.

“The possibilities are endless,” the phrase goes—and those who envision unlikely outcomes can change the world. Had Orville and Wilbur Wright not considered far-flung possibilities, they never would have invented the airplane.^[i] Similarly, Michelangelo might have slapped a coat of powder blue on the Sistine Chapel ceiling and called it a day. George Lucas never would have bothered with Star Wars, and Jonas Salk could have tipped his cap to polio. The pondering of what is possible has given us suspension bridges, computers, organ transplants and chocolate chip cookie dough ice cream. It has made our world better.

Possibilities capture our imagination and headlines, but they don’t drive markets—probabilities do. Markets know all sorts of possible events, positive or negative, could occur at any moment—natural disasters, productivity-stoking inventions, wars or extended periods of peace and prosperity. But unless any of these has a strong likelihood of coming to fruition, they generally don’t move stocks over any meaningful period.

COVID-19 makes all manner of lasting societal change possible. Perhaps hugs and handshakes will become the dodo birds of greetings.^[ii] Maybe you have eaten at a salad bar for the last time.^[iii] Maybe remote work has finally found a path to greater acceptance, making major investments in companies facilitating that—or producing comfy leisurewear—wise. Perhaps a travel industry sea change will forestall recovery. Who knows—it is even possible doomsday bunkers will become the “New Normal,” as one headline mused, triggering a boom in canned goods, cement, batteries and remote real estate.^[iv]

For now, though, far too many unknowns exist to consider whether those outcomes are probable. When will a COVID vaccine be ready for mass distribution? Will the virus mutate significantly enough to thwart vaccine efforts? How will governments respond if case counts keep spiking? How much and how swiftly does the world return to pre-COVID norms?

The uncertainty surrounding such questions makes it impossible to assess the probability travel, consumer behavior, beer drinking or any other activity will change forever. Until we know more, positioning your portfolio according to such outcomes is speculation.

“Permanent change” headlines spark strong emotions, making it easy to mistake possibilities for probabilities. But remember: Seismic events often bring warnings of scary shifts that don’t materialize. The 2001 terrorist attacks brought predictions that almost every aspect of American life would change—forever. Americans would live permanently under a cloud of fear, many predicted, changing their behavior and the economy.^[v] Markets, they said, could forever reflect the loss of the US’s “safety premium.”^[vi] The world surely did change—permanently and devastatingly for some—and 9/11 is undoubtedly now embedded in our politics, foreign policy and national consciousness. But for most people, changes in day-to-day life were minor: metal detectors in stadiums and concert venues, the annoying shoe removals in airport security lines—not wholesale behavioral change. Businesses adapted. Markets moved forward.

The 2008 – 2009 financial crisis also brought a wave of “forever change” fears. Remember the “New Normal”—the idea that decades of painfully low stock returns and fragile economic growth were upon us? A decade-long bull market and economic expansion proved otherwise.

Same with 1987’s market crash, which led The New York Times to express a then-common sentiment: “The face of Wall Street has been permanently changed.”^[vii] Black Monday’s lore has lasted decades—but the bear market it brought ended less than six weeks after that watershed moment.^[viii]

Those examples illustrate why investing legend Sir John Templeton said the most dangerous words in investing are “this time it’s different.” Templeton wasn’t saying nothing ever changes—markets and economies constantly evolve. Rather, I believe he meant investors should be careful not to mistake changes in the details for fundamental changes in the way economies and markets work.

Capitalism is constantly shifting and adapting as creative people seek profits from innovation. There likely will be lasting shifts that emerge from COVID in this vein. But presuming their long-term consequences are a) bad or b) foreseeable now is a stretch. Humans have, for all of eternity, adapted to challenges and succeeded in molding a better future as a result.

But from an investment standpoint, we just can’t know whether newfangled trends like touchless ordering at restaurants are the wave of the future or a ripple from COVID soon to fade. Those seeking such enterprises now are guessing at what society might look like years hence—a poor investment strategy, in my view. Rather, focus on what is probable over the foreseeable future. For markets, that is roughly the next 3 – 30 months, not the distant far future.