Howard Marks book on “Mastering the Market Cycle” is one of my favorite investment philosophy books. In the book, Howard Marks provides a framework to understand and evaluate investment success through the lens of a full economic cycle. While economic cycles in themselves are very important to understand bust and booms, I feel, they can be viewed as a long-form-version of market response to news cycles. Morgan Housel, of Collaborativefund.com recently penned an excellent blog, titled, The Shock Cycle, which explains the various stages of behavioral response to news cycles.

In this post, I will draw paralles between the Morgan Housel description of Shock Cycle to my own my own behavioral response to the Covid-19 news cycle.

• At first you do not see the bad news: The first case of community spread of novel coronavirus infection emerged in the city of Wuhan in Huibei province of China on Dec 1st. Soon more cases of similar nature began to emerge and except for a few individuals, such as Dr Wenliang, on the frontlines, no one took it seriously, until the entire city of Wuhan went on lock down. It should not take much imagination to observe that ordinary folks in the Western world, such as myself, were completely ignorant of the rapidly worsening situation brewing far in the east.
• Then you ignore the bad news: As the news of draconian lock down measures started emerging from China, the seriousness of it all should have become apparent to me. However, I again ignored the bad news. It just did not seem visceral enough.  This state persisted for me even when the disease had reached our backdoors. First case of corona virus emerged in a senior care center in Kirkland, part of the greater seattle area. While a run on sanitary supplies at local Costco had begun, I was blissfully ignorant!
• Then you panic at the bad news: Unfortunately, it took a long time for me to reach this stage in the news cycle for Covid-19. It was not until I heard of the doom-and-gloom picture painted by Bill Ackman, that I started to think, this is really serious.  By the time I became privy to the seriousness of the issue, I had already committed significant amounts of dry power into markets, that I was forced to miss out on the opportunity of a life time to invest in the Covid-19 induced market capitulation.
• Then you ignore the good news: While the remainder of news cycle for Covid-19 pandemic has to still play out, I feel I am more attuned to good news than some of my friends and colleagues. For example, I do see a glimer of hope in the depth of misery, incident of new cases have slowed down significantly in China and South Korea, we seem to be approaching peak infection rate in Italy, Spain and New York, new anti-body tests for corona virus are showing promising results, I know of folks who feel that given the extent of damage its just impossible to achieve a semblance of normalcy anytime soon. The way I see it, folks who were early to panic, are also, it seems to me, more prone to tune out to the sliver of good news.
• Then you deny the good news: Some signs of this behavioral response are already emerging. The significant slow down in the rate of infections in China is viewed with skepticism, with blame game going around as to China not really reporting on asymptomatic patients. Personally, I do not feel we are yet in the good news cycle of Covid-19 and strong evidence is yet to emerge on light at the other end of the tunnel. Markets though seem to have atuned to the good news and it certainly feels though that the worst in now behind us.
• Then you realize you missed the good news: As I mentioned above, markets are probably the fastest to get the good news and rally upwards. By the time most investors come to realize that good news is really around the corner, they probably will have missed an opportunity of a life time.
• Then you accept the good news: Finally, the persistence of good news sinks in and life returns to semblence of normalcy.
• Finally you abandon the attachment to bad news and we are back to step one, until the next cycle of bad-good news is around the corner.

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Video/Book/Article/Audio for the Week

• Video: CNBC interview with legendary short seller, Jim Chanos. I found his thoughts on short case for gig economy stocks quite insightful.
• Video: Bill Gates talks to Trevor Noah about coronavirus testing, Bill and Melinda Gates foundation work on accelerating vaccine development program and his optimism on light at the other end of the tunnel.
• Video: Ben Carlson interviews author and market historian William Bernstein. Bernstein talks about his concept of deep risk, and why he feels the current pandemic does not meet the criteria of deep risk.
• Article: The Oil Collapse. I am particularly tuned to any news on oil markets as I have now suffered twice through pain of big losses for my investments in the oil sector.
• Article: Latest Howard Mark memo, Which Way Now?