Its the time of the month when I provide an update on AVI family net worth. I began compiling data for this post with some trepedition. As most of my readers know, I am heavily invested in stocks and the events of past one month were, to put it mildly, devastating for my portfolio.

The market sell off has offered a once in a decade opportunity to buy good companies on the cheap, and I duly acted upon it. However as I note below, my timing may have been off and as a result I am facing a massive draw down on my net worth. Furthermore, I am out of dry powder to benefit from an even more market draw down I anticipate coming in the near term.

I want to begin  by acknowledging that I was late to the party when considering how devastating the impact of corona-virus was going to be. There were signs everywhere as to how serious the pandemic was, but for whatever reasons, it just seemed distant! China went on a lock down… News coming out of Italy and Iran were dire, and in my own backyard, the greater seattle area, we were faced with first reported cases of covid-19 in the United States. I was made aware of the ensuing panic, with folks emptying out Costco shelves, most folks in my work place beginning to work from home and the markets cratering.

None of above really mattered. The death toll did not seem significant. The disease did not seem as violent or lethal as ebola, or Sars or Mers or the Nippa virus. It mostly affected people with weak immune system and majority of folks seemed to recover with mild symptoms of fever and discomfort. I even applauded Elon Musk twitter comment ‘corona virus panic is dumb’.. Until finally,  the seriousness of it all began to emerge.

As I am writing, one in five American is under lock down. America now has third highest number of covid-19 cases in the world.  Global healthcare system seems to be woefully unprepared! The case is particularly dire in Italy and to some extent in the United States. Chilling cases of how the system is failing ordinary folks caught in this whirlwind is becoming apparent each passing day. Doctors are having to make decisions on which patients to let succumb and which to save!

In the space of past few days, the seriousness of it all has also dawned on governments of rich countries. Governments are deploying resources on war footing and a common refrain from every politician is — whatever it takes! In a span of couple weeks, the global economy has nose dived! Covid-19 has shut down air travel and tourism, to a point where without massive bailouts, several of big airlines are facing bankruptcy. GDP is predicted to fall in multiple digits and so is unemployment rate and an impending recession is in sight, if not already begun. To top it all we are nowhere near peak!

Being an investor, my major concern, beyond staying safe and healthy, is the impact on the markets. Let us begin by looking at the market returns in the last two week:

The wild swings from a week prior, continued into this week with markets shedding almost 12 % on a single day, the second biggest one day decline since the market rout of black monday in Oct of 1987.  As of this writing markets are down about 32 %.

How much farther to go? If history is any indicator, even with the very bad prognosis on the state-of-affairs, I venture to guess that we are closer to bottom.  The spanish flu pandemic of 1918, is the closest public health pandemic to compare to. The pandemic lasted from Jan of 1918 through Dec 1920.  Early reports of the flu started emerging in late 1917. The chart below (from hedgefundtips.com) shows how the Dow performed over this period.

Assuming the market peak of 1917 as a reference point, until the DOW hit bottom towards the end of 1917,  when the pandemic started to become widely visible, the fall was about 33 %. By the time the pandemic reached its peak and the toll of it all was becoming apparent, the markets had risen about 35 % from the bottom.

The DOW chart during the corona pandemic is shown below. From the peak reached on Feb 19th, through yesterday, the markets have fallen about 32 % and we are no where close to peak of the pandemic. However, there is a wide spread acknowledgement of the seriousness of the situation.

Are we to expect the markets to absorb the bad news and start recovering much the same way as happened during the spanish flu pandemic? I sure hope so!

On to networth carnage! 

The chart below shows the trajectory of AVI family net worth, plotted relative to the first month, we started to systematically track net worth. Its been quite a fast reversal of fortunes!

The essential metrics:

• Net Worth (as fraction of FI number): 51
• Liquid Assets/ Debt Ratio: 1.173
• Cash balance/ Two Year Living Expense: 0.9

And the net worth distribution:

Quite a big drop and lots to talk about!

• Net worth has dropped by greater than 20 %. I am back to where AVI family was in the middle of the year 2019. All the gains from 2019 have vanished in two weeks. In times like this, the importance of solid cash balance become significantly important. I can sleep well at night knowing quite well that I do not foresee myself selling into the down markets and even in the worst of scenarios, AVI family can sustain the same standard of living for almost two years.
• AVI family cash balance in checking account increased more than 50 %. The increase was in preparation for big expenses coming down the line, federal taxes, property taxes, home insurance and vehicle insurance. Given the fact that the federal tax filing date has been postponed to July 15th 2020, I may deploy some of the cash back into the markets
• Savings dwindled by more than 40 %. Partly because I moved some of the savings to checking account and some deployed into the markets. The federal interest rate has dropped down to zero and high yield savings account with robo finance firms such as Betterment and Wealthfront is no more attractive.
• Both my non-retirement actively managed portfolio and retirement portfolio saw a drop of about 28 % relative to the peak reached on February of 22nd.
• The drop in retirement portfolio needs some explanation. As the markets started falling, during the first phase of the fall, assets started moving into treasury bonds and gold. As such, I saw significant gains in my treasury bond etf and gold etf funds. Given the markets were over all tanking and quite a few bargains were starting to emerge, I did the unthinkable. I started to move assets from the my hedge funds, i.e., gold and treasury bond into equity assets. As such, my move came too soon. The markets have continued to tank and in the second phase of market panic, assets are leaving markets enmass.. with no regards to safe haven. Cash has become the king! This was a double whammy for my retirement portfolio. All funds in my retirment portfolio saw high single digit drop in the last week. The net result, a massive drop in my retirement portfolio as well!
• The drawdown in 401K assets is relatively smaller than my portfolio assets. One reason being, constant cash injection into 401K portfolio.

So there we have it, the worst draw down in net worth and we may be just starting! I am though super optimistic about long-term and hopeful that soon we will see light at the end of the tunnel!

Video/Book/Article/Audio for the Week

• Article: Mapping the spread of coronavirus, one place stop to see data on the speed at which covid-19 is spreading with no peak in sight!
• Article: Excellent article by James Montier of GMO Capital, building a case for investing in emerging markets
• Article: Atul Gawande on keeping health-care workers safe from corona virus
• Article: Ashwath Damodaran on debt delusion and perils of debt in crisis