Home Kuo’s Smart Take Smart Thought Of The Week: Wall Of Worry

Smart Thought Of The Week: Wall Of Worry

If Laurel & Hardy were around today, Oliver might say to Stanley: “Well, here’s another fine mess you’ve gotten me into”.

What have we ever done to deserve the chaos that that the leaders of the two biggest economies on the planet have created for us? In the left corner, we have a man who never needs to admit that he is wrong. And in the other corner we have a man who does not know right from wrong.

But thank goodness for central banks, scientist, doctors, and healthcare workers who do know what they are doing. These unsung heroes will somehow get us across the line to the other side of this pandemic.

It will not be plain sailing though. There will be lots of hiccups along the way, which could create unpleasant turbulence in the markets for investors. But that is only to be expected. After all, we are about to enter global recession that could see millions of people around the world lose their jobs….

Living on borrowed time

…. many companies could go bust, too. But this downturn has been a long time in the making. It was always going to happen. It just needed a catalyst. It just so happened to be COVID-19.

We were always living on borrowed time when the swathe of money created by central banks continued to swirl around global economies propping up asset prices.

But the longer that a downturn took to happen, the worse would be the recession….

…. According to the Bank of England, Britain could see the worst economic slump for 300 years. Meanwhile, unemployment in America surged to its highest since the Great Depression. Elsewhere, China has given up on setting a numerical target for economic growth this year, after its GDP contracted 6.8% in the first quarter.

Wall of worry

In situations like this, it would be understandable to give up on investing, too. Would it not be better to wait until the dust settles?

There are some who advocate that it would be prudent to wait…. at least until there is more clarity.

But no one ever said we cannot invest in a recession. That is not to say that we should wear a straw hat and dance barefoot in the park like Pollyanna.

The economic numbers that have been shockingly bad could get decidedly worse. Many more companies will be unable to provide forward guidance….

…. But as long-term investors, we need to look through the noise, which means looking beyond 2020 and, perhaps, even 2021. And be prepared to climbing the wall of worry, as the global economy swim in a sea of liquidity.

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Disclosure: David Kuo does not own any of the shares mentioned.

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