When the coronavirus hit, investors feared for the worst. Confused and frightened, they grappled with how to pit the novel Covid-19 virus into context. Without any other guidance, many used the 1918 Pandemic as their frame of reference. So says Jeremy Siegel, professor at the Wharton School of Business, adviser to Wisdom Tree, and author of Stocks for the Long Run.
If you never heard the story of our first conversation, well, check it out. I find the professor to be both informative and hilarious in the best possible way.
He laments the lack of leadership of from D.C., and especially blames the Center for Disease Control (CDC). The shift from complacency to panic followed people’s changing thoughts from believing that was “just another Flu” to the extreme fear that this could be a new 1918 pandemic helped to create a radical overreaction. Running out of disinfectants, masks, gloves and other essentials, combined with an unprepared and botched response by the Federal government, led to panicked selling and the March 2020 34% crash.
According to Siegel, even if the S&P500 earnings for 2020 were wiped out, a 100% drop, a 34% fall is unwarranted. At a Price to Earnings ratio of 20 on the S&P500 earnings for 2020 were to temporarily fall to zero, and if 2021 revenues and earnings look like 2019’s, then the market should have fallen only 5 or 6%. This explanation makes the market bounce back seem more rational than many believe. He blames the big February/March decline as due to emotional overreaction and fear.
His favorite books are here; A transcript of our conversation is available here.
You can stream and download our full conversation, including the podcast extras, on iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.
Next week, we speak with Ron Carson, founder and CEO of Carson Group, which serves financial advisors and investors through its various businesses. Carson Wealth manages 12 billion dollars for clients.
