We wanted to provide an insight into our behind-the-scenes thinking and planning as markets deal with the potential coronavirus (Covid-19) impact. We have been in contact with our investment partners to make sure we stay fully informed of their views and any plans they may have under consideration.

The world is watching with concern the spread of the new coronavirus. The uncertainty being felt around the globe is unsettling on a human level, as well as observing how markets respond.

We remain convinced that markets are designed to handle uncertainty, processing information in real-time as it becomes available. We see this happening when markets decline sharply, as they have recently, as well as when they rise. Such declines can be distressing to any investor, but they are also a demonstration that the market is functioning as we would expect.

Market declines can occur when investors are forced to reassess expectations for the future. The expansion of the outbreak is causing worry among governments, companies, and individuals about the impact on the global economy. Apple announced earlier this month that it expected revenue to take a hit from problems making and selling products in China. Australia’s prime minister and other officials warned of a serious blow to the country’s economy. Flybe said the impact of the coronavirus on demand for air travel was partly to blame for its collapse. These are just a few examples of how the impact of the coronavirus is being assessed.

The market is not only responding to new information as it becomes known, but the market is pricing in unknowns, too. During a time of heightened uncertainty, risk increases. So do the returns investors demand for bearing that risk, which push prices lower. Our investing approach is based on the principle that prices are set to deliver positive future expected returns for holding risky assets.

We can’t tell you when or by how much the markets will recover, but our expectation is that bearing today’s risk will be compensated with positive expected returns. That’s been a lesson of past health crises, such as the Ebola and swine-flu outbreaks earlier this century, and of market disruptions, such as the global financial crisis of 2008–2009. History has shown no reliable way to identify a market peak or bottom. Our convictions argue against making market moves based on fear or speculation, even as difficult and traumatic events transpire.

Helping clients develop a long-term plan they can stick with through a variety of conditions is important. As humans we are hard-wired to respond to circumstances that create fear. There is little comfort watching from the side-lines as values fall. But being on the side-lines observing could well be the best place right now. Our preparations include the inevitability of a downturn. Our cashflow modelling runs multiple what-if examples including the impact of a number of market crash scenarios. We are aware constant media comment can push investors into decisions they later regret. Amid the current anxiety that accompanies developments surrounding the coronavirus, decades of financial science and long-term investing principles remain a strong guide.

If you have any major concerns or things you want to talk through, please just call. We are here to help.