March 25, 2020

Thriving in Times of Fear and Uncertainty—How Business, the Economy and Markets Rebound

Dear friends,

We are currently in the midst of a healthcare and economic crisis unlike any we’ve ever seen in our lifetime. During this challenging time, our priorities are the health and safety of our families and loved ones, and our colleagues—and as communities, we are showing how we can work effectively and “gather” virtually by using technology.

But the reality is, our lives may be overwhelmed by fear and uncertainty, and a pandemic of this scale has painful trade-offs. As we practice social distancing, entire industries are shutting down and the weekly unemployment claims in Ohio increased 30-fold in the past few weeks. Supply chains have been disrupted. The economic impact and resulting fall of the markets can leave us wondering: Will we ever recover from this illness?

Times of uncertainty reinforce the importance of faith, family, and a sense of community. We’re coming together, and although unfortunate, there will be valuable lessons we will take away from how COVID-19 halted business, closed schools, and forced officials to rethink what it means to protect public health and safety.

Most of us have never experienced a pandemic-induced recession in our lifetimes, though a walk back into history shows us that every crisis has commonalities. The most important thing to remember at a time like this is that our country has overcome every single economic crisis it has faced.

There is a big difference between a market correction vs a market crash. In my 35 years as an investor I have been through many corrections, but very few crashes. This happened fast, and hard. And, in my nature of not giving up, I am trying to figure out and Share what we need to do to, to take advantage of this unfortunate, but unique circumstance to not only recover, but perhaps become better off long-term because of it.

Because I have never been through such a tragic and unprecedented pandemic, I was curious to try to figure out how the economy and stock market would react, bounce back, and recover. Not only What it would take, but also How Long. I thought the best way to understand this, since I had no experience with it, was to try to study history and other great disruptions. While history isn’t the only indicator, studying history is often a good way to predict what could possibly happen in the future.

I asked my friend and extremely talented investor, Michael Nowacki, to assist me in researching and putting together all of the data he could find of past pandemic market reactions, what caused them, how we got out of them, and how long each occurrence took; both in the economy and the stock market. Along with an outstanding writer, Kristen Hampshire, and my assistant, Angela, we have put together the below data to not only learn from the past but to also share what we have learned. We are blessed to have a wonderful network of friends and business associates that share so much valuable information as well. Hopefully, after spending some time reading this, you will find it as helpful and worthwhile as we did.

Thriving in Times of Fear and Uncertainty—How Business, the Economy and Markets Rebound

“What has so often excited wonder, is the great rapidity with which countries recover from a state of devastation, the disappearance in a short time, of all traces of mischief done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.”

John Stuart Mill, Principles of Political Economy, 1848

Post-WWII, economists have become much better at understanding business cycles and how to stimulate the economy in a recession. The 2008 Financial Crisis was valuable preparation for our current crisis. As a result of that preparation, and the uniqueness of this crisis, the Federal Reserve, Treasury Department, President, and Congress are acting with unprecedented speed.


Managing Economic Crises Throughout History

If you think about it, we will all experience some level of economic crisis during our lives. When I meet with friends who are 90 years old today and have lived full lives, it is incredible to fathom that 70 years before they were born, we had slavery in the United States and the Civil War erupted. Arguably, the Civil War was our greatest moment as a country. When we fought to remain a Union and abolish slavery, we came together. It was also our worst moment, when we formed lines on battlefields, loaded our rifles, and fired at each other. At the time, the U.S. population was about 31 million and an estimated 620,000 soldiers sacrificed their lives, with 1 out of 4 soldiers dying. Another 475,000 were wounded.

Similar to the way COVID-19 is leaving a wake of casualties, the Civil War left the South in a state of complete disorder. In the South, there were thousands of people lacking food, clothing, or shelter. Back then, we didn’t have the Federal Reserve and the Federal Government did very little to assist them. And yet, look how quickly Confederate farm income rebounded after the war ended in 1865.


This fast rebound seen after the Civil War is the kind of resilience that John Stuart Mill was referring to and is something to keep in mind during the very challenging days ahead.

Another thing I have learned from my friends who have lived 90 years of full life, is that they were born 12 years after World War I ended, when we lost 116,000 Americans. Imagine, a 90-year old, born in 1930, experienced the beginning of the Great Depression, when we had a peak of 25% unemployment.


Soup kitchen in 1931


Poor mother and children, Oklahoma 1936

Similar to today, policymakers had decisions to make in order to support those in need and, hopefully, stage an economic rebound in the future. The New Deal was introduced, which had some good policies such as the creation of Social Security, but it also mandated anti-competition policies, such as price hikes and wage hikes. Without normal supply and demand, employment still suffered. Some think it prolonged the Great Depression—but what’s important to recognize is that we did recover and, since then, our standard of living has evolved drastically. The chart below shows a dip in GDP during the depression, yet a continued, gradual increase. Times were desperately tough, but only for a short time before GDP began climbing again.


Think of the same 90-year old, they would then have been a teenager during World War II in 1939 to 1945. During this dark period, an estimated 70 to 85 million people in the world perished. In the U.S., more than 405,000 brave Americans gave their lives and another 670,000 were wounded.


Normandy landings WWII

Now, consider more recent history. Many of you have lived through economic and political uncertainty. During the 1950s through 1980s, Communism and Capitalism were at high tensions, leading to the Korean War, Cold War, and Vietnam War. You lived through double-digit inflation during the 1970s, the stock market bubble and bust of the late-1990s through early-2000s, and the 2008 Financial Crisis.

We will get past our current COVID-19 crisis as well.

When America is faced with incredible challenges, we come together for the greater good. We are defenders of human rights, freedom, and capitalism. We are living at the greatest time in the history of the world; where freedom, healthcare, information and technology are at all-time highs. John D. Rockefeller Sr. and Andrew Carnegie were once the richest people in the United States, and in 1900 even they couldn’t buy penicillin, x-rays, insulin, central heat and air conditioning, microwaves, washer and dryers, cell phones, televisions, computers, or fly in commercial airplanes, because these things weren’t available. In many ways the middle class in America today has a much higher living standard than the richest people in the world who lived a hundred years ago.

Innovation Drives Recovery

There have been some world-changing breakthroughs in the last few decades, such as the mapping of the human genome and ARPANET (the predecessor to the modern internet). We can thank academia and research institutions for these innovations. However, entrepreneurs and businesses were responsible for most of the new scientific, medical, and technological advances that improved our standard of living. New drugs, medical devices, smartphones, electric cars, e-commerce, online video streaming, internet searches, credit cards, cloud computing, online banking, and software are just a tiny sample of the businesses that have improved our standard of living in the last few decades.

Despite the current challenges, we live in an exciting time with emerging technologies in cloud computing, artificial intelligence, 5G, the Internet of Things, genome sequencing, liquid biopsy, and other major medical advances. As we tell students today, the jobs of the future haven’t even been created yet.

How long will COVID-19 interrupt commerce? We all wish we had the answer to this. Uncertainty drives up fear. Similar to wartime, there is no “end date”—but we have recovered every single time and should believe the same about our lives, economy, and markets returning to normal after this pandemic is over.


COVID-19 is different than other sicknesses, but we can take a look at how the Spanish Flu in 1918 impacted Europe. The Spanish flu in 1918 infected at least 500 million people world-wide (more than a quarter of the Earth’s population) and killed 50 million or more, including 675,000 in the U.S. Pandemics like the Black Plague and Spanish Flu created tremendous hardships and were devastating for the people and economies of Europe. Both took place, however, before the medical advances of the mid-20th century.

We do not know how many lives will be taken across the globe by COVID-19 as we are still in the early-stages of it spreading in many countries. The death toll will be significant and the economic consequences to stop the spread will be costly. However, we do know that the U.S. is much better equipped with modern medical advances to fight this coronavirus than Europe was in 1918 during the Spanish Flu. Many brilliant minds in the world, and a lot of resources, are being used to find a vaccine or drug to fight this coronavirus. I am optimistic. History has given us a lot of reasons to have faith that we will find drugs and treatments to fight this within the next year or two.

In the charts below, you can see how industrial production and trade, factory employment and the Dow Jones Industrial Average fared from 1917 to 1920. While each decreased during that pandemic period, the statistics here show rebounds across the board.

These exhibits explain two things: the astounding medical achievements of the 20th century, including the tools that scientists are using to develop vaccines and anti-viral medications to combat COVID-19; and the fact that greater threats to life expectancy and prosperity have in modern times resulted less from pandemics and natural disasters, and more from what people do to each other in times of war.


Source: WSJ, Lessons for the Coronavirus Crisis from Six Other Disasters


Dealing with Highs and Lows

We’re coming off of the longest bull market in history. Our economy has been roaring, and our expectations have been very high. It’s human nature to feel optimistic during these high times. But actually, the time to feel optimistic should be when the stocks are beaten up and expectations are low. Economic psychologists have research showing that the pain of losing to the average person is 2.5 times worse than the pleasure of winning. Our “high” during the good times is not nearly as powerful as the low we feel when the markets are falling apart. Now is when we should look at the economy and market as an opportunity to thrive in the future.

Warren Buffett famously advises: “Be fearful when others are greedy. And greedy when others are fearful.”

Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, perhaps the wealthiest family in world history, is credited with saying that “The time to buy is when there’s blood in the streets.” Despite being born centuries apart, both of these successful businessmen and investors knew from history that economies are more resilient than we think during times of panic and there has never been a stock market crash in the U.S. that we haven’t recovered from.

I agree with anyone who says our current crisis is likely to get worse before it gets better, certainly from an economic perspective. This is a self-imposed economic contraction to fight COVID-19. But if you were to ask me what the world will feel like a year from now, I have faith that we will be in a much better position than we are today. Hopefully, we will have taken away lessons that make us more resilient and prepared for the future. I have faith in our world-class healthcare system and the innovative researchers who bring us cures to the most devastating diseases and illnesses. I believe in our communities, we are showing that by taking aggressive precautions to stop the spread of COVID-19, there will be short-term pain—perhaps more pain than we want to bear—but, the long-term outcomes will be positive. As humans, we are incredibly adaptive. And, history has shown us that our economy and markets are also adaptive when we come together to focus on what’s good and right for the country and our people.

History tells us that the stock market is in better shape than it was during the 2008 financial crisis or following the burst of the dot-com bubble (see below).


And below, the market rebound data shows us that even during times of economic crisis, we come back to “normal” and rise above faster than we might think. Following is a record of peak-to-trough dates that show how far the markets fell and the returns after the “trough” (slide) 6 and 12 months later. In all cases, we see double-digit improvement. The charts below this record illustrate a visual account of these numbers.


What is done is done. The stock market has declined over 30% in a few weeks and you must come to peace with what has already happened. It cannot be changed. We must now look to what we can do today and going forward.

First Step: The first thing investors should do is a portfolio review and consider selling vulnerable companies with weak balance sheets that will struggle to survive a recession. For example, if you own Alphabet (GOOGL), it has only $3 billion in debt and over $120 billion in cash—you don’t need to be concerned. However, if you own an oil & gas exploration company with a lot of debt, you may want to consider taking your losses.

Second Step: The second thing to do is rebalance. If you have vulnerable positions you want to sell, look for opportunities to reinvest that money into stronger companies with just as much upside potential. You may even want to consider selling stronger companies that have held up well, such as Costco or Dollar General. While those are good companies and are benefiting by this crisis, today they are at high valuations in a very cheap market. There are plenty of reinvestment opportunities today to purchase high quality companies at much more attractive prices.

Third Step: The third thing to do is add to the market. Each severe market decline is unique and it is important to understand its characteristics. However, a good rule of thumb is that once the stock market declines 40%, you should add to it in a big way! There are three different severe market declines that I believe are worth examining, to compare the different characteristics and how those factors impacted the recovery. The first period is 1973 – 1974, where OPEC quadrupled oil prices and inflation jumped from 3.21% in 1972 to 11.04% in 1974. We entered a period of stagflation, with inflation peaking in 1980 at 13.5%. Once inflation was beat, we had the greatest bull market in our country’s history, with approximately 17% annual returns in the stock market from 1980 – 1999.

In a period of stagflation, adding to the stock market does little to boost your returns. However, if you add heavily after a 40% drop, you will likely do well on that money you’ve added.


The second period is 2000 – 2002. This was unique in that the market decline was a result of a stock market bubble bursting. When a bubble is bursting, you do not want to be buying on the way down, as stocks are probably still not cheap. However, if you listen to the rule of 40%, you would have added heavily in 2002 and rode the market back up from 2003 – 2007.


The third period is 2007 – 2009. Another unique recession, where a real estate bubble led to speculative lending practices and almost a complete collapse of our financial system. If you started to buy when the market dropped 25%, and continually added as the market declined, you may have not invested at the bottom, but you would have been well-rewarded over the next 10 years. One of my mistakes is investing too much too soon in fear of missing a buying opportunity.


In our current market sell-off we’ve seen a -34% decline.


Stimulating the Economy

The government is currently in the process of approving a massive stimulus program. The purpose of stimulus is to support the economy, not the stock market. In the past, the stock market continued to fall after stimulus was approved and there is a high probability that will happen in this instance as well; as economic uncertainty continues to remain high. Long-term, the stock market will continue its trend of ascension.


Of course, one of the questions we all want to know is: How low will we go? Many analysts think we’re not close to bottoming out yet for the year. However, reviewing a historical account of how we recover from these troughs should help us move forward with optimism. The economic and fiscal landscape will eventually improve.

Governor Mike DeWine in our state, and Senator Rob Portman in Washington, along with our other leaders, are working diligently on our behalves and have been amongst the quickest leaders in the world to take tough actions in the fight against this coronavirus. Gov. DeWine has provided early and nationally recognized bold leadership. Sen. Portman has been instrumental, thoughtful, and proactive in assisting on the massive national bailout plan, and they have no doubt saved lives in Ohio through their leadership. I have been in touch with both on a continued basis so that we are cognizant of what is transpiring but also to share concerns that people have brought to us. The Clinic is also doing an amazing job keeping board members up to date in addressing all of the various health care related challenges that may arise.

After much personal reflection, I am amazed at how, when America is faced with incredible challenges, we come together for the greater good. Times of crisis reinforce the importance of faith, family, and a sense of community. It’s important to find what binds us and not what divides us. Being Italian, it has been difficult to adjust to social distancing. And, although I miss the personal interactions with all of you, at some point in the future we will be back to a point of normalcy. Thankfully, after Good Friday, Easter arrives.

In the interim, please accept my best wishes for good health and a brighter future to you and your families. 

All my best,



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