Keeping Perspective

Keeping Perspective

The Duality of Pragmatism and Optimism

At Dashboard, we believe it is our duty to guide you through these “uncharted waters”. To do so, we strive to emulate a man named James Stockdale, a former naval officer who was held as a P.O.W. with his men during the Vietnam War for over 7 years. Despite his horrible circumstances, Commander Stockdale found a way to keep himself and his men alive by embracing both their brutal reality as well as an unwavering belief that they would persevere.

"You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be."   

- James Stockdale

That is to say, we should remain grounded and hopeful – we must all come to grips with the facts as they stand right now, but we must also have faith that we will overcome these obstacles.


“Brutal Facts” about COVID-19

With Commander Stockdale’s guidance in mind, let’s begin with a review of the more critical “brutal facts” about the COVID-19 crisis.

COVID-19 kills people

As of today (5/11/2020), total confirmed cases in the US were 1,334,951 and deaths were 79,699. Thus, the reported US mortality rate is currently 6.0%.

COVID-19 is highly contagious 

Initial antibody testing, which is not widely publicized due to its inherent uncertainty, confirms many many many more people have contracted the virus showing little or no symptoms (often referred to as asymptomatic). In two recent studies of affected areas – one in San Francisco and one in New York City – estimates indicate that the number of confirmed cases of COVID-19 may be underreported by a factor (not a percentage, but a factor) of 50-85. For those of us that don’t claim math as a strong suit, here’s what this means. Total confirmed cases of 1,334,951 multiplied by a factor of say 50 = 66,747,550 individuals who may have actually already had COVID-19, which would represent over 19% of our country’s population. Now this extrapolation doesn’t paint an exact picture, but it does help demonstrate that the “actual cases” of COVID-19 are exponentially higher than the confirmed cases. This also helps demonstrate that the true mortality rate of this virus is nowhere near the 6.0% rate calculated above, but is more than likely well below 1%. This fact doesn’t get enough attention due to the highly political climate that we’re in, but it cannot be ignored. Although any and every death of a US citizen is tragic, the death rate of this disease is not representative to that of say Ebola, but more likely to that of something far less lethal.

COVID-19 is climbing the rungs of the Top 10 leading causes of death in the US, but it is far from the top

The CDC reports the top 10 leading causes of death in the US. Most recent data tables are for the year 2017, below.

Number of deaths for leading causes of death in US (2017)
1. Heart disease: 647,457
2. Cancer: 599,108
3. Accidents (unintentional injuries): 169,936
4. Chronic lower respiratory diseases: 160,201
5. Stroke (cerebrovascular diseases): 146,383
6. Alzheimer’s disease: 121,404
7. Diabetes: 83,564
8. Influenza and pneumonia: 55,672
9. Nephritis, nephrotic syndrome, and nephrosis: 50,633
10. Intentional self-harm (suicide): 47,173 

Social Distancing hindered the spread of COVID-19

There is no question that the number of cases and deaths would be drastically different today had actions not been taken around the globe to shut down businesses and implement social distancing restrictions.

State governors have assumed unprecedented positions of power in our everyday lives

Each state has reacted differently to this crisis, and implemented various rules and restrictions on its residents. This adds exponential amounts of complexity to an already challenging environment, particularly when each state is not in the same financial condition nor do they each have the same priorities. This is one of the most concerning aspects of the US reaction to this pandemic – certain states’ priorities may be directly conflicting with the priorities of the nation. Due to the highly charged political climate, there is a distinct possibility that certain governors, wielding unprecedented and truly unbelievable unilateral power, are operating with a completely different agenda than that of the nation as a whole.

COVID-19 is at the center of a 3-pronged crisis

While this began as a health crisis, it has now morphed into a devasting trifecta of battles being fought on three different fronts:

1.  Healthcare – the original health crisis remains in full swing
2. Economy – the consequential economic damage becomes more costly by the day
3. Politics – the nearing presidential election exponentially magnifies conflicts between parties 

Unfortunately, there is more at stake than saving lives

It is a terrible reality that we must all face. In March we made the collective, unemotional choice to put the health of our population above the health of our economy. At the time, this was necessary to inhibit the spread of COVID-19. But now, nearly two months later, each day magnifies the economic damage to businesses around the world. If we do not find a compromise that allows segments of the economy to slowly reopen safely, many businesses will never recover leading to permanent job losses and economic contraction.

Some companies and industries will take longer to rebound from this crisis, and some may never recover

Certain industries have been hit harder than others through this outbreak, and some companies will require external financial support to survive. The question remains, will needed aid flow from the federal government (at the taxpayer’s expense) to keep these companies alive? Or will they be “allowed” to fail? More on this below…

Disruption feeds innovation

Throughout history, when Americans are faced with a problem, we find a solution. Oftentimes, that solution evolves the way we communicate and do business. The recent adoption of virtual communication, eCommerce, contactless payments, online education, cloud storage, etc. during the “Work from Home” environment will not diminish in a “post-COVID” world. These trends had already begun to take root in recent years, and their adoption has been dramatically accelerated with this crisis. The way in which we will do business in the future has evolved, and will continue to do so. Businesses that do not adapt will be left behind.


“You gotta have faith” and be smart

Alas, this crisis is far from over…but one day all of this will be behind us. We will persevere and come out the other end stronger for it. But that does not mean we should bury our heads in the sand until the storm passes. So, what can and should we be doing to continue our progress towards attaining your long-term goals?

We cannot and should not abandon equities (both foreign and domestic) or fixed income. However, we must intelligently evaluate what strategies and tactics can survive and/or flourish in this extended period of altered reality. We must look for companies with strong balance sheets, we must seek innovators who will pivot to take advantage of new opportunities, and we must pursue a degree of stability in the face of dramatic uncertainty.

We must intelligently evaluate what strategies and tactics can survive and/or flourish in this extended period of altered reality.

As discussed above in #8, certain industries have been more deeply impacted by this outbreak than others – industries like Airlines, Hotels, Brick & Mortar Retailers, Restaurants, and more. These “infected” industries will likely require additional government intervention and financial support in order to survive this crisis in their current state. Some of these industries might have already “gone belly-up” were it not for the aid provided in the federal stimulus packages. For now, they continue to limp along.

We have started referring to such deeply impacted industries who likely would not have survived without federal stimulus as “zombies”. We have identified 25 industries out of a total of 145 on our Morningstar research platform that we believe have been mortally wounded by the business and consumption changes brought about by COVID-19 and our response to it.


The research shows these “zombie” industries make up nearly 15% of the broader equity markets outside of the top 100 US Companies. So, how do we go about reducing potential exposure to “zombies”? Warren Buffett himself recently sold all his company’s positions in airline stocks, likely because he believed the industry would struggle for a time in this new altered reality. So, what should we do?

In this “infected” environment, broad-based passive indexing strategies may lag as they carry around the dead weight (pun intended). So, what’s the solution? Do we turn to more active management? Do we look for more focused opportunities such as thematic ETFs? Do we simply avoid positions and/or asset classes that are likely to have a denser “zombie” population? But then are we opening ourselves up to increased concentration risk through narrowing our investment focus? What if “zombie” industries are bolstered through this crisis by federal government intervention and stimulus – are we limiting our upside potential? These are all important considerations as we continue to discuss potential portfolio changes to react and adapt to future expectations.

There is opportunity here for those who have the discipline, patience, intelligence, and faith to seize it, and that’s exactly what we’ll strive to do – together.

Our watch continues, and our investigation presses on. We must remain steadfast in our unrelenting and unwavering vigilance as we challenge the strategies employed and tactics used to help you to attain real financial independence. The status quo has shifted – the world has been changed forever, and we must change to adapt with it.

Always remember, this too shall pass. A recovery is inevitable, though it may take longer to arrive than any of us would like. There is opportunity here for those who have the discipline, patience, intelligence, and faith to seize it, and that’s exactly what we’ll strive to do – together.