U.S. equity indices fell sharply Friday after hitting new record highs midweek.  And interest rates fell yet again, with the 10-year Treasury yield below 1.5% and the 30-year Treasury yield hitting an all-time record low well below 2%.

Every day we see headlines about the Coronavirus.  Actually, this is a large family of animal viruses which rarely infect humans.  But now we have a new one that has jumped to humans, and the disease caused by this novel virus has been named COVID-19 by the World Health Organization (WHO).  There is a massive global effort underway to contain the spread of this disease, and it is too early to tell how successful this will be.

We will be sending a more extensive client letter to address some of the simple big picture issues around COVID-19 and discuss potential effects on financial markets and the global economy. For now, just a few points.  China has become the world’s second largest economy and the world’s largest importer of energy.  They are a critical part of the supply chain for many companies, such as Apple.  And they are a huge buyer of consumer goods.  So this problem starts out with the world being affected by problems in China, even before the disease itself potentially affects us more directly.

We have seen equity prices fluctuate quite a bit this year as expectations for the disease and its effects change from day to day.  This is another of those situations where the temptation is to head for the sidelines, selling some or all of your risky assets, and wait for things to clear up.  We believe, as a practical matter, that is a dangerous approach for a long-term investor.

We’ll tell you why and share our thoughts on other COVID-19 implications in our upcoming letter.  Stay tuned.

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