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Straight-Line Thinking

March 13, 2020

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How to Keep a Crisis in Perspective: Know the Facts

If you take the current pandemic news and extrapolate it on a straight-line basis, you could become very worried, very quickly. The current contagion and death rates could spiral out of control, the global economy could shrink to a fraction of itself, and untold human suffering could result.

Regarding the current market meltdown, to say that negative psychology has set in would be a gross understatement. Fortunately, in the rational world, few events move in a linear fashion.  We are seeing outright panic in market pricing and individual behaviors.

To consider a more measured response to current events, let’s look at the facts:

The final slide, “Mentions in the Media,” reinforces the adage, “fear sells.”

Predicting the future has always been a fool’s errand. Remaining rational while armed with the facts has been the domain of successful and wealthy investors.

The appearance of COVID-19 and the subsequent dramatic negative market reaction is disproportionate to the event. So is betting on a 10-Year US Treasury and locking in a 0.31% return. Yet a large number of investors did just that on Monday. Herd mentality causes people to act in ways that defy reason.

It is wise to take a step back and consider a more rational and measured response to current events. Let’s not create a crisis where one doesn’t exist. Look at this situation for what it really is: the folly of the market, and an excellent opportunity for non-linear thinkers to profit from temporary mispricing.

Everything in the store is on sale at huge discounts, and panicked shoppers are running for the door with empty carts!

The opinions expressed herein are those of Global Value Investment Corp. (GVIC). The data is furnished for informational purposes only and should not be relied upon as the basis for an investment decision. Although it is derived from sources believed to be accurate, GVIC cannot guarantee the accuracy of statistical information. This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned. This publication and all information, comments, statements, or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results.

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