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Morgan Housel16 March 2020

What Has Covid-19 Done To The Economy? - Morgan Housel - #151

1Frameworks
12Insights

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Frameworks in this episode

Finance5 steps

Endurance-First Investing

Manage money to sleep well, not to maximise returns, so you never have to sell at the bottom

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 1

Myth Buster

Everyone is panicking? No — 98% do nothing

Housel dismantles the idea that a crash means everyone is panic-selling. What you see is only the marginal transaction of a small minority. In the August 2011 sell-off, 98% of Vanguard investors made no transaction at all, and many weren't even watching.

  • Falling prices are set by a small percentage of active sellers
  • 98% of Vanguard investors made zero transactions during the 2011 drop
  • Trillions sit in 401ks whose owners don't even know their passwords
  • TV footage of frantic traders is a misleading microcosm

“98% of Vanguard investors did not make a single transaction. 98%.”

Morgan Housel
#investing#behaviour#markets#psychology

Hot Take· 1

Hot Take

The biggest risk is always what nobody is talking about

Housel argues that anyone claiming to know what happens next has no credibility, because a year earlier not a single person forecast a virus called COVID would upend the world. By definition the biggest risk is the one no one can even envision — which is why humility in forecasting is essential.

  • A year before, no one predicted the pandemic
  • The biggest risk is unforecastable by definition
  • Ten years were spent debating who would cause the next recession — it was a virus
  • If that doesn't create forecasting humility, nothing will

“If you didn't see this coming a year ago, you have no right telling me what's gonna happen over the next year.”

Morgan Housel

“We spent 10 years debating who's gonna cause the next recession... No, it's a virus.”

Morgan Housel
#forecasting#uncertainty#risk#humility

Explainer· 4

Explainer

What's unprecedented isn't the fall — it's the speed

A 25% market fall is historically common, happening roughly every four years. What made March 2020 shocking was the speed: it was literally the fastest such decline ever recorded. Housel argues the magnitude of the economic hit — entire regions with sales down 80% — has no modern precedent outside wartime.

  • Markets falling 25% happens about every four years over the last century
  • This was the fastest 25% fall in history
  • Whole regions saw sales down 80%, unlike a normal recession's 5-20% pullback
  • The only rough precedent for an economy stopping overnight is World War II

“It's not what happened, it's how fast it happened.”

Chris Williamson

“For it to happen this fast is unprecedented. This is literally the fastest it's ever occurred.”

Morgan Housel
#markets#recession#covid#history
Explainer

Why this recession is different: biology, not business problems

Housel explains that unlike 2008, which was caused by business and financial problems, the COVID downturn is caused by biology. That means the recovery could be far faster: an effective treatment or vaccine headline could bring back enormous economic activity almost overnight, an escape hatch that didn't exist in 2008.

  • 2008 was a slow recovery because it was rooted in business problems
  • A biology-driven shock could snap back once the biological cause is resolved
  • There was no equivalent of a vaccine to end the 2008 crisis
  • Potential to be more severe than 2008 but also recover faster

“What we're going through right now is being caused by biology.”

Morgan Housel
#economics#recovery#covid#2008
Explainer

The selling may be computers, not scared humans

A large share of violent selling isn't a person typing sell orders — it's automated algorithms that can go haywire in volatile times. Housel notes this algorithmic influence has grown since 2008 and is more sophisticated (or 'complex'), which can produce weird outcomes in wild markets.

  • Much modern selling is executed by automated trading algorithms
  • Algorithms can misfire during high volatility
  • The phenomenon existed in 2008 but is larger and more complex now
  • Heavy selling doesn't necessarily mean humans are scared

“It doesn't necessarily mean a human is scared, it's just someone is selling out there.”

Morgan Housel
#markets#algorithms#trading#volatility
Explainer

The stock market recovers before the real economy

Housel's practical investing point: the market always rebounds well before the underlying economy visibly improves. It bottomed in March 2009 while the real economy didn't turn until 2010-2011. Waiting for confirmation that businesses have recovered means missing the recovery entirely.

  • Market bottomed March 2009; economy improved only in 2010-11
  • By the time recovery is visible, the market has already moved
  • Secure your cash needs first, then dollar-cost average in
  • Looking for 'signs businesses bottomed' is not a winning strategy

“The stock market is going to rebound well before the real economy rebounds. That's always how it happens.”

Morgan Housel
#investing#markets#recovery#timing

Story· 1

Story

Shared trauma pulls tribes together

Housel points to Sebastian Junger's book 'Tribe' and the London Blitz to argue there's a long history of people banding together through shared suffering — suffering together, finding solutions together, walking out arm in arm. A globally shared experience, rare because it hits everyone at once, can create a unique sense of unity.

  • Junger's 'Tribe' describes the social upside of shared trauma
  • The Blitz produced stories of collective resilience and rebuilding
  • It's rare for the whole world to face the same thing simultaneously
  • The virus is an equalizer that ignores wealth, country and status

“When a tribe goes through a shared trauma... there's a very long history of people banding together.”

Morgan Housel
#society#resilience#tribe#unity

Tool· 1

Tool

Building an anti-fragile lockdown: flourish under restriction

Closing the episode, Williamson and Housel list ways to gain from the disorder of lockdown rather than merely endure it. The through-line is cheap, self-directed investment in your intellectual and physical health, plus finding hobbies that cost nothing so any forced cutback doesn't feel like deprivation.

  • Do the home DIY/decorating project you've deferred for years
  • Read more and listen to podcasts with the freed-up time
  • Pick up a musical instrument you've meant to learn
  • A Kindle, Audible, and basic home-gym kit (kettlebell, bands, dumbbells) cover intellectual and physical health cheaply
  • Cultivate free hobbies so lower spending never feels forced

“To the extent that people can find hobbies that do not cost any money... that's probably the best thing that you can do during a…”

Morgan Housel
#antifragile#self-development#lockdown#habits

Takeaway· 4

Takeaway

Camping is fun, being homeless is miserable

Using his grandmother's line, Housel captures why lockdown hurts: the same activity feels completely different depending on whether it's chosen or forced. Ten days on the couch reading over Christmas was a delight; the identical ten days mandated by government would be misery, because the loss of agency is the real pain.

  • A meditation retreat is fun; house arrest in Italy is miserable
  • The difference is agency, not the activity itself
  • Forced lifestyle cutbacks hurt far more than chosen ones
  • Applies to both quarantine and forced spending cuts

“A meditation retreat is fun, but house arrest in Italy is also miserable.”

Chris Williamson
#psychology#lockdown#mindset#agency
Takeaway

A 50% drop is the cost of admission to the markets

Housel and Williamson read Charlie Munger's line that seeing your holdings fall 50% two or three times a century is simply the nature of long-term shareholding. The reason stocks can produce great long-term returns is precisely because these crashes happen; drawdowns are the payment required for the ride, not a malfunction.

  • Munger: react to a 50% fall with equanimity or you're 'not fit to be a common shareholder'
  • Big drawdowns should be expected with 100% certainty
  • The alternative is a savings account earning half a percent
  • Volatility is the price you pay for ~10% long-run returns
#investing#munger#drawdowns#mindset
Takeaway

An unknown threat hurts more than a known one

Housel offers a vivid analogy for why the uncertainty is so draining: a hard punch you know is coming and then over is easier to bear than the promise of a medium punch at some unknown point in the next 24 hours. A known bad thing is easier to process than lingering uncertainty, which is why planning even a year ahead feels impossible.

  • A known pain is over quickly; an unknown one lingers and gnaws
  • Uncertainty makes long-term thinking nearly impossible
  • Two months earlier, most people could picture their year ahead
  • The mental toll comes from the question mark, not just the threat

“Having an unknown and question mark is so much more painful than a known pain.”

Morgan Housel
#psychology#uncertainty#stress#mindset
Takeaway

A huge up day is as unstable as a huge down day

Housel's signal for market stabilisation isn't that it stops falling — it's that daily moves shrink. A 1,700 or 2,000 point up day is not good news; it just means no one knows what's going on. He wants to see the market move by a hundred points a day, not two thousand, before believing it has settled.

  • Massive up days signal instability, not recovery
  • Stabilisation looks like small daily percentage moves
  • Down 2,000 one day and up 2,000 the next is net-zero chaos
  • Volatility magnitude, not direction, is the tell

“A massive up day is just as unstable as a massive down day.”

Morgan Housel
#markets#volatility#signals#investing