Equity market developments since the beginning of April have been confounding.  On the one hand, most of the worst predictions for the global economy have been confirmed, and most countries are in the midst of the worst economic contraction in a century.  On the other hand, markets have recovered back to recent highs that were achieved at a time when the outlook was relatively robust, few had heard of Covid-19, and valuations were arguably somewhat high. What accounts for this dissonance?

There are no historical precedents for the type of economic dislocations that we are experiencing. War time economies experience disruptions in some sectors, but they also benefit from the considerable mobilisation of economic resources towards the war effort. Today’s shutdowns are of a different nature: they are a deliberate attempt to arrest the spread of the Covid-19 by minimising all economic activity that involves social interaction.

A safe way to preserve capital is not to sell into a stressed market. If despite careful planning and sound risk management selling is unavoidable, be aware of pitfalls and stumbling blocks that lead to increased realized losses.