Early Action, Long-Term Thinking, and Exponential Growth

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I’ve been sitting on this post for a week, but I’ll feel better just letting it out. When we talk about investing, a lot of it is about long-term thinking and exponential growth. There are many charts showing that the person who starts saving early and stops completely after 10/15 years does better than the person who waits around but eventually saves twice as much per year. Once the ball starts rolling, it’s hard to stop. Here is one example from ForUsAll.com:

This is the power that comes from forced savings (pensions) and automated savings with default contributions (401k/403bs). Along the same lines, here’s a chart of Warren Buffet’s net worth over time from ValueWalk. Most of his money came very late in life. Look at that compound interest.

This understanding of exponential growth and the importance of early intervention applies to viral pandemics as well. If you act early and aggressively, you can stop the exponential growth. St. Louis acted aggressively during the 1918 Flu Pandemic, shut down the city early, and saved many lives. It was unpopular, but it worked. Taiwan has been aggressively screening, testing, and tracking since December 2019 and despite its proximity to China has only 45 coronavirus cases. Singapore acted similarly.

Meanwhile, Italy went from only 3 confirmed cases to 15,000 confirmed cases in a span of 5 weeks. (February 6th to March 12th. Source.) The other option is to take a slow, reactionary stance. You let the exponential grow happen. The result is that you will need to shut down the entire country and do it more extremely and for a longer time. You picked the “Save more later” option. Unfortunately, here it means a lot more dying people and overwhelmed hospitals. It also means bankrupt businesses, less hours available, less jobs available, and huge childcare problems.

Do you think the US will be closer to Italy or Taiwan? The US has only tested 5,000 people total, ever. South Korea has tested 200,000 and is 1/6th the size. That’s 240x the testing rate. If you don’t test, you can’t get a “confirmed” case and they remain invisible. If you don’t track the infected people down and isolate them, you can’t stop the spreading. This is bad!

I’m not saying the world is going to end. I have not sold any stocks and am following my established investment plan. I believe that we will eventually get through this together. Mostly, I am greatly saddened that our local, state, and federal leaders have collectively decided to choose to the option of deferred, greater pain.

Bottom line. Each day that we delay widespread testing and tracking, the longer we will have to shut down our lives to get back to normal. It’s coming. Be ready. Think about how you are going to manage childcare when schools are shut down. Make sure you’ve built up that emergency fund in case your job hours are cut. If you’ve been meaning to lower your interest rate on debt, now may be a good time to transfer it to 0% APR. If your financial situation is stable, try to refinance your mortgage and lower your monthly expenses.

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Comments

  1. Stuart J Weissman says:

    Stay home people. It’s the only REAL deterrent.

    • True, and with a strong leadership we can get more people to stay home in a unified manner. Every day we wait, we’ll have to stay home for even longer to wipe this thing out. Again, look at Italy.

  2. You’re a smart man, Jonathan. I’ve been reading your blog since the mid 2000s. Action or inaction has been about economic impact right now, popularity of decisions, and politics. It’s all about the upcoming election in the mind of Donald Trump and his administration.

    One would think that the US would do most of what China did, as they coped with this a month ago. Stop the travel, and contain spread aggressively. It probably isn’t too late here, if tests were available. I think given the trajectory, we may wake up when the Italy situation hits home in a few weeks.

    Trump is only starting to wake up from his ignorance just as he realizes that the stock market, for which he likes to take the credit of success, is now sinking.

    I’m not optimistic given what I’ve seen so far. Why are schools still open if this is as contagious or more contagious than the common flu? Wouldn’t kids spread this even if they’re not at risk themselves?

    What if this slows down and comes back in the Fall of 2020 with a vengeance, as did the flu pandemic of 1918? The time to act is now.

    • I believe that schools will be shut down in the coming weeks. (That plus social isolation… blech)

    • Sorry Liam, but it has always been about politics from both sides. Trump did the right thing with travel restrictions. Now the Governors (Democrat and Republican) need to take action to shut down schools.

  3. Very well said Jonathan. I’ll be sharing your posts with other. I appreciate your thinking and insight very much.
    Evelyn (from St. Louis)

  4. This doesn’t really negate your larger point, but what the hecks up with the y-axis of the buffet chart? The age differences between bars are all over the map. The last bar only looks like such a large jump because thats the largest difference age wise between the preceding bar

  5. Great post Jonathan.

  6. Stu again says:

    When I was young, my parents taught me a lot about finance (which is a bit of a Jewish tradition). When ever I received a gift from a relative that was over $10, it went into my college savings account. When I was about 10, my mother showed me how if I could save $40 a week and invest it in the stock market, from age 10 to age 50. I would be a millionaire by the time I turned 50. Well, I’m 49 and my current wealth is over two million with well over million in the market. I would have had quite a bit more, but one of my two children had a major, major medical issue that cost me 300K out of pocket, even though I have decent insurance. It’s another topic, but healthcare is truly broken in this country. Even after all of this, I currently owe a children’s hospital $200 a month for the rest of my kid’s life. I hate that Bernie is a Democratic Socialist, but we do need to fix our healthcare system in this country.

  7. Dan Weber says:

    Did you realize that over TEN TIMES as many people have RECOVERED from COVID-19 than have died? (69,645 recovered vs. 4,720 deaths per Johns Hopkins dashboard at https://systems.jhu.edu. And according to CDC data as of Feb. 1st, between 21 and 31 MILLION people have been sickened with the flu. Coronavirus dominates news coverage, yet flu is deadlier! I am concerned about the loss of reason and wave of fear that has induced the masses of society into a spellbinding spiral of panic. This virus is serious and will cause further harm, but I think mass panic and excess demand for testing may actually cause more collective damage than the virus itself. It should be widely known that the vast MAJORITY of humans who get this virus will NOT be at risk of serious illness. I am concerned about the message we are telling our kids that when face with a threat, instead of reason and rationality, we are telling them to panic, to be fearful, reactionary and self-interested.

    • I’m sorry, but your argument is old and has been refuted. Any time someone says “it’s just the flu”, tell them that COVID is twice as contagious, 10x more likely to require hospitalization, and 30x more deadly. (Remember twice as contagious and exponential growth = bad. Every infected person can infect two others EVERY DAY.) Again, think about the future, and think about exponential growth. Please see this chart.

      https://twitter.com/VirusesImmunity/status/1238475009712160769

      Yes, YOU may be fine, but multiplied across the country this will overwhelm hospital ICU beds. It’s about everyone, it’s about grandparents, it’s about health care providers. Do you think Italy shut down their entire country except for grocery stores and pharmacies because it’s just the flu?

      It’s not panic. It’s called flattening the curve:

      https://i.insider.com/5e67f2b354f25c094f160996?width=700&format=jpeg&auto=webp

      • Dan Weber says:

        Thank you for the links and your reply. I agree with you Jonathan that it is WRONG to think of COVID-19 as just the flu. I think it’s clearly been demonstrated that it has a significantly higher fatality rate. I like the chart the illustrates the power of compounding and exponential growth, and I do not discount that. It’s interesting to visually see how much of Warren Buffet’s net worth has dramatically risen for him after the age of 60. I was trying to add some context by pointing out the fact that substantially more people have recovered from coronavirus than have died – not twice as many but currently over ten times as many recoveries. I think that is significant to note. I am not making that up and I would think many people would agree with that recovery fact. That does not mean, however, that we should not take precautions, even extra precautions. We should listen to accredited immunologists and take protective measures. Last week CBS broadcast and reported that Coronavirus may infect up to 70% of the world’s population. (source: https://www.cbsnews.com/news/coronavirus-infection-outbreak-worldwide-virus-expert-warning-today-2020-03-02/). I feel that media showing pictures of empty store shelves can cause artificially high demand, it causes some people to increase purchases of food and other supplies that they previously would not have purchased. If enough humans do this, it only exaccerbates the problem. Given that up to 70% forecast, I still expect that when we get that pathogen, there will be higher than 75% probability of survival. In 2018, there were 36,560 people who died from motor vehicle accidents in the US (per NHTSA). From my current understanding, there have been less than 500 deaths in the US from coronavirus. I believe the CDC numbers that over 10,000 people die from the flu each year. I also know that coronavirus to spread throughout the US and other countries and the numbers will increase. In my opinion, COVID-19 is serious and we should take it seriously, be prudent but not panicked and be kinda to others.

        • “From my current understanding, there have been less than 500 deaths in the US from coronavirus. I believe the CDC numbers that over 10,000 people die from the flu each year. I also know that coronavirus to spread throughout the US and other countries and the numbers will increase.”

          I’m perplexed as to why anyone chooses to compare the total number of deaths from the flu each year (about 12k-61k, varies wildly by year) to the number of deaths from COVID-19 so far (about 50). Either compare COVID-19 deaths so far to the first ~2 months any particular flu landed on U.S. soil, or annual COVID-19 deaths (a number we won’t know until 10 months from now) to annual deaths from a particular flu. There’s also the issue of deaths related to overwhelmed hospitals, but even ignoring that, COVID-19 will prove to be quite fatal here in the U.S., although hopefully less so than in Italy and Iran if we take the proper precautions. It’s very difficult to imagine a scenario where fewer people in the U.S. will die from COVID-19 than the flu over the next year.

          • Dan Weber says:

            Avi, I see your point about comparing an annual number to a two-month number, that’s not an apples-to-apples comparison. Thank you for pointing that out.

        • Let’s just say that 70% of Americans contract the virus (your number). If the death rate is 1%–and that’s probably a realistic to conservative estimate BEFORE we adjust it for the fact that we only have around 1 million hospital beds in this country and maybe 49 million (20% of those with the virus) will require medical attention–that 1% death rate equates to around two and a half million dead in this country alone.
          Of course if any one person gets it they are much more likely to survive, but that ignores the fact that millions could lose their lives. I’m not recommending we panic but that prospect is something we need to take very, very seriously.

    • Dan, check back here in 2 months and let us know if your opinion has changed.

  8. Just think if President Trump did not act as soon as he did to shut down travel from China, there is no question we would be in worse shape. Schools have been shut down in Maryland for the next two weeks, but I doubt students will return anytime soon.

    • Even a broken clock is right twice a day.

      Edited by Jonathan: Please, NO further political bashing here. You have the rest of the entire internet for that. This is a post involving our political leaders, but trust me both Republicans and Democrats at all levels could have done a better job, and can do a better job from this day forward. If you are a healthcare administrator or a political leader on any level – be proactive and not reactive!

  9. Here is an in-depth article that explores a variety of issues. Read past the headline and there are many interesting points for those that are interested.

    https://medium.com/@tomaspueyo/coronavirus-act-today-or-people-will-die-f4d3d9cd99ca

  10. I’m in China right now and I can tell you that once the Party (not the government) got passed the coverup and the coverup of the coverup both of which failed that their actions have been nothing short of brilliant. Highways between towns were totally shut down. No inter-province traffic allowed. Cities put up there own roadblocks allowing only local traffic and monitors were placed on every block in every city. Only one person allowed to leave the house for food shopping every other day. All stores except supermarkets and pharmacies were closed and even now March 15th only about 50% have reopened. Every supermarket had someone with a digital thermometer taking people’s temperatures and you had to use a WeChat app to get in and out the store so they could track who was there at what time. Masks were mandatory and only this week people are starting to shed them. All schools were closed and will start to reopen in another 10 days. And I’m sure you saw the videos of the infected dragged out of there homes and the sources of viral infections hunted down.
    I’ll tell you as an American that I felt safer here and I’m still here now, then back in America with weak kneed politicians who haven’t had to make a tough decision in their entire lives and from I can see have already missed the opportunity to contain the virus in the US. Governments in the US at all levels are pathetic. As long as something is in THEIR interest; legal, illegal, constitutional, unconstitutional doesn’t matter to anybody. But as soon as something critical to the well-being of the country comes up there are supposed roadblocks to doing anything. And mass media perpetuates the narrative that gridlock is good. Would any reader of this website invest in a $4 trillion organization that has a history of 10 years of indecisiveness and failure, 3 lost wars and $100 trillion in debt on the second set of phony books? I think not.

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