Morningstar - Q2 2020 - 26

Dispatches

of these outbreaks reached the scale of impact on
9 pandemic.
business of the present

Understanding the
Psychological Drivers

to investing, the crowd is usually running in the
wrong direction.
Not following the crowd requires us to engage
the more rational side of our minds. Unfortunately,

0 Ks are building a picture of

store closures, stalled medical trials, massive
decreases in demand for products and
services, workforce impacts, and redirected
government resources.

concerns like making sure they sanitize everything
and have enough toilet paper. But there are

9, but rather their own minds.
not be
In times like these, even the most logical investors
can have trouble staying on track. To better
help clients manage their emotions through this

Keep Clients Informed
Investors are at greater risk for herding behavior

the psychological drivers behind their behavior.
This is a great time to talk to clients about their

0K
two broad groupings of companies appear
to have the most to say about pandemic risk: retail
,
TIF, Home Depot HD, Signet Jewelers
SIG, and the
all score above
70 on their 2020 disclosures. Among hospitality
and tourism companies,
STKS and
both
score above 0.

familiar with: herding behavior. Herding bias
is especially prevalent during times of uncertainty.

of pandemic risk in 20 9, warned in March
that the impact of the coronavirus could include

something, it can be a good idea to follow the
crowd. This is an example of what we can

labor shortages, decreased productivity and

ways to take a shortcut instead of solving
a complex problem. Unfortunately, when it comes

of 0 K
skewed, with only
earning more than 0 on the disclosure indicator
scale. Industries with the least to say about the
pandemic, so far, are electric and water utilities,
media companies, and insurance companies.

natural to want to follow. This is a common
It may also help to present a clearheaded view
and analysts note that while the coronavirus
volatility may continue over the short term, the

behavior is heightened because of the uncertainty
9 and the impact
that comes with
Set Up Points of Friction
Sometimes clients need a friendly nudge to
encourage them to engage System 2
clients of the fees and tax implications of trading
and turnover in general, especially in taxable
accounts. Another might be to remind clients how
those who cashed out during the 2007 09 global

Investors who stayed in the market in the 2007- 09
Stayed Invested in S&P 500
Exited Market and Reinvested After One Year

Exited Market and Invested in Cash

Growth of
$100,000
$300K
299.78

Recession December 2007 - June 2009

demand impacts of this pandemic. As companies
increasingly address the issue, the detail
they provide could inform crisis scenarios used to

195.31
200

the economy for future events.
100

is director of sustainability stewardship
research for Morningstar Research Services.

57.32
0
01/2007

01/2009

Source: Morningstar Direct.

2

Morningstar 2 2020

01/2011

01/2013

01/2015

01/2017

01/2020
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