---

I wanted to do the second part of the self-experimentation series today but I can’t concentrate, it feels too weird. I’m glued to the markets and virus updates, just like everyone else.

This is the first time I’ve written a blog post reacting to current events. I’m breaking the rules just this once because the occasion calls for it, and this whole mess falls right in my wheelhouse—not the epidemiology of viruses, of which I know diddly-squat, but the principles of risk management, of which I know quite a bit.

The last month has been deeply weird, in the sense that I was increasingly convinced COVID-19 was a Big Deal, at the same time as most people were dismissing it as ‘just another flu’. Being ahead of the narrative had a few practical benefits, but the slight sensation of smugness has been massively eclipsed by the horror of what that actually means in practice.

Here’s the main takeaway from the piece I wrote for Stuff and the Sunday Star-Times:

While it’s tempting to dismiss coronavirus as just the latest in a long string of overblown epidemics, that would be a big mistake.

It doesn’t matter if it turns out to be no worse than the seasonal flu: better to ‘overreact’ and risk looking a bit silly, than be unprepared when the big one comes along.

That’s doubly so when there are simple, low-cost measures you can take to prepare for unlikely but ruinous events.

I wrote that column a month ago, back when certain journalists were sneering at people for (sensibly) stocking up on basic supplies and dunking on tech-bros for (sensibly) avoiding handshakes. One part of me is very angry about this: if they muddied the narrative in such a way that it delayed the necessary responses by a single day, they have blood on their hands (see the section on exponential growth later).¹ But mostly, I’m just bummed out. My faith in institutions keeps being stripped away; I can feel myself becoming bitter. It’s really not attractive. But it might be adaptive!

The truly horrifying part of becoming an adult is the realisation that other adults don’t know what they’re doing. Remember the feeling of falling asleep in the back seat while your parents drove you home? You will never, ever experience that kind of security again. There’s just an endless string of disappointments as you discover that no-one is infallible: not your parents, not your teachers, not your personal heroes, certainly not your politicians.

It’s dangerous to rely on the judgement of ‘grown-ups’, or to wait until someone gives you permission to act. Sometimes you have to take the initiative, even if it means doing slightly goofy stuff.

---

How to Beat Coronavirus

I am not a doctor, blah blah blah, insert useless disclaimer. Anyway, there are exactly two ways to beat COVID-19: washing your hands, and staying away from people. That’s it! That’s the whole strategy.²

This is called ‘social distancing’, and South Korea is using it to bludgeon the virus into submission. When I called a friend in Busan two weeks ago, she said it was like living in a post-apocalyptic movie: deserted streets, loud-hailers announcing the latest case, who might be at risk, where the no-go zones are.

China did something similar—an insanely impressive containment effort which probably saved millions of lives—albeit with the advantage of an authoritarian regime able to get shit done in a hurry.

This is the example that other countries need to follow. Whether or not we succeed depends partly on the competence of our governments and the people around us, but there are also some things within our control.

These steps are based on five ideas which come up a lot here on the blog:

1. Always cap the downside

2. Respect exponential growth!

3. Be willing to be weird

4. Sacrifice for the collective

5. Know thyself

A lot of what follows is probably already well-known, especially considering I’m tossing this out into a veritable ocean of COVID-19 content.

But I’ve been getting a few messages like this…

…and it only cost me a few hours to write this up. If it helps in some small way, it’s worth it.

---

Always Cap the Downside

Which statement is true:

1. The new coronavirus will probably end up not being much worse than a bad seasonal flu; the current reaction will prove to be over-the-top.

2. It makes sense to take precautions as soon as possible, just in case the worst-case scenario comes to pass.

My readers, who happen to be unusually smart and good-looking, instantly spotted the mistake: these statements are not mutually exclusive! Personally, I’d put money on both of them.

In the language of optionality, what we’re looking at here is an exploitable asymmetry. There’s a small chance of an open-ended downside risk—a black swan event—that would bring about ruinous consequences.

It’s asymmetrical, in the sense that we only have to pay a small premium to cap this large risk. Chances are our efforts will be unnecessary, but if the shit does hit the fan, the pay-off is essentially infinite.

This is why the people who emptied shelves of toilet paper and other necessities are not so dumb. You don’t stock up on toilet paper because you think there will be a global breakdown in toilet paper production. You stock up because:

a) you predict that other people will also stock up, and

b) you know the only way to beat this thing is social distancing: every time you go the grocery store, you enter an enclosed space with a bunch of other shoppers, hand money or cards to a cashier and bagger who have interacted with hundreds of people, touch baskets, trolleys, products, etc.

In countries that are under quarantine, people are already having to queue for groceries, or order supplies within narrow windows of opportunity. It’s not at the gouge-your-neighbours’-eye-out-for-the-last-tin-of-beans level, but it’s a real risk and inconvenience.

To the extent that you can reduce this to zero, you should definitely do so. Here’s what I’ve done, and what I suggest you do too:

1. Prescription meds

Make sure you have enough of your prescription meds to last a while: sitting in a doctor’s waiting room is gonna be a reaaaal bad idea in the next few weeks.

2. Flu stuff

Stock up on common and cheap supplies that will be useful if you do get the flu: electrolytes (table salt and sugar will do in a pinch), paracetamol (for fever and pain), cleaning supplies, hand sanitiser.

3. Food

Buy enough food to last a month or two, in case you have to self-quarantine (pre-emptively, or because you got the bug). I’ve stashed several kilograms of oats, rice, pasta, tinned veggies, protein powder, nuts, seeds, and dried fruit.

How much does this option cost to take out? I spent about $300 on the above, but the real answer is closer to $0. I’m going to use all this stuff anyway; this basically boils down to ‘do one big grocery shop in advance’.

If it costs nothing at all to mitigate a small chance of a big risk, you should probably do it! Ignore anyone who makes fun of you for being ‘paranoid’, and don’t wait for permission.³

---

Respect Exponential Growth!

We’ve previously talked a bunch about how no-one really understands exponential growth:

As Mark Zuckerberg put it: “Humans don’t understand exponential growth. If you fold a paper 50 times, it goes to the moon and back.”

This is a delicious example, not only because the imagery is so jarring—whoa, a tiny sheet of paper can do that?—but because the Zuck himself got it wrong. If you fold a piece of paper 50 times over, it doesn’t make a paltry return trip to the moon—it goes all the way to the freakin’ SUN. Humans don’t understand exponential growth, indeed.

The few people who come the closest to intuitively getting this tend to be maths geeks, techies, and finance types, which is how they managed to get ahead of this whole thing.

Everyone else, up to and including the President of the United States, was all like, ‘there’s only a handful of cases, the flu kills way more people, so what’s the big deal?’

The new coronavirus is different to existing ones in three important ways:

• It has a much higher transmission rate
• It has a much higher fatality rate
• There’s no existing ‘herd immunity’

None of these effects are immediately obvious in the early days. With exponential growth, it always looks like nothing’s happening… right up until it doesn’t.

Let’s say there are a measly 10 confirmed cases in your country or city right now, with perhaps 10x as many carriers who haven’t been tested. If the doubling rate is four days, there’ll be 1760 cases by the end of March. Six weeks from now, there’ll be 225,000 cases. By the start of June, you have 100 million infected.

When you’re dealing with this kind of curve, the right time to react is always ‘yesterday’. Even a single day’s head start can make or break the trend.

Here’s the number of worldwide cases:

You can see how China managed to level off the curve through massive (and costly) social distancing efforts, before the virus escaped into the world at large.

But outside of China, cases are still very much accelerating exponentially:

We gotta flatten this curve. Once again: react sooner rather than later, and don’t wait for permission. If you can work at home, do so. Don’t attend big events. Every day makes a difference.

---

Be Willing to be Weird

There is a cost that comes with being weird: people will mock you, maybe you’ll lose status. But willingness to go against the grain is often a very fruitful strategy.⁴

There’s no denying that a stance of detached nihilism looks very cool. Coronavirus is coming? Yawn.

If there was ever a time to be unabashedly uncool, this is it. Be a buzz-kill! Cancel events. Stock up on supplies. Do that awkward elbow bump thing instead of shaking hands.

---

Collective Sacrifice

As a young, healthy person, COVID-19 doesn’t pose a huge threat to me. It would suck to get sick for a couple weeks, especially if it permanently damages my lungs. But I’ll probably be OK.

Now, some people have taken this idea and run with it… in a very creepy direction. Political Types are gleefully talking about how this will finally wipe out the Boomers and level the playing field, or whatever.

To these people, I say: fuck you. You wouldn’t want your mum or grandpa to get sick and die. But everyone else is fair game?

I’m riding this thing out in Mexico City, where I can’t help but notice all the abuelitos wandering around doing cute old people stuff. I can’t begin to imagine the kind of sociopathy it would take to welcome their gruesome, chest-rattling deaths as some kind of righteous Social Darwinism-inspired purge.

The people who are excited about this are defecting against the entire human race. If you are unlucky enough to have them in your life, you should probably do something about that.

The main reason to take precautions, even if you’re young and healthy, is to do your bit to help stop the pandemic. Again, you pay a small, fixed price—some personal inconvenience—for a potentially enormous benefit to the collective.

If virtue doesn’t do it for you, you could always try shame. South Korea was so frickin’ close to nipping the whole thing in the bud. They had the first 30 cases locked down tight. Then the infamous Patient 31— a ‘super-spreader’—ignored advice to attend a religious cult gathering, and proceeded to spread the love around the whole congregation of 1000 people.

The Seoul government has filed a complaint against the cult, accusing it of murder. On one level, this is absurd. But, you know, there’s a real sense in which that one person is responsible for dozens of deaths, and god only knows how much economic damage. Don’t be that person.

---

Know Thyself

Markets are absolutely bricking themselves right now, which goes some way to explaining the run on toilet paper.

If you came here looking for a post on what to do when the stock market crashes, ta-da! Here’s one I prepared earlier:

If you wake up one morning and see tens of thousands of dollars missing from your precious retirement fund, all rational thought tends to fly out the window. You have to know yourself: when the crash comes, can you brave a 30 per cent decline without flinching? What if it happens in the space of a couple of days? How will you sleep at night? Do you have an ulcer? No? Do you want one?

I think it’s a good idea to visualise these kinds of scenarios in as much detail as you can, and really try to ‘feel’ it. Be honest with yourself about how you might respond in a crisis. Maybe it makes sense to take some money off the table, or have a portfolio that isn’t 100 per cent in stocks, even if it’s technically not the best strategy.

I wrote this post in July last year, and I have basically nothing to add to it.⁵ If you followed that advice then—or at any other point during the 10 years of good times—you were ready for the current situation. If you didn’t, and you’re trying to decide what to do now, it’s already too late. For the love of sweet baby Jesus, don’t try to conjure up a ‘strategy’ in the middle of the market mayhem, while your amygdala is quivering like a jellyfish. You will almost certainly end up doing something stupid.

If you’re in the market for the next several decades, you know the drill. Ride out the volatility, and this will end up as nothing more than a blip. Keep buying steadily all the way down to the bottom, and all the way back up. In the fullness of time, the current prices will look like bargains, etc, etc.

If you need your money in the next five years or so, the situation is much worse, because you shouldn’t have been in stocks to begin with.

What happens if you pull out now? Maybe you avoid yet more damage, or maybe you lock in a huge loss before the recovery. I don’t know; no-one knows; anyone who claims to know is lying or deluded. There is literally no ‘good’ strategy for escaping in one piece, other than praying to the deity of your choice. Good luck.

---

Heads I Win, Tails You Lose

The frustrating but kind of funny thing about this situation is that the only possible outcomes are a) looking stupid, or b) looking corpse-like.

If the COVID-19 curve is successfully flattened, and ends up no worse than a particularly bad seasonal flu, a lot of dumb people will gleefully point out how everyone over-reacted. And because there is no such thing as cosmic justice, these people will not suffer in the least for their opinions.

Most risk accumulates silently; most risk is attenuated just as silently.

And so, if I end up feeling embarrassed about this post—for breaking my rule against writing about current events, and buying into the hysteria—well, that would be a fantastic outcome!

I sincerely hope that’s what happens. That the prepping was for nothing; that working from home was unnecessary; that not going to concerts and events was silly; that I end up with egg on my face.

Because the alternative is much, much worse.

---

Notes:

1. I think many (most?) mainstream media outlets are doing an impressively thorough job now, and I’m extremely grateful to the reporters who are putting in the hard yards. Like stock price movements, media events are subject to momentum: there’s an initial underreaction, followed by an overreaction. In this case, the ‘overreaction’ couldn’t come a moment too soon.
2. More seriously: this post is only meant to cover a few underlying principles. For the object-level details, which are constantly evolving, you should keep an eye on trustworthy sources; if you know of especially reliable ones, please post them in the comments.
3. On March 10, the Health Ministry of my country advised against stocking up. Shop as usual, they said. This was astonishingly bad advice: not only because it undermines social distancing, but because the best thing we could do to avoid empty shelves is stagger demand over many days or weeks, so as many people as possible are prepared before the ‘official’ mandate to quarantine triggers a last-minute rush.
4. This is what I was originally meant to be writing about this week, and now here I am writing about… the same thing that everyone else is writing about. Hmm.
5. OK, fine. I’ve written a slightly more helpful post—slightly!—expanding on what all of this means for longterm investors.