In 1981, marketing strategist and trend spotter Faith Popcorn coined the term “cocooning.” Cocooning was the idea of staying home instead of going out, feeling safe and insulated from perceived danger. In a 1986 piece in The New Yorker magazine, she opined that the concept involves “building a ‘shell of safety’ around oneself.” The word is enshrined in multiple dictionaries.
“Cocooning,” known as the Cocoon Strategy, also refers to a vaccination protocol designed to protect infants and other vulnerable individuals like grandparents from infectious diseases by vaccinating those in close contact with them. A large number of infants are infected by close friends and family, especially the mom.
“Cocooning” in various forms is de rigueur for the time being, whether required by etiquette, common sense, medical necessity or governmental fiat. With so much shutting down, events and gatherings cancelled, travel deferred, what are we hopefully to learn?
The late Steve Jobs observed, “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future.”
We might thank William Shakespeare for that elucidation. In Act II, Scene I of “The Tempest,” the evil Sebastian uttered, “What’s past is prologue.” Jobs and the Bard of Avon understood that what’s happened only sets the stage for the future. We have to see the patterns, understand lessons learned, and build the future — as we connect the dots.
As investors and planners for our own future and financial independence, we have seen, again, that a bull market can end with blinding speed. We also know that bear markets run their course, as this one will. Many bear slumps are based on negative economic developments. But COVID-19, a classic black swan, landed midst a very strong economy, a plus. A black swan is “an unpredictable event beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.” (Investopedia).
This black swan was medical, not economic, but the market tanked because of totally unquantifiable economic fallout, and Mr. Market abhors unpredictability. The consequences have become an economic event, with an overlay of panic given bare supermarket shelves and hours long waits to get into Costco as an indicator.
Because black swans are largely unpredictable, a long term investment strategy should incorporate reserves and the ability to “ride out” storms that impact equity values. Bull markets in their latter stages are replete with overvalued stocks, and we have seen many market segments move from excess valuations to relative bargains with blinding speed. Market tops and market bottoms are only clearly visible with hindsight, but at some point, relative economic clarity will return as the epidemic wanes and a recovery cycle ensues. How will you frame your investment policy as we recover?
Ebola, SARS, swine flu, Asian flu, avian flu. Pandemics and disease spread are growing threats in our increasingly interconnected, and in many locales, densely packed urban world. In 30 hours or less, an infected traveler can go from one side of the globe to the other. We shall see how effective travel bans and cocooning will be with the current situation. Most flu strains do not disproportionately impact younger people. Older folks, especially, and those with impaired immune systems, can be subject to acute respiratory distress, viral or secondary bacterial pneumonia. A need for more hospital facilities that can handle an influx of seriously ill seniors or other high-risk patients is now recognized. As our population ages and parents and grandparents live longer, the demand for respirators and ventilators could grow given periodic surges of communicable diseases. Government run facilities in other countries have proven less than efficient, something to ponder as we debate national health policy.
There’s danger in being dependent on China for so many important drugs and drug components. Just as we once were held hostage by OPEC, we need more home-grown production independence and diversification of supply chains, not just in drugs, but in numerous areas, including rare earth minerals and key components to electronics and other necessities.
While walking in a park near my home, I struck up a conversation with a young man, late 30s, married with two young children. He and his wife have no wills, no powers of attorney, no basic financial plan. You may worry about global pandemics and your 401(k) while basic planning is incomplete. We often fret over the big picture and things we can’t control, as personal and family foundational planning needs are left undone. Think about that…