How Bad is Bad?

We can probably all agree that Covid-19 is bad, causing unacceptable death rates, hospitalizations and economic pain.  How bad?  Commentators have sought to find comparable events in an effort to measure the potential long term impact of the pandemic.  While this is of obvious importance to investors, definitive answers are hard to find.  Most observers seem to agree that the pandemic will eventually be brought under control through a combination of vaccines and herd immunity.  Even though it is not possible to clearly define the path that Covid-19 will take, human resilience is legendary.

As one example, consider Iceland’s long history of disasters and improbable survival.  We chose Iceland as an example because, as an island, it provides a relatively cohesive history.

Iceland is a small country with a population of approximately 365,000.  Prior to Covid-19, when the world could still travel, the country hosted more than 2 million tourists a year.  According to Wikipedia, Iceland was first settled beginning in 874 AD and eventually had a population that hovered at approximately 50,000 until the twentieth century.  During this period the country suffered through a series of diseases and disasters.  A few of the most significant follow.  In 1402 the black plague killed a third of the population, and again in 1494 with a similar death toll.  In 1707 smallpox was just as deadly and in 1751-52, a famine killed 6,000.  In 1783 The Laki volcanic eruption killed 20% of the population and 80% of their livestock.  Throughout the 19th century, the county’s climate continued to grow colder, resulting in a mass migration to the New World.  After the end of WW II and into the 21st century Iceland developed as one of the most prosperous countries in the world, but then was hit by a major financial crisis resulting in a new migration to the West.

Through all of this, Icelanders managed to survive.  The country’s population lives on the coasts as its highland heart area is considered too capricious and punishing to be livable.  With the growth of tourism, Iceland is a prosperous and delightful place to visit (I’ve been several times) and should, once Covid-19 is under control, again welcome a new surge in tourism.

Iceland’s story holds a worthwhile lesson for investment management.  Don’t overreact, take a long view and believe in human resilience.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA