Whitney Tilson’s email to investors discussing an excerpt on managing risk during the coronavirus pandemic from his new book, “The Art of Playing Defense.”
Here's an excerpt from my new book, The Art of Playing Defense, which is scheduled for release in two months:
David Einhorn's Greenlight Capital was down 0.1% for the first quarter, underperforming the S&P 500's 6.2% return. In their letter to investors, which was reviewed by ValueWalk, the Greenlight team said a lot happened during the first quarter even though they made just a handful of changes to the portfolio and essentially broke even. Q1 Read More
Managing Risk During The Coronavirus Pandemic
As I write this in January 2021, the coronavirus pandemic is at its worst point ever, with over 130,000 Americans hospitalized and more than 4,000 dying every day.
Vaccinations are ramping up rapidly, however, so by the time you read this, it may be mostly behind us and life will have returned to normal (I hope!) – if so, feel free to skip ahead.
Some argue that because fewer than 20% of Americans who have died of COVID-19 are under age 65 – and most of these folks had comorbidities such as obesity, hypertension, and/or diabetes – that young, reasonably healthy people don't need to worry about catching the virus because, even if they do, they likely won't have any symptoms or, at worst, will simply have a few days of feeling like they have the flu.
This is bad thinking (and risk management) for two reasons: First, there are many cases in which young healthy people suffer serious long-term consequences such as extreme fatigue, loss of taste and/or smell, and even heart damage. While it's not known how common these outcomes are, there's clearly a "fat tail" risk that simply doesn't exist for, say, the common flu.
More importantly, young people with the virus (especially asymptomatic ones who don't know they have it) can spread it, which keeps the pandemic raging – and, ultimately, infecting vulnerable people, many of whom become sick, have to be hospitalized, and even die.
Avoid Getting And Spreading The Virus
So, no matter what your age and health, you should treat the virus very seriously and do your best to avoid getting (and spreading) it.
To do so, start by following the basic measures espoused by Dr. Fauci and the CDC: Wear a mask, maintain social distancing, avoid crowds and poorly ventilated spaces, and wash your hands often.
These recommendations are obvious and, for most people, fairly easy to implement. I'm still able to meet up with friends, go jogging and play tennis, for example – I just do all of these activities outdoors.
Unfortunately, however, the response to the pandemic has been politicized, which has led tens of millions of Americans to believe that it's nothing to worry about and/or a hoax and/or that wearing a mask is an unacceptable infringement on their freedom. This is madness!
Worse yet, tens of millions of Americans (likely many of the same folks) aren't planning to get vaccinated when a vaccine becomes available. According to Gallup's latest polling, 35% of Americans say they'd refuse an FDA-approved vaccine, even if it were offered at no cost. And, sadly, there's a huge partisan split: Only 17% of Democrats versus 55% of Republicans would say no. I sure hope these surveys are wrong, because it would be a national tragedy if this terrible pandemic is prolonged by many months, accompanied by hundreds of thousands of incremental, unnecessary deaths, due to false information and conspiracy theories leading many folks to eschew a vaccination.
Even if you have the good sense to follow the basics, however, there are still a lot of tough decisions everyone has to make pretty much every day: Do you take a ride in a friend's car? Outdoor tennis is probably safe, but what about indoors? Do you spend a holiday with your parents? The list of tricky questions is endless...
Tolerance For Risk
There are no blanket answers to these questions, as every person has a different risk tolerance, personal situation (age, health, do you interact with vulnerable people?), and environment (is there a flare-up in your area?).
I tend to have a pretty high tolerance for risk, plus I don't have many risk factors: I'm not old yet (I'm 54), am in superb health, and, living on the Upper East Side of Manhattan, have access to the best doctors in the world. Thus, I've been willing to take risks that I wouldn't recommend to others, such as flying out West to go rock climbing last June and October and taking my family to Kenya to spend three weeks with my parents and sister over the Christmas holidays.
There is one area, however, in which I've recently changed my mind – and behavior. I'm a passionate pickup basketball player – pre-pandemic, I'd been playing two to three times a week for decades with a group of friends. That all came to full stop last spring, when the pandemic walloped New York City.
But then the number of cases, hospitalizations and deaths here plunged by more than 90%, so in the fall, my friends and I played basketball a few times outdoors in Central Park. And then, in November and December, a dozen of us rented a gym and played for a couple of hours on Sunday nights.
This was probably the highest-risk thing I'd done since the start of the pandemic: It was indoors, we were all sweating and breathing hard, and were right in each other's faces playing defense – with no masks. But I decided to take the risk because the virus was at such low levels in New York City.
But when I came back from Kenya in January and the Sunday night games resumed, the environment had changed dramatically: Cases, hospitalizations, deaths and the percentage of people testing positive had soared to six to 10 times above the levels at the beginning of November! Thus, even though I'd already paid for eight Sundays in January, February and March, I decided to sit out until we all got vaccinated or the COVID numbers fell a lot.
This example underscores a key principle of risk management: It's not enough to identify risks and take steps to mitigate them on a one-time basis upfront. It's also important to monitor changing risk levels and, if necessary, make adjustments.