Pay attention to the qualitative context of what is driving the economy and therefore future corporate profits. If it is temporary -- as a pandemic is likely to be -- then we want to look through to the end of the lockdown and the recovery.
No. 5. Buying into a sell-off is really hard: “Everyone wants to be a contrarian” could be my favorite sentence of all time. How many traders wish they could put their emotions aside, follow a few charts and buy at the market lows? Humans are herding social primates, a species that evolved over time with group cooperation as a survival strategy. You have been wired to not fight the crowd; it is incredibly uncomfortable to do so.
The bottom line is this: We have no idea how much worse this gets in terms of public health or for the economy. But once the scope of this crisis has been accounted for, the market is likely to identify it before anyone else.
Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”