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Partner Content by T Rowe Price

In extreme market stress, tenacity is a small cap investor’s best weapon

The unprecedented threat posed by the novel coronavirus to public health, and the extreme measures by governments to contain its spread, have had severe knock-on effects for the global economy. Just how long and deep this economic disruption ends up being, however, is difficult to determine. This “fear of the unknown” is being reflected in the world’s financial markets and, until we see clear evidence of the pandemic’s containment, volatility will continue to shadow markets.

The coronavirus pandemic is certainly a “black swan” financial market event – coming from nowhere to present a new and significant risk. However, what is not new is the extreme psychological response from investors in the face of this risk. This herd mentality – of individuals acting collectively in response to a perceived threat – is an understandable, and remarkably consistent, human behaviour. As such, the kind of fear-driven investor response we are seeing currently is well known, and our investment playbook in this environment is tried and tested. As in previous market crises, a resolute focus on fundamentals, and maintaining a long-term perspective, are crucial to successfully negotiating this difficult period.

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