I started wearing disposable gloves and a mask in early March. Almost everyone was looking at me as if I was some kind of a freak. Today, I don’t wear a mask when I go out and people are looking at me as if I am an idiot.

Most of the time it makes perfect sense to do what the crowd is doing. In investing this is called trend following. It is one of the most profitable investment strategies. If you had bought the S&P 500 Index in 2009 AFTER the index increased 20% from its recent bottom and didn’t sell until the S&P 500 Index declined 20%, you would have returned around 230% in 11 years.

You didn’t have to be an investment genius to achieve this performance. All you have to do is to buy after the market is up 20% and sell after the market is down 20%. If you have some sort of talent in identifying the turning points in the S&P 500 Index slightly in advance, you can achieve even better returns. The S&P 500 Index gained more than 27% since its intra-day bottom on March 23rd. Hedge funds’ top 5 stock picks usually perform much better than the S&P 500 Index. You aren’t going to believe what I am going to tell you now, but it is 100% true: The top 5 stocks among hedge funds lost only 3.2% year to date, whereas the S&P 500 Index lost more than 13%. So, our free recommendation to you is buy the following 5 stocks instead of index funds: Amazon.com Inc. (NASDAQ:AMZN), Facebook Inc. (NASDAQ:FB), Microsoft Corp (NASDAQ:MSFT), Alibaba (NYSE:BABA), and Alphabet Inc. (NASDAQ:GOOGL).

We launched Insider Monkey’s investment newsletters more than 7 years ago and this was the first time in 7 years we intervened. That was because we saw the recession coming at the end of February (read our article here). Here is how I did it.

I read a lot of academic articles and used incomplete data reported by other countries to estimate the parameters of this new coronavirus. We encountered deadlier viruses like SARS, MERS, and Ebola over the last 20 years, but they fizzled out. So, I especially tried to figure how COVID-19 managed to elude our virus fighters. The answer was asymptomatic transmission.

This meant the only way to stop this virus at our borders was to test everybody. Unfortunately, tests aren’t 100% accurate (some tests fail 20-30% of the time to detect someone who is actually infected), so we also have to quarantine them for a period of up to 2 weeks and retest them. That’s what China is doing today to international travelers.

Obviously we weren’t doing any of this and we didn’t close our borders to all inbound traffic, so this meant only one thing: the new coronavirus was freely spreading.

The first parameter I estimated was the life cycle of this virus. I estimated that it took an average of 5-6 days from infection to the onset of symptoms, another 5-6 days from the onset of symptoms to hospitalization, and an average of 14 days from hospitalization to death. Check out the image below from an academic article that was published a week or so ago for the actual distributions:

The second parameter I estimated was the new coronavirus’ infection fatality rate. Initially I used a 0.5% estimate, but later on I switched to 1%.

The third parameter I estimated was the new coronavirus’ doubling rate. Data from other countries indicated that the new virus doubles every 3 days when it is freely spreading. Obviously, once we start implementing social distancing, lockdowns, and other policies, this parameter would change.

Then, I proceeded to setup a very simple model. When someone dies from COVID-19 in a given country, it means this person was infected approximately 24 days. However, since only 1 out of 100 people who were infected 24 days ago dies, we can estimate that there were 99 other infected people 24 days ago as well.

It takes one infected person about 18 days to spread the virus to 100 people. This implies that when a country reports its first COVID-19 death, the virus has been spreading within that country freely for about 6 weeks.

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