- The markets had a large drop yesterday.
- Our hurricane shutters were up before this market storm made landfall.
- Our managed accounts have fared very, very well in this downdraft.
- Our proprietary indicators are showing many investors are acting irrationally out of fear.
- It’s usually a great time to buy when others are in fear.
- Great companies are now very cheap.
Yesterday the Dow suffered its largest one-day loss since 1987. As you know, we have been preparing for a correction of some kind, for quite some time. We have been underweighting stocks in your balanced accounts. We have been preaching to raise cash for a while and many of you have taken us up on raising funds for expenses, trips, new cars, and whatever other reason you might need the cash.
Our rebalancing in January of your balanced accounts helped reduce volatility a great deal. Our process of trimming what has worked the best, stocks in this case, and adding to what hasn’t, bonds/gold, put us in a good place to weather the storm. Our hurricane shutters were up well in advance of this storm making landfall. I want to be clear though, that this doesn’t mean that we’re not going to get some rain and some wind, but it stops your portfolio from getting blown away.
Coronavirus is all we seem to hear about now. The abundance of caution may have gone to extremes and it has caused people to panic, both in Publix and in the markets. Many high-quality stocks have now declined in a very short time to levels that we would consider extremely attractive. That does not mean they can’t go down a little further, but at some point, the potential opportunity starts to outweigh the potential risk, especially for the longer-term investor.
Our proprietary fear gauges are showing levels near the financial crisis of 2008. You may remember that financial crisis… We were worried that banks would go bust and no one would be able to borrow money. This is definitely not 2008. This is not a financial crisis. This is a fear crisis. We are not saying that some level of fear and preparedness is not necessary, it absolutely is, but paranoia has seemed to pass preparedness in the last few trading sessions.
The question you may be asking, was yesterday the bottom? I have no idea.
I don’t know if yesterday was the absolute bottom (probably not), but I do know this is the time to start looking at valuations of some of the greatest businesses in the world. The prices of many of these companies are attractive to us as long-term investors.
The process to reinvest our dry powder may take weeks or months but as the Chinese philosopher Confucius says, “A journey of a thousand miles begins with a single step.” This is the time to start taking that step.
If you have questions about what this means for your account specifically, please feel free to reach out to any of us.
I’ll leave you with two of my favorite Warren Buffett quotes that summarize where I think we are now.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”
Please feel free to pass this message along to any friends or family that are not receiving timely communication from their advisor.