A lot of people are asking, “Should I buy now? Is it the bottom?” or, “What is the ONE stock I should buy right now?”
The answer to both questions is… “I can’t answer that.”
If I were still daytrading I might have a different answer.
BUT… for long-term investing: 9% UP days are just as bad as 10% DOWN days.
We had a 10% up day on Friday and everyone was saying, “Damn! I’m too late.”
The thing is, the world economy doesn’t move 10% in value ANY day. It never does. Moves like this (up or down) imply massive volatility, massive uncertainty. For a long-term investor, the best course of action is to wait until there is more certainty in the market and in the world.
A week ago, billionaire real estate investor Sam Zell said it was a massive opportunity to buy energy stocks. He is presumably down on this trade now but this approach makes sense.
First: Sam Zell made his billions when he sold his huge real estate company for billions at the very, very top in 2006.
Oil went from $50 to $30 in the past two weeks, largely because of one thing that had nothing to do with the coronavirus: Saudi Arabia is trying to crush Russia by driving prices lower.
Oil often goes down because world demand goes down in a recession. That is NOT what happened here. Oil went down because Saudi Arabia announced it would produce more. This is practically a joke. Saudi Arabia has been hiding the fact that it’s been running out of oil for years. It can’t produce more and even if it could, it would take months to get the infrastructure in place. So this was a non-event, a game between world powers.
But because of current world fears around the coronavirus, everything collapsed. “Oh no! Oil is going down! Maybe we’re in a recession.” Maybe we are, but that’s not the reason oil is down.
In fact, it’s GOOD for consumers that oil is down. Imagine if you are like 50 million other people in the U.S. who drive to work every day. Oil going from $50 to $30 is like having a pay increase. Less money for gas every single day. It’s a massive stimulus to the economy. Hence, the artificial collapse of the stocks of many oil companies is, as Sam Zell pointed out, is probably a buying opportunity.
I have no idea what he’s buying. But it’s interesting to know he doesn’t care that he’s currently down. NOBODY can catch the bottom. Bernard Baruch, one of the most famous investors of all time, once said, “I always bought too soon and sold too quickly.” He died with $100 million (the equivalent of several billion today) made solely from investing.
If you want to play around with this idea, look for the big mega oil companies that are trading with dividends between 5–10% (not higher because there could be other things wrong, and not lower because at this point, a decent oil company that’s been hit hard in this market will have a dividend over 5%. Shell (RDS) is an example (not a recommendation but an observation).
Some thoughts on the coronavirus
Of course, people have seen too many dystopian movies. My kids just watched “Outbreak.” I refused to watch it. But I did watch “Contagion” because A) it resembled more the situation now (albeit a worst-case scenario) and B) the technical advisor on it, Dr. Larry Brilliant, who eradicated smallpox in the ’70s in India, was a friend of mine and we were on a few boards together.
It feels to me like everyone’s seen these movies and now just assume we are going into some dystopian post-economy world. We’re not.
I’ve been doing a podcast every Monday about the coronavirus. Today was the fourth one. I spoke with Dr. Marty Makary at Johns Hopkins, a regular CNBC and Fox contributor on this subject, as well as the author of several bestselling books on healthcare.
He mentioned to me a couple of things I found interesting:
- Pandemics in general, and this pandemic specifically, seem to last three months. This was true for South Korea, China, Singapore, etc. China is reporting no new cases and people are going back to work, for instance. We’re a few months behind China.
- If you date the start of the U.S. version of this pandemic on March 1, that would put the END of this pandemic at the end of May.
- “Peak Coronavirus” in each country tends to be exactly halfway through. For the U.S., that would make it April 15.
- If we continue the practice of “social distancing” and the current lockdowns (and maybe more) it should DRASTICALLY reduce the infection rate.
DON’T FORGET, China, a country with 2 billion people, had only 3,000 reported deaths. Now, assume it’s lying. Let’s say it was 100,000 deaths (even though there were only about 80,000 reported cases in China). The U.S. has 1/6 the population of China. We certainly will not overflow the medical system, even if the number of deaths in China was THIRTY TIMES GREATER THAN WHAT WAS SAID.
I’m not trying to be too optimistic. I do think social distancing is important. I am scared for the small businesses that are suffering and I wonder what will happen to help. Let’s see.
But focus on what we can do today: stay healthy, exercise, be creative, be around people you love, try to help people. Take a big breather from every second thinking about the stock market, particularly if you don’t daytrade.
This pandemic will be over. Stimulus will kick in. Stocks will go up (China’s market, by the way, is back to all-time highs!) and there will be many, many opportunities.
Today’s final thoughts on the market
The market is broken.
The good news is it is a self-correcting mechanism. It will fix itself in time.
The bad news is we don’t know how long it will need or from what level the recovery will begin. But this isn’t the end of stocks.
For nearly a decade, there have been naysayers touting the end of free money would be the destruction of the market. Others spouted a dozen other reasons why equities would inevitably drop viciously. Not a single one pointed to a virus as a possible cause because that’s how Black Swan events work. Even the best and the brightest can’t see them coming until they are on top of us.
But out of the rubble will rise some of the best opportunities to build positions in high-quality names that we haven’t seen since the financial crisis more than a decade ago. The challenge becomes seeing the forest (long-term opportunity) through the panic — I mean, trees.
The way this has been approached successfully in past crashes is by avoiding calling a bottom. First, don’t try to time the exact market turn. The potential pain isn’t worth it if you are early. Second, consider scaling into positions. For instance, if you have $2,500 you want to invest, start with $500 at a time. Invest $500 now and see what happens with the market. If we drop another 10–15%, then add another $500. If we don’t fall, then start adding $250 as the dust settles.
The most important thing to do right now is to avoid media headlines and don’t panic. It’s more likely we’ll look back at 2020 as a fantastic opportunity, but investors should reset their time horizon beyond a few weeks or even a few months in what they already hold and what they plan to buy soon.Share This Post