10 Mar Market Update – 03/09/2020
Human psychology is the one constant that seems to never change (sounds like something Yogi Berra would say!) The pendulum swings from fear to greed and back again. Just three weeks ago the overall market was priced for near perfection, and as of today we are down nearly 20% and supposedly headed for a coronavirus led recession. Add to that an oil price-war announced over the weekend between Saudi Arabia and Russia, and there is plenty of negative headlines for investors to worry about. These are all things that are definitely concerning, but the real question is – will they matter 5 years from now? I cannot imagine the virus will not have been contained and today’s lower energy prices aren’t a benefit to everyone but the oil industry.
This is the time to review companies that had become too expensive or popular along with those that appear to be getting to cheap.
A couple of new names I’m considering that have been on the expensive side are Amazon, Mastercard and Johnson&Johnson along with a couple of existing holdings that are smaller positions such as Diageo and Facebook.
As for those that look inexpensive – all the banks! Several are now trading below tangible book value (accounting liquidation value) with dividends of 3% -4%. This seems ‘way’ overdone. And oil? Holy Moly! The only thing I think I can confidently say after today is it will be higher in the future. The industry cannot replace current production profitably at these prices. Only the very strongest will survive a sustained price-war, and the rest will go under or be acquired. If you’ve complained recently about the number of cars and traffic on the roads, you can understand my belief that fossil fuels are not going the way of the dinosaur anytime soon. I just wish I hadn’t bought them at much higher prices and their generous dividends weren’t in jeopardy of being reduced.
So hang in there and let’s try to make some good decisions during this very volatile time. With interest rates at all-time lows, bonds are absolutely not an option. Well managed businesses valued at reasonable prices are the place to be, along with cash for living expenses, emergencies and the inevitable swing in human psychology.
As always, I appreciate your trust and please do not hesitate to call with questions or concerns.