Now There’s Blood in the Street!

The old truth in investing says “the time to buy is when there’s blood in the streets.” Unfortunately, in these times it is more true than we would hope. The corona virus does not just mess up the economy and stock markets but causes horror and confusion among people around the world. Every day we read news about new effected and deaths. Countries are closed and the state emergency be in force almost everywhere and travel has stopped.

Nobody knows how long this virus will persist, but they do naturally die out. Hopeful warming weather in many countries can help us. Before that, the impact on society will be enormous, and probably long lasting. Our global supply chain optimized for efficiency – not resiliency – is almost collapse. We are on the fast track towards a recession. Recession is not the end of the world; in fact, it’s part of the natural cycle of the economy. And recession is always the beginning of a next new boom.

I don’t think the corona virus will be the end of the world. It will cause a lot of uncertainty, fear and even panic. Often the headlines will get worse before they get better. But despite all the uncertainty, human suffering and serious financial consequences one day it’s gone and a new better time begins. Based on history bad times make for good buys. Believe or not, you make most of your money in a bear market; you just don’t realize it at the time.

Keep in mind that the stock market rewards investors who are long-term-oriented and patient – and don’t agree the crowd. Just remember the situation after the stock market crash of 2008. In hindsight viewing early 2009 was a really great time to buy bargain shares. At that time, it was not easy to be a buyer. It is only pleasant from today’s rear-view mirror perspective. Early 2009 all the news was depressing. Every single headline sent a message: “Don’t buy, just sell.” Many wise experts advised you that it is prudent to wait and buy only then, when the dust has settled and we have a clarity. But be sure when the uncertainty has been resolved, the bargains will be gone!

Our ultimate goal is to continue to keep our emotions – fear and greed – in check and to remain as rational as possible. Even when the world around us doesn’t seem to be rational at all. It’s interesting to follow how emotions can start to impact our time horizon. During the bull market we expect earnings and profits to grow at least five to ten years – even forever. Instead during the bear market our time horizon shrinks to months and then weeks. It would make sense to do the other way around.

The more rational we are, the better decisions we will make. We should continue to stick our investing process. Quite normally and without hesitation analyze companies that meet your investment criteria. We ought to build a large wish list of stocks we would like to own. A larger list can help but we should not compromise on quality. Value companies, evaluate their risk and figure out how much margin of safety is needed. When names on that list turn into buys, start buying.

In such an uncertain market situation it’s wise start buying in smaller increments. Instead of building a position through one big purchase, it’s better to buy in smaller sizes. This is primarily because uncertainty related to coronavirus may result in greater volatility and thus give us even better bargains in the future.

Uncertainty and disagreement between investors create the greatest buying opportunities. Some view this as a buying opportunity, others think it’s a great time to sell stocks and many just want to wait. This disparity of interpretation is why stocks get mispriced. It’s sure that many companies have to adjust their earnings forecasts for next quarter or this year. And the resulting fear feeds on itself and leads to more fear. It’s hard not to panic when the store shelves are emptying, people’s free movement is restricted and the news from major TV chanels are day by day worse.

Be ready to accept imperfection, invest in the long run and remember that risk for us is not volatility but permanent loss of capital. Be rational and brave – and dare to be ready to utilize propably the best opportunity of the decade.

Life can only be understood backwards – but it must be lived forwards!

2 thoughts on “Now There’s Blood in the Street!

  1. What do you think of Hertz Global Holdings Inc (NYSE: HTZ)?
    Is its value going to 0 or are people too pessimistic due to the pandemic?

    Like

    1. HTZ is too risky business for me. First, It’s a highly levered situation with rental cars as the underlying security. And second, the turnaround scenario is built largely around the assumption that company’s earnings will grow by renting its vehicles to Uber and Lyft drivers – which does not seem very likely at the moment. Of course you may believe Carl Icahn will eventually turn around the company. In my opinion it might be distressed debt opportunity. Finally for Icahn also. Then it’s different type of investing – and you probably need a lot of capital to succeed.

      Like

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