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Financial Freedom

I’ll Have a Corona, Please… With a Side of Buffett

  • The stock market’s plunge over the past month has been spectacular.
  • But, as Alexander Green explains, if you keep your head, there is a bright side for building wealth.

The stock market’s plunge over the past month has been pretty spectacular.

Bear markets generally take months to unfold. But what started as “The Coronavirus Correction” quickly turned into a market rout.

How much of this is due to hysteria rather than fundamentals?

Quite a bit, actually.

Don’t get me wrong. COVID-19 is a real threat. I have parents who are 89 and 90, so you can believe I’m monitoring this thing closely.

But notice that shares of food companies, drugmakers, utilities, defense contractors and firms that will benefit from people staying home – like Amazon (Nasdaq: AMZN) and Netflix (Nasdaq: NFLX) – have fallen along with the broad market.

Moreover, a survey this month found that 38% of American beer drinkers said they would not buy Corona beer now “under any circumstances.”

A friend told me he hears that and despairs about our public education system and the critical thinking skills of his fellow citizens.

But there is also a bright side.

We live in a competitive society. The people around you are competing for jobs, promotions, mates and scarce resources.

We also compete for higher returns in the financial markets. And, personally, I like my chances against the “No-Coronas.”

No-Coronas do not tend to be savvy investors.

They lost their shirts on technology stocks during the internet bubble. They took a beating on land and housing during the real estate bubble. Over the last few years, they loaded up on pot stocks and cybercurrencies.

When they do invest in high-quality companies, they hold them for just days (or hours).

They don’t use a buy discipline and they don’t stick to a sell discipline.

They panic and run to cash in a market downturn – and not in the early stages.

They wait until the market grinds down to the point of maximum pessimism and then they sell, telling everyone that a) they can’t take the pain anymore and b) they will get back in later, when things look better.

You know, like they always do at the bottom.

I wish the No-Coronas a lot of luck. They’re going to need it.

For those who wouldn’t be afraid to order a Corona today – even if they generally prefer a more flavorful beverage – I have a different perspective to offer.

The coronavirus is bad. Its economic effects will be negative. But its time on this earth will be limited.

The world’s scientific community is hard at work on a successful treatment and vaccine.

And we will have them eventually, even though mathematical modeling shows that the virus is likely to peak even before they become available.

People will go out again. They will travel, they will shop, and they will spend.

We’ve entered a dark tunnel. No one knows how widely the pandemic will spread, when it will peak, or how many will get sick and die.

But it will end. Business will get back to normal. Life will get back to normal.

And the markets will turn up again long before they do.

So rather than listening to the No-Coronas in your neighborhood or on social media, lend an ear instead to the greatest investor of our era, Warren Buffett.

I’ll leave you with a few excerpts from a New York Times op-ed piece he wrote in October 2008, as the financial crisis was gathering speed:

The financial world is a mess, both in the United States and abroad… In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So… I’ve been buying American stocks… Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.

To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.

These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now.

What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over…

Over the long term, the stock market news will be good.

In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain.

But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy…

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later.

In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Good investing,

Alex


About

An expert on momentum investing, value investing and investing based on insider activity, Alex worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years. He now runs the wildly successful Oxford Communiqué, ranked as one of the top investment newsletters by Hulbert Digest for more than a decade. He is also the author of four national best-sellers: The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. He shares his wisdom in his free daily e-letter, Liberty Through Wealth.

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