Archive for March, 2020

Coronavirus update

Here are some thoughts on the latest market turmoil:

  • With major market indexes down more than 25% from their peak, the longest bull market in history is now officially over at 11 years.  With an exception of 22% drop in a single day back in 1987, this bear market appears to be the fastest.   No one likes to endure bear markets; however, they create compelling buying opportunities: indeed, S&P 500 is up four-fold since its previous bear market low.
  • The impact of coronavirus on economy is clearly going to be significant; however, no one knows just how significant.  Market may be overestimating or underestimating its impact, and therefore we are seeing this wild volatility in prices.  It will likely persist for at least a few weeks until we get a better picture of the virus trajectory.
  • In such an environment, it is likely that strong companies will emerge stronger, and weak companies will get weaker.  Bailouts may be needed for some industries hit hardest, such as airlines.
  • If you have cash, investing now and continuously over a period of a few months is a great idea.  Invest in strong quality companies with earnings and revenue growth.  If you don’t have cash, sell weak companies and reinvest proceeds in the strong ones.
  • All companies have suffered price declines.  In the short term, home oriented companies will have better financial results.  Examples: Amazon, Netflix, Mercado Libre, Zoom Communications, Roku.
  • Coronavirus pandemic will be over in the course of months, not years.  The economy has been very strong prior to this outbreak, and it will bounce back.  It is not clear if it will be a V-shaped recovery as various restrictions may be lifted gradually, but recovery is certain.
  • Finally, some general market perspectives.  Markets go down a lot faster than they go up, but overall they go up a lot more than they go down.  And having to endure days like these is the reason equity investors are earning the highest returns of any investment vehicle.  Use this opportunity to acquire a piece of great companies at discounted prices.

March 13, 2020 at 1:48 am Leave a comment

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Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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