Good Monday morning! We sent a note on coronavirus and market turbulence mid-week last week. We noted that the news may get worse before it gets better and since then we’ve certainly seen more market declines and headlines that tempt us to fear and frazzle. This one touches each of our day to day lives in a way unlike most events impacting markets. It is on our minds when we go to work and send kids to school, when we see the still calm but slightly panicked looks from folks in the grocery store, and in that brief pause just before handshakes and hugs. For this reason, we’ll say again that we don’t blame anyone for feeling unsettled about this and we have compassion for those affected.
In the midst of this, we’d simply like to stay in touch and be a voice of optimism as a counterbalance to the flood of fear-inducing messages and headlines we’re all experiencing. There are plenty of good reasons to take courage and to encourage one another. This isn’t ignorance or pretending all is well, it’s simply choosing to focus on the good that’s still all around us.
First, let’s address what we shouldn’t ignore. Last week was the worst week for global markets since 2008. The U.S. stock market, as measured by the S&P 500, dropped 11.5% and global markets followed suit. Companies began to talk about the fundamental impact of coronavirus on business with Apple and Microsoft among those warning of weaker-than-expected near term results. China just this morning reported a very weak reading on its manufacturing sector as operations there are either shuttered or significantly hampered by the virus. There is no doubt this will have a near-term fundamental impact on economic and business activity.
And yet, this too shall pass. The impact on businesses and the economy is real, but it also IS temporary. Our experience is that whether good or bad, investors generally tend to translate recent experience too far into the future. For this reason, when fear arises the market tends to overshoot to the downside before all is said and done. Great companies end up trading at bargain prices, creating opportunities for the astute investor who can keep their cool when others are losing theirs.
The timing of Warren Buffett’s annual shareholders letter was especially good this year, issued the Saturday (2/22) before the market lost its cool. We read it every year not only because we are a large shareholder in Berkshire on behalf of clients, but because this greatest investor in a generation rarely fails to deliver a down to earth reminder of the tremendous benefits of a healthy long-term perspective on investing. This year, Mr. Buffett touched on the power of compounding returns on retained earnings in well run businesses. We couldn’t agree more and have every reason to believe that buying good companies at sensible prices can continue to pay handsomely over the long run.
As we said last week, we’ve already done our best to prepare client portfolios for turbulence and the next bear market whenever it arrives. Now, as fear becomes more prevalent in the market, we are cautiously shifting from defense to offense. We did some modest buying on Thursday and Friday of last week and will continue to look for good opportunities to capitalize on this market volatility for clients.
While fear has its upside in producing good buying opportunities, it’s a terrible thing to live with. History has shown time and again that love is the great antidote to fear. So if we might be so bold, we’d encourage you to find opportunities to turn off the negative news this week. Encourage someone with a kind word or simply a smile. But we don’t blame you if you think twice about the handshake or hug!
Take care, and please don’t hesitate to reach out if there’s anything on your mind. And again, feel free to pass this along to family and friends who might be worried and need a little encouragement.