Long before the Coronavirus, we have been fairly obvious about our concerns with the General Stock Market pricing. Virtually all fundamentals of ‘Value’ investing were being ignored with record high prices and record low (at the time) interest rates. Savers were being punished with anemic fixed income returns, so more money poured into the stock market for people looking for better returns. The market was already ‘in the red’ as Nascar fans would say, then the engine seized up when the Coronavirus hit.
I have had numerous emails from clients asking if now is the time to buy. I’ve been very conservative with their portfolios over the last couple of years, so wanting to be buyers is a totally rational reaction. Though I did increase their equity exposure a bit, I still have not fully vested their portfolios. I am not ready to ‘back the truck’ up yet.
To start, I am never not a ‘buyer.’ I just am critical of which investments I think offer a long term good value, usually meaning I would buy the whole company if I had the money to do so. Good values are harder to find when the market is significantly overpriced, but we are looking for them. Warren Buffet was also holding more cash than ever prior to this virus, signaling he also saw fewer value opportunities available in this current market.
With all areas of the market being impacted by this virus, we are looking at distressed areas and businesses to see if we can find the diamond in the rough. These sorts of market reactions can tend to hit all investments, so it does make the pricing more interesting on the investments we would use to build a client’s portfolio. But as with any volatile market, you have to be prepared for the investment to initially keep falling after you buy it, so the time frame needs to be longer for stock investments. As in 2008, when investors run for the hills, they sell their quality and lower quality assets all the same. We want to buy the quality assets while the crowd is selling them.
We are also increasing our positions in investments that work to protect purchasing power of our client’s accounts once the money printing starts. The amount of stimulus needed to counter this virus will be astronomical. Helicopter money, tax reductions, etc, not to mention all the industries that will require a bailout to stay in business. The total amount will be enormous.
If you’d like to discuss adjusting your portfolio to reduce your risk and protect the purchasing power of your account while the money printers are turned on, feel free to give me a call @ (303) 770-3030.
Phillip Haydn Connors Investment Adviser Phillip @valuefin.com
Seeking Value 