Collectively many of our clients have survived SARS, Gulf Wars, Y2K, the GFC etc. Fear and greed have alternately gripped markets through all of these crises. Right now with COVID-19, fear has gripped us as we are as yet unsure of the end health impacts across the globe and the consequences for global supply and demand chains.
Markets are fluctuating wildly even on an intraday basis. Friday saw Westpac down 12% before lunch but then closed up +2%. Cochlear was down 5% pre-lunch but closed up 21%. These moves were not the result of any company specific fundamental changes but hopes of rate cuts, stimulus packages etc.
As we have mentioned in our earlier emails, whilst we are monitoring the markets closely, our message to you is do not panic.
We continue to base our advice on the following investment fundamentals:
- Value investing is buying the stocks in great companies with solid fundamentals at good prices. Warren Buffett states that value investing is a powerful long term wealth creator. His stock holding period is said to be forever. Buying opportunities in fantastic companies both here and offshore are emerging. We have been building up cash reserves in our client’s portfolios over recent quarters to take advantage of these opportunities.
- Good companies with solid earnings histories, solid balance sheets and low debt will be the first to be rewarded by the market as this current crisis ends.
- Some of the highest quality and best value stocks remain at their lowest share prices in years. As Perpetual stated in a recent article “we think that the safety and value features of these (latter) kinds of stocks have not been fully appreciated. But the time will come when they will be.”
The next few months will be a time of volatile markets. When the effects of the pandemic subside we will be left with a world of low interest rates, huge infrastructure projects and other Govt spending. Money on the sidelines will find its way back into equity markets. Selling stocks now just locks in losses and will ensure that the sellers miss the next market boom which historically usually occurs within 12 months from the bottom of the bear market.
Again, call our team if you have any issues or questions.