Striving to Consistently Outpace The S&P 500 Index
0% Management Fee, Performance Fee Only.
Why March 2020 Created A Once in A Decade Opportunity for Stocks
First and foremost, I hope everyone, and your families are healthy and safe during this tough pandemic.
Financial markets in the month of March not only plummeted but had incredible swings not seen since the late 1920’s and early 1930’s (outside of Black Monday in 1987). These gyrations have caused fear in investors when it comes to investing and/or holding stocks.
The natural reaction might be to run to safe havens such as fixed income or gold. As we have seen, fixed income did not hold up very well. Gold seems to be the main run to safety and has increased in value, but will it outperform in the long run? 200 years of data strongly suggest that it won’t.
As the title of the essay suggests, March created a once-in-a-decade opportunity to invest in stocks. Since 1926, on average, the stock market has had at least a 30% decline once every ten years. It is at this time that investors should be taking full advantage of the discounts being offered by the market. The questions / actions many investors ask themselves are: 1) How do I know this isn’t the bottom and 2) I will hold off on investing because I think the market could get worse in the next weeks or months and/or I will wait until markets steady themselves a bit. These are natural questions and observations. However, I think these are the wrong questions to ask, which will lead to seeking the wrong answers. What do I mean, if you ask yourself “is this the bottom” you will seek out news articles, pundits, experts etc. to answer that question. The truth is no one knows, so the opinion (often stated convincingly and reassuringly) is not important. If the investor decides not to invest because he/she believes the market could go down more in the near term (anywhere within 6 months), that is making a speculative bet on the direction of the market and not investing. If the investor waits for the markets to steady themselves, he/she may miss out on the largest recovery gain days (see March 13th and March 24th).
So what to do.....
If great companies are being offered at a discount of 30% to 35%, that is a great opportunity to buy more of the companies you deem to be great long-term investments. The case could be that this isn’t the market bottom and the companies in the near term could be offered at even greater discounts at 40% or maybe more. But buying at a discount of 30% to 35% will not cause buyer’s remorse even if the reduction is greater because the current sale is a very good bargain. Investors will never be able to perfectly time the bottom.
This situation reminds me of a story my wife Ana told me. Last November she was shopping for a particular item and noticed that it was on discount for 25% off. Apparently, the item was rarely on sale. She chose not to take the discount because she thought maybe during Christmas the item would be at an even greater discount. That turned out not to be the case and she missed out on buying the item. Lesson to be learned: When rarely offered, take the discount.
Stay healthy and safe. This too, shall pass.
Always out bargain hunting, Greg Cavallini
Track Record
To view track record, please contact Greg Cavallini at greg@cavallinicapital.com.
0% Management Fee, Performance Fee Only
Notes:
The record above displays Cavallini Capital’s track record since inception on July 1, 2017.