First off, there is no greater consideration than the human suffering delivered by the COVID-19 outbreak. I know the potential to profit from suffering will appear callous, and then some. But many are wrapped in fear on many fronts. That includes investors who might make decisions that impair their financial health. I’ve penned that market corrections separate winners from losers. This is another moment in time when some investors will destroy their wealth. Other investors will create incredible wealth. So I’ll ask the question. Is this an incredible investment opportunity or what?
Now we’ll add the ‘or what?’ that covers off the ‘past performance does not guarantee future returns’ standard disclaimer. I’ll write that even though I don’t have to run this post past any lawyers or compliance officers. Thing is, I don’t have a crystal ball. But if you believe that we’ll get through this Coronavirus threat and that the world will continue on that path to economic growth, this is likely a wonderful opportunity.
Be greedy when others are fearful.
OK I honestly hate to pull out the investment cliches, but that’s a good one. And that wonderful Warren Buffett quote frames the current situation.
Lower stock prices are good. No, they’re great. There is certainly fear. Perhaps the fear is unrivaled. We are setting records for how fast this market moved into bear market territory.
Unrivaled fear = unrivaled future returns?
Will there be a correlation between the fear index and the index returns? We don’t know. And I’d guess there’s much more fear to come. COVID-19 is just getting warmed up in North America. And there’s likely much more on the lower stock prices front to arrive as well. But that’s a guess. Markets could start to recover from today. They could also fall another 20-30% or more over the next few months, or years.
While I have a guess as to what might happen, I’m not going to wait to see if that happens. My wife is in ‘late stages’ accumulation. We’re adding monies.
You can’t pick a market bottom.
No one rings a bell to say the coast is clear. We don’t hear ‘come and get it’.
Nope we have to step into the unknown. That’s why there can be impressive returns. Some investors are prepared to take on ‘additional’ risk. Many investors are not. They want out, period. And those risk-off investors are then willing to sell you their companies at a drastic discount to their potential long term value.
It’s a stock sale. Everything must go!
What kind of sale do you like? 25% off! 35% off! 50% off?
Just how greedy are you? We invest with Warren Buffett by way of the Berkshire Hathaway shares. He’s really greedy. He is sitting on some $150 billion in cash and cash-like instruments. Mr. Buffett has been waiting a long time for the stock markets to go on sale. For a (large) portion of one of our accounts I wanted a large cash pile in the hands of the greatest investor on earth. We’re going to let him do some value hunting for us. He’s very patient. We’ve been very patient. I bought BRK.B shares in 2014.
But let’s get back to your greed factor. It will be crucial to have a greediness acquisition plan. I really like this tweet courtesy of our friend Fritz from The Retirement Manifesto.
But of course if you have a sensible plan and are investing on a regular schedule you just keep on keepin’ on. You’re investing funds as they become available. That’s known as the best investment plan on the planet.
But many are sitting on cash hoards, like Mr. Buffett. That was part of their risk management strategy. So get an equity glide path strategy. You can be robotic and unemotional in that approach.
Will history repeat?
Here’s the returns of the S&P 500, iShares IVV from January of 2009 to end of February 2020. This is what happened when buying near the bottom, at peak panic.
Warren Buffett tells us things were much worse in 2008. Of course, again, that’s just his opinion. Is this a 2008 investment opportunity? Or will it become a 2008 opportunity if we see a correction that reaches 40-50%?
Today you can buy more shares, greater current earnings and much greater dividends. Here’s one example.
If we look at that Vanguard Canadian High Dividend Yield ETF, ticker VDY that I purchased the forward yield is more than attractive. The forward yield purchased will be 6.6%, if the past dividend growth rate continues. The trailing yield in January was 4.2%. Do I like greater income? Yes.
Of course it’s possible or likely that the dividend growth rate will lessen or be stalled. We could see dividend cuts across the banks and insurance companies, and pipelines and utilities and telco’s that dominate the index. Many will write that the Canadian banks are ‘in for it’ being attacked by lower rates and defaults and the Canadian energy sector crisis. That’s why they’re on sale.
Where’s the market bottom?
Of course, we don’t know. Many will suggest we are not there yet? There’s a lot of bad news and fear out there. But there’s more to come. This was nicely framed by this Twitter reply to me @67Dodge.
And again, I would perhaps not let a personal guess affect the investment strategy. That is up to you. You might add on a regular schedule. You might rebalance on a regular schedule.
It’s possible to be calm and concerned at the same time.
That subhead is a quote courtesy of Robin Powell at TEBI, The Evidence Based Investor. Robin also re-posted this wonderful offering from Michael Batnick …
And it’s also time for some levity. Jonathan Clements suggest that we should, wait for it …
With 10 steps to preserve your sanity and your portfolio.
- Avoid touching both your face and leveraged exchange-traded index funds.
- Change the password on your investment accounts to “ItsTooLateToSell.”
- Downgrade your opinion of investors based on their degree of hysteria.
- Don’t watch Contagion, Margin Call or the New York Knicks.
- Quarantine your emotions every time the Dow drops 1,000 points.
- After your brother-in-law finishes pontificating, ask whether he inherited his clairvoyance from his mother or his father.
- Avoid contact with insurance agents pitching equity-indexed annuities. Don’t shake hands with brokers on any deal that promises downside protection.
- Unless you live in a ranch-style house, stay away from open windows.
- Wash your hands for 20 seconds after watching CNBC.
- Use the vacation fund to buy stocks. Mention it to your spouse after he’s had a few drinks.
Wonderful. So funny. So smart.
We’ll all get through this, together. We are in a unique period in human history. Let’s pray that we get this under control as soon as is humanly possible. It appears that we are taking the necessary steps in Ontario and in Canada. Containment. I am confident that medical research will soon offer some hope.
If you believe that we will get through this, you might see this as an investment ‘opportunity’. Certainly opportunity in a very unfortunate situation.
Be safe. Self isolate. Keep your distance.
Is this an investment opportunity? We’ll see you in the comment section.
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Dale
