Newsletters

March 3, 2020: Coronavirus

 

“[The coronavirus] makes no difference in our investments.  There’s always going to be some news, good or bad, every day.  If somebody came and told me that the global growth rate was going to be down 1% instead of 1/10th of a percent, I’d still buy stocks if I liked the price, and I like the prices better today than I liked them last Friday.”

 

- Warren Buffett, February 24 CNBC interview

After a strong 2019 and impressive start to this year, stock prices have declined sharply over the past couple of weeks.  We just experienced one of the swiftest stock market corrections in history, yesterday’s partial recovery notwithstanding.

We wrote in our December newsletter about the futility of short-term forecasting.  This year’s coronavirus outbreak was a complete surprise, making those who offered forecasts for this year, without any apparent humility, look silly.

We are not in the prediction business, certainly not with regard to the effects of a virus, and we have always stressed the importance of acknowledging what is knowable regarding the short-term direction of economies and investment markets.  As Howard Marks wrote in his book, Mastering the Market Cycle, “All we can know about the future—at best—is what the probabilities are…We generally have no choice but to be content with knowing the probabilities.”

It seems probable to us that precautions currently being taken to reduce the spread of the coronavirus will meaningfully impact global economic growth in a negative fashion over the short-term.  (Importantly, however, we think that predictions regarding the ultimate severity and duration of an economic downturn are, at best, educated guesses.)

It seems equally probable to us that the coronavirus scare has not changed the long-term prospects for corporate performance, so we rebalanced from bonds to stocks last week within the parameters of our targeted asset allocation plans.  High-quality bonds nicely performed their role as portfolio diversifiers last week, rising in price as stocks declined.  This dynamic provided the dry powder for last week’s rebalancing into stocks.  For our retired clients drawing from their portfolios, we continue to earmark high-quality bonds for near-term (e.g., several years or more) cash flow needs, so we do not expect to be forced sellers of stocks at a time or price other than that of our choosing.

Stocks continue to represent the engine for long-term growth in your portfolio, despite their periodic frightening hiccups.  In a world of 1-2% expected returns on safe investments, we believe stock investments are particularly important components of your investment portfolio.  We will continue to add to them when their prices drop and trim them when they perform well.

 

Past performance does not guarantee future results.  Investment strategies discussed may not be suitable for all investors.  Diversification does not guarantee against investment loss.  The information provided here is for general informational purposes only.  The inclusion of specific securities within the context of broad economic commentary is not intended to be a recommendation.  Investors should thoroughly evaluate any security before taking action.  International investments involve special risks, including currency fluctuations and political and economic instability.  Opinions expressed are subject to change without notice in reaction to shifting market conditions.  Data contained herein is obtained from what are considered reliable sources.  However, its accuracy, completeness or reliability cannot be guaranteed.

March 12, 2020: Is This Time Different?
December 18, 2019: Two Kinds of Forecasters

Past Newsletters