|Not wanting to be a “doom and gloom” promoter but things are starting to get very real and hitting very close to home. My daughter is still in self-quarantine (good news no temperature). The entire country of Italy is on lockdown. St. Patrick’s Day parades are canceled across Ireland. U.S. coronavirus cases are starting to surge, now topping +1,000 infected and multiplying quickly. New York called in the National Guard to create a one-mile “containment zone” around New Rochelle, a suburb of New York City, in an effort to slow the outbreak. Google is telling all of its North American employees to stay home until at least April 10, as the COVID-19 coronavirus spreads. The New York auto show was postponed for the first time since WWII. MGM Resorts temporarily closed Vegas buffets, which include ARIA, Bellagio, MGM Grand, Mandalay Bay, The Mirage, Luxor, and Excalibur starting Sunday. Walmart employees in Kentucky tested positive. Sanders and Biden’s campaigns canceled Ohio rallies. No live audience will be allowed at the Democratic debate in Arizona. United Airlines’ U.S. bookings plunged -70%. Dr. Phil & Wendy Williams became the latest shows to announce they would not have live audiences. Seattle is planning to ban crowds of 250 or more. Many U.S. colleges are closing in-person classes and going to virtual campuses only. Financial services firms in the U.S. have also started reporting their first confirmed cases of the virus including Wells Fargo, who said it had a confirmed case in San Francisco, Blackrock reported its first confirmed case in New York City, and now Barclay’s is reporting its first case on its Manhattan trading floor. I am hearing talk that some big banks and investment firms have already started moving their most important traders and money-managers to undisclosed quarantined locations where they will be able to keep operations running if all shit hits the fan! Remember, many of today’s trading companies rely heavily on high-speed computer-based trading models. It will be interesting to see how things change once more human emotions and psychology get involved. Time to start thinking outside the box… The smell of serious change is in the air. Below are my additional thoughts, I hope they help challenge your perspective! |
Traders and investors are staying buckled in and trying to brace for continued whiplash-type volatility. The big question is have we bottomed? I’m thinking not… and I’m bracing for more big down days in the mix ahead as we are forced to digest extreme coronavirus headlines and visually see more details and gory carnage that is going to take place in the crude oil space. Keep in mind, not just in crude oil and energy, but across the board, this is really our first major “demand” driven setback in over a decade. In other words, this is the first time growth-driven companies are going to be forced to make heavy adjustments to falling demand. In some cases, this will be the first time many CEOs and founders of companies that have only been around post-2008 will have ever been faced with major product and services demand cuts. It will be interesting to see how we proceed? I’m concerned… Announcements released yesterday showed huge concert events like Coachella and StageCoach were canceling and pushing dates back at least six months. Many other major events like South-by-Southwest have already canceled. As these negative “demand” headlines continue to rollout the market will be forced to make bigger adjustments to earnings forecasts and real forward-looking valuations. In other words, earnings and valuations are going to be a massive moving target in the weeks and months to come. Right now Wall Street seems to be thinking we have a couple of rough quarters ahead then we bounce back aggressively. I worry that as we learn about more cancelations and industry fallout Wall Street will start getting more negative a bit further out on the horizon. That’s where I will be looking to be a bigger buyer. Yes, I will be nibbling on a select few names on the way down but certainly not getting out over the tips of my skis or getting leveraged up. This is absolutely no environment to try and be an investing hero. This is when you simply throw the ball out of bounds to avoid getting sacked in your own end-zone. I’m just guessing since we are clearly in uncharted waters in regard to corona, but I’m still thinking there will be several large -5% down days and several +3% up days. Again, I will be looking to nibble a bit on the bigger down days and perhaps lightening the load and readjusting on the up days. I also want to remind everyone, make certain you are considering stocks that will still be “relevant” if we were to dip into a multi-year recession. I made the mistake many years ago buying some traditional names that were not as relevant when we came back up for air a couple of years later. Remember, “when the speed of change outside an organization is greater than the speed of change inside an organization there’s a very strong chance that business or organization could become irrelevant.” With technology advancing so rapidly, I’m trying to saddle up with companies that are tech leaders inside their respective industries. I also like the companies that can most quickly pivot regardless of valuation and current revenue streams. In other words, I’m not simply looking to buy the most beaten-up companies or cheapest valuations and or those with the highest dividends. I want to invest in companies with strong technology initiatives and leadership teams that are extremely open to “change”. I’ve learned many times these companies aren’t generally the ones paying huge dividends but the ones aggressively reinvesting in and reinventing their companies rather than paying back huge sums to shareholders. I know I will get arguments about that statement, but I’m just speaking from my own experience and failures from the past. I’m really just wanting to challenge everyone’s conventional thinking. As Einstein once said, “We can’t solve our current problems by using the same thinking we were using when the problem was created.” If we are pulled underwater and forced to hold our breath for several months or a couple of years, when the U.S. consumer pops back up on the other side – which we all know will survive and again prosper – the question is what businesses will be most relevant and what businesses will have fallen further out of favor? It’s a tough question but certainly something we all need to rack our brains over. On a broad scope, I personally like businesses that are leaders in water, air, agriculture, and housing. I feel no matter how advanced technology becomes, humans will continue to need all four. There are many great U.S. companies and businesses that will come out of this much stronger and huge leaders in their respective spaces. I hope I’ve challenged your thoughts this morning. As I tell my kids and several of my coaches always told me, “stick and move, be quick to go with your gut, and remember the legs feed the wolf”. I wish all of our families health and wellbeing during these difficult days.
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