The Best Time to be a Long-Term Investor
It’s perhaps of little surprise that “Sell in May” and go away got a strong start this year.
But in our view, this should start to dissipate soon.
This rally should have gotten a rest as the headwinds of the calendar collected together.
And oddly enough earnings are not as bad as assumed. That said they’re still bad and hint at mid-July to maybe mid-August where the next major setback window will wash through the system.
There’s a wide swathe of outcomes possible here, and we will need to adapt to, and be patient with them in the near-term.
The most difficult fact to keep in the front of our minds is that the underlying forces have not changed. The powerful currents driving the US forward in the world, strangely enough, have only been solidified.
That exercise has been made doubly difficult by the rather nasty (and sadly expected) Monday-morning quarterbacking that has now begun in earnest.
Never mind the forward motion in the markets, the talking-heads selling personal opinion as expert knowledge and news across the political divide never seems to rest.
It behoves us all to read the facts and gain a sense of the true data unfolding.
And if we ever manage to do that collectively I have a sneaking suspicion we may (I said may) begin to feel better and become more confident in the headway we’re making on many fronts.
Just like our Mom told us when we were kids, it’s always darkest before the dawn.
Even as Warren Buffett noted over the weekend - this is tough for sure, but you cannot stop the people of the United States. He called it "The Magic of America."
We agree with him, knowing in advance that only the patient and disciplined will stay on their pathway, focused on the long-haul concepts even when it looks and feels really ugly temporarily.
“QE4ever is once again being misunderstood as to its purpose and effects.
No, it will not cause "runaway inflation" any more than the previous bouts of QE during the Great Recession.
Indeed, it is highly likely that the same reaction we have seen for years will continue - we don't have an oversupply of anything. On the contrary, we will not have even tighter supply pipelines than before.
Liquidity has skyrocketed. Cash in the bank has surged along with fear levels. These are the same footprints in the sand we saw in in 2008-2009. Yes, the monster seems larger, but it did back then as well.
Each monster is always bigger than the last.
Heck, I’ll bet you cannot even remember the constant hour-on-hour chatter about the “Tariff War” for all of 2019, which was only 4 months and a week ago.
A Few Thoughts
Our Groundhog Day scenario is our everyday news where we always re-emerge the next day expecting to be afraid of our own shadows.
The future is just not clear right now. Yeah, no shit. The future only "feels" clearer based on our internal confidence. Rest assured, I can tell you exactly when the "future will seem clearer" to the mass audience: A Dow Jones anywhere above, say, 38,000 to 40,000 and up.
Risk is high. Yep. It’s always high. It just feels different after price dislocations have taken place.
Many businesses won't ever come back. Yep. That’s right. But many new businesses will start and birth entirely new growth curves. For small business this pandemic has provided what public companies call the "kitchen-sink-quarter." Anything you didn't like about your past business will have an excuse for change in this window of time ahead.
And when we do get a vaccine much of what we think will never change will indeed change again.
The Net-Net of the Near-Term
These next few weeks should present continued weak spots.
And we will certainly see portfolio changes being made. This idea of throwing everything out with the bathwater has brought to bear many new opportunities for the long haul in value.
It has also highlighted that Tech will most assuredly lead the way. Every single company will need Tech. Every part of our life will be influenced by tech tools being birthed in the midst of this dislocation.
Time is everyone’s risk defining factor, not market volatility.
Now for a Reminder on Cash in The System
If you went to sleep during Christmas time in 2018 (about 16.5 months ago) and woke up today, the market levels would be roughly the same (other than tech).
Would you think the end of the world had arrived?
I suspect not:
The chart above shows the 3-month annualized growth in bank savings and demand deposits.
This is another way of demonstrating how strong the demand for money has become (off the charts strong) given the uncertainties of the virus and the economic shutdowns and driven by fear of same.
Note that the best time to be a long-term investor is when references to "uncertainty" are heard most frequently.
The good news - if one is willing to look at it - bank reserves (health) are also at record highs.
And we are likely seeing the crowd misunderstand the "disconnect" between markets and the economy with references to the market being crazy.
That’s because we live "now”, and the market thinks "next."
Everything is going to change. It’s already underway. In fact, you can think of the 2020s and 2030s being set to be, structurally, a replay of the 1980s and 1990s.