The pandemic arrived just as I was changing hosts for this blog. And stock markets were making new highs too. Eventually there was a downturn in markets, but as I write markets have retraced part of their losses and it seems that many investors still believe that they are “buying the dip”. As a reality check I looked at movement by indices since 31st December, to find that the Dow is off 16.6% and the S&P has fallen by 13.3%. The FTSE 100 has had a larger fall of 22.5% reflecting the large oil and mining content.
After much reflection I decided to go liquid, so at the time of writing I just have a few holdings left – including Alibaba and Bango. As things stand my valuations have fallen by 6.3% so far this year.
The rationale for disengagement is that the pandemic is already causing a massive economic downturn and it is best to wait this one out. There will not be much help from analysts – who will be fearful for their jobs – or corporate managers – who will withdraw guidance and be fearful about their stock options and possible class actions.
If my caution proves to be well founded, there will be opportunities to buy most equities at prices ranging from slightly lower to substantially lower. If I am wrong and the world returns to normality – which looks increasingly unlikely day by day – I have cash and only need a 7% return to get back to 31st December levels.
I am reminded that Bernard Baruch sold most of his holdings prior to the 1929 crash and gave credit to a 19th century book – Extraordinary Popular Delusions and the Madness of Crowds !
Noticed as well that Warren Buffet and Charlie Munger appears to be holding a lot of cash and sitting this one out. This is confirmation that some of the best minds around are uncertain in the present situation. Government policies, often relying on dodgy science, will determine whether the landscape improves or withers away.