Fear doesn’t exist anywhere except in the mind. Dale Carnegie
If you go through the most difficult circumstances imaginable for a human being, military service in a fighting capacity probably ranks somewhere at the top of the list. If you are familiar with history, you know that many lives are lost in war, often numbering millions. Yet, individuals are often enthusiastic about joining their country’s armed services. Maybe it’s love of country that drives them, maybe it’s finding a cause that is bigger than one’s self. It could be belonging to a family which has multiple generations which have served. Whatever the reason, people are able to overcome their fears to help their country in confrontations where lives are at risk. Relative to war, the current environment in the globe is pretty tame, although it is certainly a challenge in other ways.
There is plenty of fear in the world about catching the virus from the general population. One of the issues the country faces is living with the stark reality the Corona-virus will be with us for the foreseeable future. Statistically, less than one quarter of 1% of the global population has caught the disease. In the United States, it’s a little over one third of 1%. The mortality rate in the United States is currently at 5.90% of those who have caught the disease. From a probability standpoint, fear is quite high relative to the most probable scenario, which is that the vast majority of citizens will be fine. Still, the world needs a permanent solution. Many companies are working on vaccines, plenty with vast financial resources, but that does not guarantee the world will find a cure. Until the world has multiple vaccines, and maybe just as important, an efficient way to manufacture and distribute billions of doses, the virus is part of the global outlook. Consequently, accepting this reality and taking the steps necessary to have a functioning society while the infection is present is what is practical. We know the common sense measures: social distancing, protecting the most vulnerable (nursing homes), avoiding large crowds, washing hands, proper protections (masks, pep, facilities), expanded testing, and contact tracing (technology). Almost all states have implemented these measures and are now reopening their economies, as they inevitably must do. Some states are making it easier than others, as discretion is left to the governors of each state about how to proceed. In quite a few states, the statistics in these states don’t match the rhetoric and policies being forced on their citizens. My own opinion is that fear is being used by several governors to help promote their political agendas. Ultimately, time will tell, but the economic hole being dug in these states hurts the states citizens far more than a politician who has a guaranteed paycheck. Fear can be a powerful emotion, and when an elected government official in a decision making capacity uses it, well, many fall people fall in line without thinking through alternative points of view. In the same regard, let’s turn towards the investment environment.
When markets fall severely, like in the brief ten day period of March, it becomes much more difficult for those who own assets to continue to own them. The volatility heightens, and those who have acted in a way which leaves them vulnerable are forced to sell. Compounding this, we also have the reality that governments forced businesses to close. It’s hard to make money when you are closed. In addition, entities who have an interest in continued selling begin to appear to explain why things will only get worse. They may even proclaim there is no hope in the foreseeable future. People get scared of further losses. In combination, it is understandable that fear is pervasive. A few weeks ago, even the best investor who ever lived, Warren Buffett, showed he was quite cautious about how he was approaching things. The caution is warranted, and one must be sober about evaluating your portfolio or any potential addition. However, like almost any situation, there are two sides of a coin. Plenty of investors see this as one of the few occasions there is value to be found in the market. Much depends on your mental framework and your willingness and ability to evaluate and take risk. If you are at a stage of your life where you cannot afford to take risk, then you don’t. I have listened to many investment professionals who cannot get their head around the current situation, so they don’t want to make any moves. Totally understandable. From my own perspective, the past can be used to see the situation for what it is, which is a very uncertain time. Uncertainty brings potential opportunity, but you have to hunt, and you have to be willing to put your fear aside. Carnegie’s words are very much applicable.
In the markets last week, the retail heavyweights reported their financial results. Generally, they went pretty much expected as the difficult environment helped Wal Mart and Target, whose basics and on line capabilities proved popular with a fear bound consumer. Home based retailers Home Depot and Lowe’s posted strong numbers, but Covid-19 expenses hurt HD. Best Buy beat while Kohl’s and HP Enterprises missed, so you can see that each entity has their own unique challenge and opportunity. In almost all cases, guidance has been withdrawn for the rest of the year. In that light, many companies are in the same circumstance of essentially rebuilding their business from a standing start. Analysts have essentially written off the rest of 2020 and are peering towards 2021. Of course, there is that little event in November which the world is paying attention to as well.
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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation. The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.