Kingsmill’s Investment Miscellanea: Friday March 13, 2020

Mar 13, 2020 | Joshua Kingsmill


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Key Takeaways:

  • Warren Buffet has never seen a one-two punch like this before
  • Bear markets come in three forms: Structural, Cyclical and event-driven
  • Reaching out for one on one calls to assess your situation, and discuss the plan going forward

Warren Buffet gave some perspective on this market plunge, which he described as a one-two punch of coronavirus and falling oil prices. He says we are in the midst of something he hasn’t experienced in his 89 years: Warren Buffett reacts to the stock market rout, oil crash amid the coronavirus outbreak.

“If you stick around long enough, you’ll see everything in markets, and it may have taken me to 89 years of age to throw this one into the experience, but the markets, if you have to be open second by second, they react to news in a big time way.” - Warren Buffet

So we are in this bear market (defined as a 20% correction from recent stock highs). Historically, there have been three types of bear markets:

  1. Structural bear market - triggered by structural imbalances and financial bubbles. Very often there is a ‘price’ shock such as deflation that follows
  2. Cyclical bear markets - typically a function of rising interest rates, impending recessions and falls in profits. They are a function of the economic cycle
  3. Event-driven bear markets - triggered by a one-off ‘shock’ that does not lead to a domestic recession (such as war, oil price shock, EM crisis or technical market)

On a personal note for what its worth, in my career this is at least the 6th stock-market crash of over 20% that I have experienced in my capacity advising clients:

  • The Dot Com bubble
  • 9-11
  • The Housing market and banking crash in 2007
  • The 20% correction in fall of 2011
  • Then end of 2018 correction
  • This “one-two punch.”

Each one had different reasons for occurring and were in different environments. Based on my experience, and indeed as history has demonstrated, its best to avoid panicking. A rebound has followed every stock market downturn. To the extent we have a time horizon of more than six months, the market is giving us all an opportunity to buy individual companies at much better prices than were available only a few weeks ago. This is different than timing the market.

I am going to be arranging in the next week one on one calls with each of my clients to cover all of this. In these situations, we will consider three fundamental topics that all investors ought to be mindful of:

  1. Do I have the liquidity I need to provide for living expenses and are my personal finances in order
  2. Have my long-term objectives changed as a result of this correction
  3. What are some of the immediate and mid-term investment decisions we can make to be appropriately aligned with this new market paradigm, and benefit longer-term from this correction and eventual rally

So Peter and I will be in touch to arrange these calls, and I look forward to speaking with you.

No predictions this week, although I do hope that one day, many will look back and wonder what they are going to do with their stockpiles of toilet paper.