The "Hissy Fit" Continues

As of this morning, March 9, 2020, we are witnessing a continuation of the "hissy fit" in markets that we wrote about last week.  Within a few moments of the market open, markets were halted across the board on the NYSE and NASDAQ due to "circuit breakers" that kicked in when the market dropped 7% in the session.  Since that time, markets have stabilized a bit and have been somewhat orderly since reopening, now down about 5%.

Of course, those values can change in a heartbeat as markets in this type of environment can move wildly in very short periods of time.

It is notable that today is the 11the anniversary of the market bottom during the 2008-2009 financial crisis.  That bottom happened on March 9, 2009.  Is this the bottom of this decline?  We have no idea.

The S&P 500 at this point is down over 16% from its highs set just recently on February 19, 2020.  Factoring in the low hit today, the market was down almost 19% at that point from its highs.  It would seem this selloff, rapid as it has been, may be getting close to its last leg down.

As we previously stated, we expected a correction in markets could happen at any time and have been warning our investors that such an occurrence was normal, and healthy.  Clearly this has gone further than the typical "garden variety" correction, but it is certainly not unprecedented.  In fact, as recently as the fourth quarter of 2018 the markets experienced a similar selloff.  In that instance, the markets recovered relatively quickly and 2019 was one of the stronger market returns in years.  We expect this correction will be similar.

The culprit has clearly been the reaction the world has had to the fear of the coronavirus outbreak, although this morning, the trigger was also the spat between Russia and Saudi Arabia over their failed attempt to collude on oil production.  This has sent oil prices (already off considerably from recent highs) down over 30% in the session.  Consequently, we are seeing further panic over what all these factors will mean for global economic growth.

We have not changed our view from that of last week; we think the reaction has been overblown from almost all angles.  We believe the panic due to this virus has been much more damaging than the virus itself and we believe that when the dust settles that point will be proven.  As for crude oil prices, one can make an argument that lower prices are good for economic growth just as much, if not more, than one can argue lower prices are bad for economic growth.  Simply put, market forces will sort this out and it will likely not factor that much in the overall economy.

We have a saying in our shop "we don't do the market".  What we mean by that is we don't make market calls as a factor in determining what companies we want to own.  We believe that analyzing the business in which our companies participate is much more useful in determining how long term value is created.  On that front, we are extremely pleased with the progress our businesses are making.  Keeping focused on the business centers us and keeps us confident when the market is having one of its hissy fits (or panic attacks, as the case may be).

Not doing "the market" doesn't mean we pay no attention to market prices.  Quite the contrary, we believe smart investors can take advantage of downturns like this and add to their investment accounts.  We urge investors to start making such additions if they haven't already.  Additionally, we look at these downturns as opportunities to add to positions in our portfolio and often add new positions when they are "on sale".

Lastly, we would hope that cool heads will prevail in this mess.  The "crisis" industry (the media) is having a field day playing on fears.  However, in our view, reactions that have included cancelling events and telling everyone to stay home is irresponsible.  Unfortunately, the exact opposite is what organizers of these events think.  In monitoring the statements from the Center Disease Control and the World Health Organization, the folks who have succumbed to this virus are sickly and elderly in almost all cases.  The incidence of this disease causing death is about the same as the flu, and the overall numbers are drastically lower as the flu has already claimed tens of thousands of lives this year, as it does every year, and yet we don't have this type of reaction to the typical flu that comes around like clockwork every year.

As we have previously stated, this is not to understate the effects of this virus on anyone afflicted by it.  However, we believe rationality is in order, to say the least.  To that point, we also hope that policy makers do not overreact either.  We have long argued the the "crisis mentality" that has been a hallmark of the 21st Century in reaction to the "crises" that this century has experienced, has served to cause more problems than it has solved.  Level-headed calm is what is needed in times like this.  Policy-makers will do well to be the leaders in acting rationally.

We've been through many of these periods in the past and will come out of this one just as favorably as we did the previous episodes.  As our mentor Dick Taylor used to say all the time: "on any given day, about 1% of shareholders price our companies.  Don't let 1% of shareholders tell you what your companies are worth!"

Good advice from a sage and successful investor.  We heed that advice!

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