There’s a saying, “what goes up must come down.” The thinking is, given how quickly the stock market has fallen, there’s now the expectation that it should rebound just as fast. Many have pointed to last week’s mini rally as a sign of a rebound.
That’s not a workable strategy. The total and complete stoppage of global economic activity is unprecedented. And with more confirmed global cases still on the rise, it’s too early to know what the ripple effects will be.
I took some time this weekend to re-assess my stock portfolio. It’s something I do on a regular basis, usually after major market events have occurred. Obviously, the coronavirus pandemic which has caused the worst kind of volatility since the great recession of 2008, falls into that category.
And then I read saw tweet from billionaire investor Bill Ackman, hedge manager of Pershing Square. “Today, we are unhedged, and we no longer own any insurance. We still have some cash to invest so we can buy more if stocks decline further.”
A week ago, Ackman warned on TV that hell might be coming, exited his hedges on March 23, netting an estimated $2.6 billion for his hedge fund. He was blamed by many investors for sending the markets to their recent lows on March 18 when he said on CNBC’s Halftime Report, “America will end as we know it,” unless we took stiffer measures to curb the spread of the virus.
He has apparently changed his tune on where he now thinks the stock market is going and has since put money to work in companies including Berkshire Hathaway (BRK-B), Hilton (HLT), Lowe’s (LOW) and Restaurant Brands (QSR), among others.
Ackman, as with any market pundit (bull or bear), has every right to change their mind. We make the best decisions we can with the information we have. Nonetheless, it prompted me to ask, whether we as investors should be buying what the market is selling. Some say now’s the best time to buy stocks, while others believe we will re-test the lows. While there are tons of opinions about where the market is heading, it’s ultimately your investment philosophy, not anyone else’s, and the strength of those convictions that will get you through it.
The fact is, we have no idea how long the U.S. will be closed for business. The other thing to consider is this, even when businesses start to re-open, there is no guarantee they will be able to to run at full capacity after a long closure. So, it’s hard to say with any degree of certainty whether stocks today are cheap. The market might be thinking along the same lines since on Friday, stocks fell despite the $2 trillion U.S. stimulus bill, called the CARES Act, was passed by Congress and signed by President Trump.
CARES is the largest spending package in U.S. history. While it should provide some measures of relief to small businesses, the unemployed, and key industries such as airlines, there’s doubt that it will be enough to prevent the U.S. economy from a recession. Until there is more clarity in the market, particularly in terms of when the economy will restart, it’s tough to apply any type of fundamental analysis towards business. But knowing the strength and resolve of America, I’ve been buying on the way down, taking my own advice and investing money in parts.