Earlier this week, I wrote about my chequered path to building a new chicken coop.
If you missed it, the project is still underway, but my sawhorses are a little shorter on one end, because I forgot to make sure the line I was cutting was far enough away from said sawhorses.
Rookie error.
It's a reminder to me that, when we do pay for a tradie to do the more important jobs, we're not just paying for an hour of her time.
Yes, we're usually charged by the hour — or the job — but we're getting the accumulated education, skill and experience as part of the deal.
Trust me, even if I was one-quarter the price of the local carpenter, you don't want me building your house.
It's a theme I've returned to, as this week has progressed. Here's what's happened:
The ASX has fallen almost 5% in two trading sessions, yesterday and Monday.
As I wrote this, the market was closed, but the ASX Futures were predicting a fall of somewhere around 2% more, today.
There is much peril in assuming that the futures can predict where the market will close — or even open — these days, but still, it's a stark reminder that we're still well and truly in the middle of this health pandemic and economic cyclone.
(It opened down 1.3%, for the record.)
Oil has fallen below $0 per barrel.
Yes, so much surplus oil is there, and so few buyers, that people are paying to get rid of it.
In case you're wondering, it's the oil futures that we're talking about. And if you're a spreadsheet jockey in New York, London, Singapore or Sydney, you really don't want Exxon Mobil to call you on the day the futures contract is due, to ask you where you want them to put your oil!
That's why the futures are below zero right now — if you can't take the oil, you really need someone to buy your contract!
Virgin has entered voluntary administration.
The airline had too much debt, too many costs, and too few passengers. That's rarely a good combination. And, yes, substitute the generic 'revenue' for 'passengers', and we could be talking about many other ASX businesses that find themselves under similar sorts of pressure, if not — yet — as dire.
It seems that every other company is raising capital and cancelling dividends
Today it's Ramsay Healthcare. Tomorrow it'll likely be someone else.
It's very, very easy to feel like we spent the last month going through some sort of Indian Summer, financially-speaking, and that reality is just about to bite.
And that may well be true. Or not.
What's next?
Which brings me back to the analogy of the experienced carpenter.
The carpenter knows the tricks and the traps.
She's seen things go wrong.
She knows that sometimes even if things look okay, there are hidden dangers.
And she knows that sometimes things that look precarious aren't, because the foundations are strong, and the hardware is high quality.
The same is true in investing. At least, if you have the right experience and the right mental approach.
I don't claim omnipotence. God knows, if I did, I'd have made different decisions when news of the Coronavirus broke.
But I do have experience. And, I hope, the humility to know what I don't know, and the temperament to act accordingly.
I'm also not a forecaster. You won't get predictions from me of where the market will be in a few days, or weeks, or by the end of the year.
Instead, prompted by some members and readers, I thought I'd share my thoughts on where we're at and how we should be thinking about investing, right now.
First, we're in truly uncharted territory, at least for the very specific circumstances in which we find ourselves.
We talk about the Spanish Flu, which might — or not — be useful as a health case study (I'm no epidemiologist, unlike most Australians on social media). But it's useless for investors. In 1918, most of the economy was agricultural. The world was loosely connected, but nothing like the current globe. And, frankly, they didn't expect the same levels of societal responsibility we do today, so the governmental and regulatory responses were very different, particularly financially.
And yet, this isn't the first stock market slump we've seen.
Plus, the fundamentals of investing haven't changed.
There are some, maybe even you, who want to think there's a hugely complex and detailed investment strategy that can be somehow created and implemented specifically for these circumstances.
I hate to tell you, but there's not.
Oh, that doesn't stop people pretending there is. Those who think that action, however futile or counterproductive, is better than considered inaction, for example.
Or that doing something — anything — just helps salve the feeling of inconsequence or the oppressive boredom.
"I'm smart… see what I'm doing" sounds great. It's seductive.
It's also, for the most part, useless.
Yes, someone picked the bottom of the GFC, I guess.
Maybe a few people guessed right and made some money.
Good on them.
Many, many more lost their shirts, their confidence and likely their potential future returns.
The bulk of the people who came out of the GFC in a good position did three things:
1. They owned quality businesses, going in
2. They held quality businesses, despite the shrieking headlines and 'helpers'
3. They kept buying; dollar-cost-averaging right through the pain
Easy? No. They had to have fortitude and patience.
But rewarding? You bet.
So, that's the first thing — nothing about the fundamental parts of good investing has changed.
Second, remember Warren Buffett's parable about Mr. Market.
I repeat it here, in full, because if you've never read it, you should. If you have, you should read it again.
Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him.
Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.
But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, "If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy."
See, the ASX fell 37% between February 20 and March 23.
Because the market 'knew' something, right?
Then the ASX rose 21% between March 23 and April 14.
Because the market 'knew' something, right?
The ASX then fell 5.5% between April 14 and this morning.
Because… well, you know.
Now, if share prices factor in the entire future of a company's life — all of its future sales and profits between now and eternity — how can share prices move so far, so quickly?
If I was kind, I might say that the 'facts' as known by the market, changed, a lot, in those small time periods.
But that would be exceptionally kind. Unreasonably so.
Far more likely, traders are just trying to guess short term movements, and flip-flopping with the mood.
As Buffett says, are you sure you should be listening to that group?
I don't think so.
Next, you should be expecting a recession.
A deep one, not seen since the 1930s.
If that scares you, good.
Not because I like to scare people, but because I want you to be prepared.
Not for Armageddon. Not for another Great Depression.
But just for the economic data that will come in the next 3–9 months (and perhaps longer).
The market — investors — should already be expecting that.
The numbers, when released, shouldn't be a surprise.
If the market was to fall, when that data hits the newswires, it'll mean people weren't suitably mentally and financially prepared.
They should be expecting it.
They should be investing accordingly.
They don't need to be happy with the data, but they need to expect it.
Lastly, this too shall pass.
Yes, this crisis is unique.
So was the GFC.
So was the dot.com crash.
So was the Asian financial crisis (remember that?).
So was 1987.
But you know what they all had in common?
The crisis passed, and shares regained and surpassed their previous highs.
And you know who made money? Those who held and kept buying shares in quality companies.
Will this time be the same? We can't know yet.
But I reckon the odds are very, very good.
That's why I've been buying.
That's why we are recommending our members keep buying.
Oh sure, if you have a working crystal ball, knock yourself out. Go for it.
But if you don't, shouldn't you just be keeping your eyes on the horizon and investing anyway?
I think so.
Fool on!
