1. What We Don’t Know
I wish a joyous Passover and happy Easter to all of you celebrating, and if you didn’t know this is a long weekend because you’re isolated at home and weren’t paying attention, join the club. I had no clue Europe would be even more closed, nor that the markets would be closed yesterday, until a friend texted me a few days ago to tell me the grocery stores would be shut so I’d better go get enough food to last the weekend. Stocked up now, I’ve decided to attempt making cinnamon rolls for Easter – the real kind, with yeast and a rise and everything. My mom and I tried to make them once when I was little and I remember a lot of cinnamon flying around. Wish me luck.
I hope you and your loved ones are well, you have enough to eat and toilet paper, and if you’re not able to stay home, that you have plenty of personal protective equipment for your outings. At this point, we all know someone who has been ill or died, and I don’t see our lives really ever going back to what “normal” was a few months ago. Here in Switzerland,the lockdown was just extended another week, and “re-opening” will take months and no one knows what it looks like. Will infections rise again once we all leave our homes? Most likely. How will governments handle that, and how will we each handle that individually? I don’t need a government order to stay at home; I can choose to do so perfectly well all on my own, and so can billions of others.
The impact on us isn’t only economic. A lot of life events we look forward to are being canceled. A family trip in Europe and a friend’s wedding are two events I’ve long had on the calendar and put a lot of time into planning, and they are canceled. Berkshire Hathaway’s shareholder meeting is canceled (the meeting will be online, but the fun of it is the experience of attending the festival of Berkshire portfolio companies selling their wares in the underbelly of the convention center). As humans, we love to gather and connect together in person to celebrate and mark occasions, and the virus has taken those occasions from us. How will that play out for companies in the coming years?
As investors, we get to take all of this information and try to synthesize it into a confident view of the future, to inform us about what we think might happen with particular companies. It would be a heck of lot easier to formulate a view if the governments’ money weren’t the wild card, but as they are doing the best they can to help us all get back on our feet, my question is: will bailouts actually help individuals, or will most of the money go to corporations who use it to make rich people richer?
That CNN Money article about Switzerland has a great quote from a Swiss leader:
“Pressure is building on governments to explain their plans because of the mounting economic costs of measures designed to contain the coronavirus. Economics Minister Guy Parmelin said the Swiss economy has taken an enormous hit with production collapsing about 25 percent. “We must seriously envision a profound crisis that lasts a long time,” he said. ‘The state can’t be engaged everywhere.’”
The state can’t be engaged everywhere.
2. What We Know
The CEO of JPMorgan Chase, Jamie Dimon, wrote in his2019 shareholder letter just a few days ago that “we don’t know exactly what the future will hold – but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008.” He also wrote that according to their internal research, “50% of small businesses have less than 15 cash buffer days, reinforcing why small businesses are being heavily disrupted by the current crisis and will feel the effects for a significant period of time – even as more capital from the recent federal stimulus program reaches them.” Furthermore, he reports that the bank ran an analysis for a deeply scary economic scenario, in which GDP fell by 35% and unemployment soared to 14% by the end of 2020, and that the bank could withstand even such a doomsday situation. Can all banks, asks The Economist? Dimon’s whole letter is worth reading.
The New York Times estimates real unemployment in the US is likely at 13% right now. Some of those jobs may come back once lockdown is over, and others may be gone for good.
The US stock market rose over the last few days and is now officially a bull market again (meaning 20% rise from its recent low). Earnings, however, are expected to be 20-30% down this year.
Price in the public market does not always reflect value. Do the prices in this market reflect reality? Will governmental intervention and the expectation the economy will snap back create enough optimism to keep the market propped up until the economy comes back, in a giant version of fake it till you make it? Now we’re back to what we don’t know.
3. Investing Practice Mistakes
I really hate watching the minute up and down movements of the stock market. So, generally, I don’t watch them. It’s a great joy of mine that long-term value investing doesn’t require it, and I personally find it to be extremely useful to my process of independent thought, when evaluating a company’s reasonable price, not to know the opinion of the market.
However, because now everyone is interested in the market – EVERYONE – my husband, previously a no-markets-no-way person, has been waking up and turning on Bloomberg TV specifically to find out what’s happening in the markets that morning and to which macroeconomic indicators people pay attention.
I was ok with it for a few weeks. Even a bit interested, because maybe something of note would have occurred of which even a long-term investor should be aware.
Then I started having dreams that the market had gone up, or the market had gone down, and I woke up in the middle of the night panicked with my heart racing. I had that nightmare and panicked wakeup two nights in a row, and then I knew I had to put the kibosh on financial television in our house and stick with what I know.
Obviously I handled it maturely and consciously, like someone who wrote an entire course about even-keeled emotions in investing practice should. Yeah, no.
When he turned the TV on the next morning, something popped in my brain and I stood up and announced, “I can’t take these horrible TV people talking at me about ups and downs and ups and downs and what’s going to happen the next second anymore!” Then I stomped out of the room and slammed the door so I couldn’t hear the TV anymore, then slammed the next door, so that he would really know how much I did not want to hear that TV EVER AGAIN IN THE MORNING DOYOUHEARME?!
Anxiety got the better of me, and the experience of the past few weeks has confirmed so solidly for me why I am suited, by my nature, to being a long-term investor who doesn’t have to worry about what other nameless, faceless people buy and sell. It’s not for me. And frankly, anyone who loves those ups and downs and the gamble of it, I really don’t relate to. I don’t have a problem with it. But I don’t get it.
Last issue, I wrote about my new crisis checklist. I’m adding to it. I’m also keeping notes about what I’m learning and how I’m responding to the experience, and even more importantly, about all the mistakes I see myself having made – most of which, I only discover in hindsight, and some of which are contradictory.
One mistake was that, by not paying attention to day-to-day markets, I missed the lowest-priced day we had. Incredibly, massively, irritatingly frustrating. Another mistake was that, by paying attention to day-to-day markets, I gave myself nightmares filled with anxiety.
Opposite forces, both real. This is a lot. It’s my first market crash. I am learning a TON every single day, and it’s the best learning experience I can imagine. But it is a lot, and I’ve had to withdraw from social media, avoid the TV, and stick to deep research to stay centered and grounded. How much of that is investing, and how much is the entire situation, I don’t know. I’m giving myself space to discover the best outcome for me, and it’s working. No more nightmares. My learning process is better than it has ever been. My practice feels strong.
4.a. Board v. CEO
Airbnb is one of the last big tech companies to stay private, and they were planning to IPO soon, by all accounts, until the virus. In this WSJ article about Airbnb’s Board and executives fighting each other, it is a fascinating view into how boards and executives test each other’s power. When they disagree, who wins? There’s no clear-cut corporate rulebook because each has different weapons. The Board can fire the executive, and has decision-power over huge choices like issuing new shares or restructuring the company. But the executive has the day-to-day decision power. Much like in elected officials, we voters have the ultimate power to vote them in and to re-elect, but while those elected officials hold office, they make the day-to-day decisions and we can’t do much about it. We can make noise, protest, make our opinions heard and that often can change the outcome. Same thing with a Board – they can make noise, protest, make their opinions heard, and that often can change the outcome because an executive knows that an unhappy Board will eventually fire him. But in the meantime…the executive wields the power.
So here, in Airbnb’s power struggle between the Board and its CEO, the CEO chose to keep Airbnb Experiences, which by all accounts is a money-losing initiative. The Board wants him to cut it, in an overall effort to cut costs. So far, it still exists.
This last sentence of the Journal article….the shade. “Mr. Chesky, who late last year was said to be worth more than $3 billion, is among those planning to forgo a salary for the next six months.”
4.b. Full-Text Search on the SEC’s EDGAR Website
I’ve been looking for recent statements from company CEOs to investors regarding the havoc coronavirus is wreaking on their companies. I started out searching on individual investor relations websites, but after ten minutes of clicking with no results, I got annoyed the process and stopped looking on individual websites. Then, I discovered a free way to find them. The SEC has a completely free full-text search on its search engine, EDGAR.
You know, everyone complains so much about EDGAR. It’s hard to use. It’s got a bad interface. It’s confusing. OK, foin, I get it, it’s not as pretty as Google. However, it works. I want a 10-K? I know the one from EDGAR is the real deal, straight from the source, and I can find it easily. And now I found full-text search! It also just works.
I put in “coronavirus” on the search field, and got all the company filings with that word from the last weeks. As long as the company attached its statement to investors to its filings as an exhibit, I could read the statement.
This is the first one that came up that day, from Ford Motor Company. Clear, precise, personal. I would like to see the high-level executives taking even less salary home, but the announcement that there will be no layoffs balances it out.
I’m not sure Ford can produce beautiful cars, but I’m impressed with that message.
The EDGAR search won’t be as useful as many of those paid sites with AI to sort and categorize SEC filings, but I’m thrilled to know that it exists, it’s available to me anytime, and it’s a way to cut through individual company research but still stay with my primary source, the SEC.
4.c. Baby Boom?
Is investing in baby-related companies a potentially good idea? We’re all stuck inside, and generally after a disaster of some sort when people are stuck inside, there is a baby boom nine months later. Or at least that’s what people say. I keep hearing references to a pandemic baby boom, always linked to the post-9/11 baby boom – so I looked it up.
Indeed, now, anecdotally, amongst my friends even people who were trying to have a baby are putting the goalie safely back in front of the net. No one wants to add to the burden on hospitals or have to visit the doctor unnecessarily right now, nor do we know the effect of Covid-19 on gestation. Fertility clinics have been asked, or required, to stop “unnecessary” fertility procedures (in quotes because there are varying opinions about what is and what is not “necessary”).
My conclusion is that I’m not going to waste time looking at baby-related companies for a boom in nine months. I think we might actually have fewer babies than we typically do. Though obviously I could be way wrong – condom sales are way up and there may be a shortage soon.
Stay healthy, get better soon if you’re not feeling healthy right now, and in your investing practice, remember to enjoy it. There’s a lot of bad news out there. Let’s make our practice a wonderful bright spot in isolation.
LET’S GET PRACTICAL
The Economist, The Atlantic, and the Financial Times, normally three very expensive subscriptions, have each made their coronavirus-related coverage available for free to anyone. It’s a great opportunity to read their coverage and I highly recommend taking advantage of it. The other great thing about their coverage being available is that I can link to it here and we can all read it.
I particularly recommend the Financial Times’ charts, which they update regularly, for a visual view of the pandemic by country and by hardest-hit city.
Published on March 25, but still very relevant, this excellent piece by Ed Yong at The Atlantic on the pandemic and its repercussions is an excellent source of perspective – especially on the end game.
This visual view of the history of pandemics from Visual Capitalist puts our tiny little Covid-19 outbreak in sharp relief.
Excellent summary of financial positioning around the world from NASDAQ.
Interesting perspective on potential recession in an op-ed from CNBC.
Summary of recent market moves from Bloomberg.
Bill Gates, who is basically our pandemic expert now, on the Daily Show with Trevor Noah (they play tennis together?!) and on CNBC with Becky Quick (who regularly interviews Warren Buffett). He says sports and other big gatherings of people like that aren’t coming back for a long time.
Ownership Disclosure: Danielle Town owns shares in Berkshire Hathaway (BRK) .