“When the time comes to buy, you won’t want to.”
I love that quote, and I only learned it this morning! It can be said in reverse, too:
“When the time comes to sell, we didn’t want to.”
That’s because peaks are marked by plenty of good news, optimism and stability. Troughs, meanwhile, are witnessed by a whitewash of bad negative and volatility.
Why would we set sail on a stormy ocean? Why make for land while the sun is shining?
My man Howard has been busy of late.
He has published not two, not three, but four lovely memos in March.
If there were a Howard Marks Memo volatility index, it would indeed have surpassed its 2008 peak.
And yesterday’s is where I got my opening quote from.
It also contained this little set of data, which captures exactly what I talk to you write about.
They are the movements of the S&P 500 in the last two major declines.
Source: Oaktree Capital Management
The point is not to trust the rally too much. If we were looking for a 1987 bull market continuation, then a sharp rally does not match up.
Here’s a chart which conveys what I’m trying to say, this time from another favoured analyst/columnist, John Authers.
Source: John Authers
Just as I wanted to warn against panic on the way down, so do I wish to urge against euphoria on the way back up. It just doesn’t feel right, with everything going on.
Don’t fall for the straight-line fallacy!
Source: Samir Madani, on Twitter
The thing is, I’ve had this feeling of late that whether the markets go up or down, I’m annoyed. I think I basically feel that everyone should be slowly and calmly taking the time to think things over.
That’s just not how things work though.
Benjamin Graham’s Mr. Market has had a few, and he’s all over the shop.
Did anyone ever panic calmly? Is that even possible?
The virus and the oil shock were the “first bounce of the ball”. There is more to come.
I wrote a few weeks ago that the “Powell put”, where investors believe that central banks will stimulate enough to support equity markets, might be dead. That remains to be seen. Doesn’t look like it right now.
To be honest, I feel rather confused.
If everything keeps going up, then great, we’re all fine. Business as usual, thanks Jerome.
If not, it’ll be worth thinking now about what you’d like to buy once valuations become more attractive.
I have already outlined that many companies in the oil sector are trading on very low price/earnings multiples, and with extraordinary (historic) dividend yields.
One company was trading below 3x and had a yield of 75% at one point. By Tuesday lunchtime this week, it has gone up almost 70% in under two trading days.
Another sector which is trading at historically low valuations is banks.
Everyone remembers the last crisis – which was focused on banking misdemeanors. But this time, they are mostly in better shape. They will also benefit from a higher inflationary environment which results from exceptional new fiscal stimulus.
The suggested withholding of dividends was a blow for sure, but that is in the past now, which is obviously preferable to being in the future.
The debt problems now lie with non-financial companies who have borrowed too heavily, and governments for the same reason.
So perhaps banks will be worth looking into, though I admit it’s not an area of expertise. I will endeavour to use some of my excessively long weekend to delve further into this theme.
In the meantime, something I have spent quite a bit of time looking at is energy.
And despite my nod to cheap oil plays, I am a staunch believer in the opportunity of the energy transition for investors.
That’s why, over the bank holiday weekend, I have prepared a two-part energy transition special, delivered at the normal times.
Remember the opening quote: “When the time comes to buy, you won’t want to.”
It’ll pay off later, if you decide what you’d like to buy before you want to.
I hope you enjoy it, along with the rest of your long weekend.
Investment Research Analyst, UK Uncensored
PS Recommended long weekend viewing: The Test on Amazon Prime.
It’s a phenomenal documentary following the Australian cricket team’s rehabilitation after the cheating scandal of its national team. I am LOVING it.
Steve Smith’s Men by Geoff Lemon is a perfect literary accompaniment, for the game’s enthusiasts.