As I sit here to write down my thoughts, I am reminded why we must be investors and act like prudent investors after the events of the last week that saw more than 10% trimmed off the major market indices. I specifically addressed this in a memo to investors, to bring forward the logic of acting and behaving as such, despite last week that exhibited great volatility and headline negativity with world events.
Change in Major Indices
Over the past week
There’s just so much uncertainty in the markets as to when—and whether—the rapidly spreading health scare will be contained, and the recent warnings on profits by major global firms including Microsoft and Apple.
At this stage, it would be fair to say that no one really knows when the coronavirus will be contained globally, and the latest case of a California man who has tested positive for the virus without any known travel links or exposure to another patient could baffle everyone.
With this kind of market uncertainty, it’s difficult to predict what the total impact on the global economy could look like, as no timelines can be drawn as to the end of this ongoing global health situation.
But this doesn’t mean anyone and everyone should lose money in the markets today.
As the stock market crashes, you only lose real money when you sell positions during this dip. An individual investor will only see paper losses but won’t lose money if one holds out during the turmoil.
We must resist the urge to sell low during times of elevated fear and anxiety, as those who held positions during the 2008–2009 financial crisis didn’t lose anything.
Legendary investor Warren Buffett has advised people to buy stocks whose fundamentals are solid, so investors don’t mind holding those stocks even if the stock market were to be closed for the next 10 years.
It’s these types of fundamentally great stocks and mutual funds that we are always searching for and recommending—stocks with growing market shares, growing revenues, well-positioned product lines and processes that will fare better against the competition and good management teams that execute well, enabling the firm to strongly defend its moats.
So, if you strongly believe in the fundamentals of your portfolio and maintain a long-term buy-and-hold strategy (that doesn’t rely on futile market-timing attempts and aims to reap the rewards of being long in the market for the longest possible time), then it should be easy to avoid losing money in hysterical markets.
We still expect a high number of our stock positions to increase their dividends over the next year. A diversified portfolio, with dividend-paying and dividend-growing stocks anchored by some resilient residential real estate income trusts, is still our fundamental investor bias. We will continue to harvest regular dividends that could be used to buy the dips and make big catches in these troubled waters.
My emails are full daily with market commentaries and statistical support of staying invested from the professional connections I have established over the past 26 years. I have several conference calls scheduled this week with portfolio managers to review their views and reactions. This is not my first market uncertainty and will not be your or my last.
As we look out for the other trends in investing that are getting trumped (no pun intended) by the virus headlines, we still strongly believe in several powerful trends we continue to incorporate into our long-term investment bias. The virus concerns and scares will pass in time, but these trends will not:
The coming transition from 4G to 5G cellular networks (the “G” standing for generation) is expected to facilitate the next phase of technological change and innovation. The move from 3G to 4G allowed Uber (ticker: UBER), Snapchat (SNAP) and online banking itself to emerge and change the culture. 5G could be 100 times faster than 4G; it’s expected to facilitate the next wave of technological advancements, including autonomous vehicles, virtual and augmented reality and the internet of things. Market intelligence firm IDC expects the market for 5G infrastructure to soar from $528 million in 2018 to $26 billion in 2022.
These long-term trends are setting investment concepts and allocations for the coming 10 plus years. The events of the last 5 days will not deflect our philosophies to be investors in great things for 5,000 days or more.