"There will be market interruptions, and I don't know when they will occur, and I don't how deep they will occur, but I do know they will occur from time to time, and I also know that we'll come out better on the other end." - Warren Buffett
Greetings,
The first quarter is finally over folks, but the final story of this market meltdown has yet to be written. I spent the past four weeks in Atlanta observing a public market that really got constrained by basic financial fundamentals – the market was simply “overbought” as evidenced by high valuation multiples in the S&P, Dow and Nasdaq. But, on top of an over-bought market, there was the collapse of oil and then the Coronavirus pandemic. That is quite a cacophony of issues for the market to try to absorb and that really caused a flight to safety.
In March, market forces and financial fundamentals drove the market further back to reality with the S&P closing down 12.5% for the month. In many quarters the discussion is all about the economic impact of the Coronavirus and how that tanked the market. I, on the other hand, blame the market downturn on good old financial fundamentals. When valuations get too high, there will inevitably be a correction. It is only a matter of time and volume, but it will occur. But, to be fair, the collapse of oil and the Coronavirus pandemic certainly did cause a severe reaction to the downside.
I have stated many times in the past that investors should take a long-term perspective to investing, and the performance of the public stock markets since the year 2000 supports this view. Cumulative performance from 2000 through December 2019 reflects the benefits of having a diversified portfolio of small, mid-sized and large-cap value stocks. And it underscores the principle that longer time frames increase the likelihood of having a good investment experience.
In March, the S&P 500 closed at 2,585 and ended the month down 12.5%. The Dow closed at 21,917 and ended the month down 13.7%. Nasdaq closed at 7,700 and ended the month down 10.1%. The Russell 2000 closed at 1,153 and ended the month down 21.9%.
In April, we believe the public markets will stabilize as the correction takes hold and valuations will slowly start to come back. I would not rule out a second or even a third testing of the correction lows during April, but I believe a real 15-20% correction is very healthy for the markets.
Currently, we are buying some of our largest holdings like Microsoft, Berkshire Hathaway, Amazon, and others. We are also buying new names like Verizon which we believe to a good value at this price. Overall, we have increased our cash position to 40% in anticipation of continuing to buy back into the market in quality investments at superior values over the next 3 quarters.
Thanks again for your consideration & for sharing your thoughts and ideas with us.
Have a wonderful April and 2020 ahead!
Best regards,
Vinnie
Vincent M. Oddo
Managing Partner
PointFour Capital, LLC
vincent.oddo@pointfourcapital.com