“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” - Warren Buffett
Happy Friday!
I spent the past four weeks in Atlanta continuing to observe 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 has also been the Covid-19 pandemic and the collapse of the international oil market.
In April, market forces and financial fundamentals allowed the overall market to come- back quite a bit with the S&P closing up 12.6% for the month. In addition, as April comes to an end we are seeing the first glimpses of the economy re-opening. This is a very hopeful sign and one that I believe is very much needed. I blame well-intentioned, but wrong-headed, public policy at the Federal, State, and Local levels for shutting down our economy without a comprehensive plan to mitigate the initial impact of Covid-19 and then reopen the economy in a responsible manner as quickly as possible.
In my opinion, Dr. David L. Katz lays out a very rational and comprehensive plan for minimizing total harms and mortality from both infection and indirect social effects in his “Total Harm Minimization” strategy (see our COVID-19 Resources post here).
I sincerely hope that our public leaders pay more attention to Dr. Katz and many others who have been pointing out for quite some time the grave errors in their national “shelter in place” strategy. This, in fact, is NOT a complete strategy, it is just a first phase of a much more comprehensive strategy that we must put in place at once.
I have stated many times in the past that I believe investors should take a long-term perspective to investing, and the performance of the public stock markets since the year 2000 supports this view, so remember …. “this too shall pass.”
In April, the S&P 500 closed at 2,912 and ended the month up 12.6%. The Dow closed at 24,346 and ended the month up 11.1%. Nasdaq closed at 8,890 and ended the month up 15.5%. The Russell 2000 closed at 1,315 and ended the month up 14.1%.
In May, we believe the public markets will continue to stabilize and valuations will slowly come back. I would not rule out a second or even a third testing of the correction lows during May, but that should be a buying opportunity.
In our public portfolio in April, we increased our cash position to 50%, but expect to put 10-25% of that back into the market in quality investments at superior values (like Verizon) over the next month. Take a look at our TOP 10 investments list.
Thanks again for your consideration & for sharing your thoughts and ideas with us. Have a wonderful May and 2020 ahead!
Best regards,
Vinnie
Vincent M. Oddo
Managing Partner
PointFour Capital, LLC
vincent.oddo@pointfourcapital.com