The future ain’t what it used to be

May 14, 2020

The Future Ain’t What It Used To Be

Yogi Berra is one of those inimitable characters that may be remembered more for what he said off the field than what he did on it. He could have been talking about this week’s stock market when he said, “the future ain’t what it used to be”.

Earlier this month, the stock market was looking to a future of a reopened economy and getting back to some semblance of normalcy. As we noted previously, it was looking through the worst job loss numbers since the depression and looking to a time later in 2020 with companies hiring their employees back to keep up with the pent-up demand. As you know, the stock market is a forward indicator and it was looking as though it was pricing in some of these rosy scenarios.

The market sunk this week with Dr. Fauci testifying before Congress about the possible ramifications of opening the economy too early as well as Fed Chairman Powell saying the “the path ahead is both highly uncertain and subject to significant downside risks”. There is no joy in Mudville.

This type of back and forth volatility is exactly what we have been saying will happen over the next few months. Many companies have stopped issuing corporate earnings projections during this crisis, so the market is left to trade on rumors of possible vaccines and realities of longer shutdowns. Undisciplined investors can be seen overreacting to the daily gyrations of tweets and press conferences; longer term investors such as Warren Buffett (and us) are patiently waiting for more clarity before putting money to work.

Many in the media were surprised to find Warren Buffett did not do any buying in the first quarter given all the cash he has and all the volatility we saw. We were not. Historically, investors like Buffett like to thoroughly analyze a company before purchasing and determine where it will be a few years down the road. Given the pea soup visibility of earnings, the overhang of Covid-19, and economic recovery we have right now, it is not surprising to see him exercise patience. One of my favorite Buffett quotes is “The stock market is a device to transfer money from the impatient to the patient” and we are in that time frame where short term, knee-jerk overreactions can lead to worse, long term results.

While it is easy to be overcome by all the doom and gloom, at Landsberg Bennett we are using it to your advantage. We have slowly started to add back some of the cash this month that we had accumulated over the past few months. As I mentioned in the video market update, we will be looking over the next 3 months to slowly add back to stocks as visibility increases and some of the economic realities set in. We do think political rhetoric around China and its involvement in coronavirus will gain momentum in the weeks to come. This has the potential to add a great deal more volatility into this market given how the market dealt with the previous US-China trade negotiations. This bumpiness should provide us good entry points in the coming weeks and months. Investing is a marathon and sometimes it’s ok to walk a bit and then jog before ultimately resuming a normal pace.

We feel we are in a good place from a positioning standpoint given we haven’t taken our “portfolio hurricane shutters” down yet.

Thanks again for the confidence you show in our firm and stay safe.