In these difficult times in the stock market, it can be hard, if not impossible, to see the woods for the trees. What’s more, many of the trees look more like sawn-off stumps than living organisms, which is not encouraging for us investors.
And right now, there is so much panic, so much misinformation, and so much nonsense being peddled that it is not always easy to know who we can trust, anymore.
Now does not seem like the right time to talk about what shares to buy and what sectors to avoid, when millions around the world are wondering if they even have a job tomorrow. But normalcy will return when we can put the dreadful pandemic behind us.
It will take time, though. Additionally, it will probably not be the same normalcy that we have become accustomed to – at least not for a long while.
So, let me tell you some home truths about the market, as I see it from a private investor’s perspective. Before that, though, let me tell you a quick story. But if you are of a nervous disposition, perhaps you should look away now.
Being closer is not better
If you are still reading this article, thank you for sticking around. Here’s my tale.
Some years ago, I attended an exhibition of renowned impressionist painters that included works by Monet and Manet. Their art has been described as a revolutionary understanding of the effects of light on the colours of objects.
They thought in terms of shades and shapes rather than scenes and objects. Now, I am no art expert. But I did learn very quickly that the further away we stand from an impressionist painting, the clearer the image becomes.
There are some similarities with the way that global markets might appear to many of us at the moment.
Point is, many of us are standing much too close to see the big picture. If we are checking the value of our portfolios daily (if not hourly), then we are standing too close.
If we are guilty of this, then all that we might hear is noise, and all that we could see is a sea of red arrows. But consider this: if we stand only a few inches away from Monet’s Water Lilies, then all that we would see are random dabs of bright colours and squiggles of paint. Being closer is not always better.
It’s a mess
If all that we can make out when we look at the market is a mess of numbers, then it is understandable why we would want to just pack up and go home. Many have.
The reaction to the confusion is not desirable but understandable.
After all, we have no idea as to what first-quarter earnings will look like, apart from being awful. Revenue at many companies will have been decimated. And without revenue, trying to predict cash flows and profits become meaningless.
The following quarter’s number could be equally bad, if not worse.
In fact, there is no way of knowing how long the pandemic could last. And those who think that they can quantify the impact of the virus on the economy and how it might affect company earnings are deluding themselves.
What we do know, however, is that central banks are slashing interest rates, which should benefit borrowers. They are also injecting funds into the global economy by the trillions. So, there should be enough money available for those need it.
Meanwhile, some governments are injecting liquidity into their own economies through subsidies and loans – again by the trillions. The UK has even said that it will pay up to 80% of the wages of individual workers to keep them in their jobs.
A waiting game
The concerted efforts by banks and government should provide a backstop that could help underpin the global economy until a vaccine is available. But despite that, not all businesses will survive.
Those that are prone to failure could be the heavily indebted ones. So, there will be casualties. As Warren Buffett quipped: “When the tide goes out, we will find out who has been swimming naked”. But if a company has a strong balance sheet, and if it provides goods and services that are always in demand, then they should survive.
If you are a long-term investor, the best thing to do now is to sit tight. If you have cash, then consider dripping the money into the market gradually. In a market crash, shares take the elevator down but the staircase up. Time is on our side.
Another thing to bear in mind is that every stock-market crash, every recession feels unique. The causes might be different. But the outcome is always the same….
…. We have always squirmed out of them. Perhaps this is just nature’s way of regularly reminding us to slow down and care about other people instead of only ourselves.