Feb 27, 2020
To start bluntly: while we're rooting for medical professionals fighting to contain the outbreak, the consensus is that the number of infected persons will get worse in the near term. Everyone should do everything they can to be safe, like washing your hands often.
But there's a big difference between your physical health and your financial health. From an investing standpoint, don't get confused.
"I'll just buy back in later once things get better." Most hedge fund managers are thinking the exact opposite - "how should I size up?" - seeing most of the bad news to come already priced in.
(Side note: we're getting emails from folks who manage capital at several investing firms debating the exactness of when the "bottom" will come... probably a futile effort in false precision, but you get the bullish sentiment).
Here are the two simple questions the investing community is asking:
1) Long-term impact? Pretty minimal.
We went down the list of every one of your 20 companies and struggled to find any whose long-term earnings power seems at risk from the virus.
Two examples: + Will it affect Uber's network effects or long-term free cash flow potential? + Will Apple's ecosystem moat erode because Q1 China iPhone sales are weak?
No and no. Probably a few % points of value should be shaved off just given some lost near-term revenue (i.e., Apple had to shut some stores down for a few weeks). But anything more than that seems to be an overreaction.
2) So buy, sell, hold? Probably a buy if not fully invested; otherwise hold.
When a stock's price falls but its long-term earnings remain essentially unchanged, a good investor buys more. Value investing 101.
At Titan, we've seen our stocks fall across the board, even though the virus impact will not be equally distributed amongst them all.
Originally, we believed only Apple, Disney, and Booking Holdings would be affected given their China and travel exposure, but all of our stocks' prices are falling. Hence we seeing buying opportunities.
Volatility should continue. We anticipate more companies cutting Q1 forecasts as the virus spreads. But so does the market, which prices have quickly reflected. We don't know when a bottom will come, but it will.
TLDR: The coronavirus is rightfully causing market turbulence, but this is probably a significant overcorrection. If you're a long-term investor, such volatility can be a gift.
"It is scary stuff, but I don’t think the coronavirus outbreak should affect what you do in stocks... the sell-off is a chance to buy stocks at a cheaper price." - Warren Buffett
Cash Management
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