In Search of the Perfect Investment

It’s spreading to more countries. There is no cure and no vaccine. Quarantines and closing downs are not the solution, but they make politicians (and others)  feel they’re doing something.

Meantime, it’s freaking the market out, because the quarantines and close downs are seriously hurting a lot of company profits.

COVID-19 (as it’s now called) can spread through human-to-human contact, droplets carried through sneezing and coughing, and germs left on inanimate objects. You need to be six feet away from anyone with a cough. Wash your hands regularly.

There is one bright spot: This week the first clinical trial of Gilead’s remdesivir drug in hospitalized patients with COVID-19 has begun. It may work. I’m hoping.

Critical: We all need to get the flu vaccine. The flu is far more serious and kills far more people. The CDC figures that 12,000 to 61,000 people die each year because of the flu in the U.S. Globally, the World Health Organization (WHO) figures the flu kills 290,000 to 650,000 people each year.

Worldwide, around 3,000 people have died from COVID-19, so far. Most people who catch it recover. Some don’t even know they have it. I don’t think this thing will ever be stopped.

As investors, what I’ve learned:

+ As more people work from home. Zoom Video and RingCentral should be the big winners. DocuSign means signing docs in your own home. That’s good. Netflix and other streamers will benefit from the boredom of isolation. Amazon’s Kindle books should also do well. You can download a book in 60 seconds at home. I especially like Kindle because of its portability, its large font size and wonderful highlighting and note taking. There’s Amazon Audible also.

+ As worldwide economies contract, oil falls. My solution: Short energy stocks. My XOM short is up 16%.

+ Sell stocks you’re down 12.5% and/or feel uncomfortable with. Few companies will be spared the contagion, which is likely to continue. Look at yesterday’s NYTimes’ cover:

+ Don’t try to catch falling knives. There are no “bargains” today. The COVID-19 stockmarket is far too unpredictable. And this is likely to continue.

+ Above all, don’t get depressed about “losing” all that money in the last few days. You made it illegitimately. Now you’re giving some of it (a lot of it?) back. See The Economist below.

+ Most importantly, it’s your choice. You do whatever you’re comfortable with — which, legitimately, may be doing nothing. Some investors I know love the daily volatility and are playing it for a ten cent move here, a quarter here. Others put in low bids — maybe 10% below the market and watch their “bargains” be automatically filled. Others are selling covered calls on stocks they don’t want to sell, but ones that are falling. Come up with your own strategy. (Or do nothing and play tennis.)

This is not the end of the world. Here’s a chart of Nasdaq from the mid-1970s. This week’s “action” is a blip.

The biggest lesson of all this. You can’t predict. This week’s Economist cover is a dozy:

It argues tech stocks are up greatly, but deserve to be!!

Well, they no longer are up greatly.

Here’s the first couple of paragraphs of the Economist’s piece. Trn is a trillion:

In 2018 a new word entered Silicon Valley’s lexicon: the “techlash”, or the risk of a consumer and regulatory revolt against big tech. Today that threat seems empty. Even as regulators discuss new rules and activists fret about the right to privacy, the shares of the five biggest American tech firms have been on a jaw-dropping bull run over the past 12 months, rising by 52%. The increase in the firms’ combined value, of almost $2trn, is hard to get your head round: it is roughly equivalent to Germany’s entire stockmarket. Four of the five-Alphabet, Amazon, Apple and Microsoft-are each now worth over $1trn. (Facebook is worth a mere $620bn.) For all the talk of a techlash, fund managers in Boston, London and Singapore have shrugged and moved on. Their calculus is that nothing can stop these firms, which are destined to earn untold riches.

This surge in tech giants’ share prices raises two worries. One is whether investors have stoked a speculative bubble. The five firms, worth $5.6trn, make up almost a fifth of the value of the s&p 500 index of American shares. The last time the market was so concentrated was 20 years ago, before a crash that triggered a widespread downturn. The other, opposite concern is that investors may be right. The big tech firms’ supersized valuations suggest their profits will double or so in the next decade, causing far greater economic tremors in rich countries and an alarming concentration of economic and political power.

You can read the full piece here.

Oops, this is not the latest Economist. These two (?) just came out, though haven’t landed on my desk yet. I’m guessing one is the American edition, and the other is for the rest of the world.

 

Some of my friends actually believe Bernie is to blame for this week’s stockmarket downdraft.

Bernie’s policies are free stuff for the masses. He freely admits he has no idea what they will cost. But that’s not the point.

The point is to get elected on fantastical promises that appeal to lots of people.

Instead of agonizing about the stockmarket..

You could take two grandchildren to the theater, have them meet the actors and have their programs signed by each of the actors. That’s Peter on the left, and Eleanor on the right.

And you could read their favorite books with them:

This morning I played tennis, wiped myself out, but still lost.

I don’t like getting poorer in the market. But real estate syndicate dividends are holding up nicely. And we’re all healthy.

See you tomorrow — Harry Newton