Be greedy when others are fearful - are we at the bottom?
Just a general discussion here. I'm no expert but here's where the Q originated:
Investment advice from Warren Buffet is to be greedy when others are fearful. I was watching an interview with Howard Marks who effectively said, following that advice blindly can be dangerous. Following this advice can sometimes make you a contrarian for the sake of it and what's really important is to ask yourself 'why do you believe the consensus is wrong?' i.e. if others are fearful, understand WHY, AND why they're wrong, before being greedy. He used a humorous example:
3 people move out of the way of an oncoming truck. You jumping in front of that truck doesn't make you a contrarian genius, it makes you an idiot.
He concludes that he doesn't believe in forecasts and he thinks its much more important to understand where we are now as opposed to predicting what is to come.
That led me to ask, WHERE ARE WE NOW!?
S&P 500 has fallen c30% YTD, the fastest bear market ever. One could say the market is being 'fearful', but does that warrant being greedy now?
I've read a bunch of articles claiming equities are cheap. Mark Howard is buying, Bill Ackman is buying (I'm not saying they're right but hey they are more knowledgeable than me!).
What metrics are you looking at to evaluate whether the market is oversold? valuation multiples, earnings revisions, rate of change in new COVID cases, rate of change in deaths, unemployment etc. Or is this all speculation and not a question worth asking at all?
Interested to know in what people think!
While I can't predict the future I feel confident saying it will get worse. We haven't even seen our first bankruptcy, first unemployment print, containment of virus etc.
When you're confident it can't get any worse, or that placing a purchase order makes you want to throw up into a bucket, that's likely close to a bottom.
That being said, if you're young and start DCA into this you'll do just fine.
In order to assess whether we are at the bottom yet, let’s see how the current environment looks like.
Here are some uncertainties that govern investors’ reactions over the past 50 days:
A few facts about the virus:
Now, a few economic facts and hard data:
Now, about whether we have reached the bottom yet, we need to understand that coronavirus will not disappear overnight. It will be a long and gradual process lasting 3–6 months. I am afraid the worse is yet to come for markets across the world. The detrimental effects in the real economy are becoming more obvious day by day and translated into spikes in unemployment, mortgage payment delays, lack of liquidity and financing for SMEs, cuts in Capex and supplies, and lastly corporate and personal defaults. This is a self-feeding loop probably leading to what economists describe as secular stagnation.
The Central Banks were not ready to face such a crisis. Rates were extremely low already and their balance sheets were already loaded with a lot of public and corporate debt. Another stimulus plan may be the only solution now, but it is not sustainable in the long run.
**My opinion is that there is more way downwards, before we reach the bottom and markets will remain into bearish territory for many months after the “end of covid-19”. **
The important question is “What can ordinary investors do to prepare?” Being greedy is not necessarily the best idea :) Greedy on which asset class?
Summary: These are hard times for the markets and events that are unprecedented for our generation. It is and will be tough, but the best we can do is be prepared both for the virus (social distancing & healthy routine) and for our long-run financial plan.