I just have to say that we’re in a situation right now that investors dream of: many wonderful companies at fire-sale prices. This is the kind of thing that powers market-thumping portfolios for many years to come. It’s not as good as 2009, when everything was on deep discount, but certainly for some companies it’s pretty amazing right now.
We look at the opportunities at companies differently than the broader market does. If we didn’t, then there wouldn’t much chance to outperform. In many ways, the difference is time horizon (if my investment thumps the market over the next 3-5 years, who cares what it does this year?). But I think we also get to know the businesses closely, which should lend us confidence in our investments.
So why is it that when the market turns so negative, we let it affect us? Why do we suddenly think the market knows something we don’t? And right at the very moment when opportunities are ripest, when we have the best chance of earning a long-term profit?
Don’t fall for it. This is a time to be buying those companies, not selling them. Is it guaranteed these companies will go on to beat the market? Of course not. There is always risk, always uncertainty. It’s always possible that this is the beginning of the end for some of those businesses, and that they’ll never recover. But that’s always true, even the risk isn’t flashing in neon all the time. That’s why we have a portfolio, and we don’t put 100% in one or two companies. We have a maximum percentage of capital we’re willing to risk on any one idea – no matter how great or sure it seems – and that keeps disaster at bay when some of those ideas inevitably don’t work out.
Watching the value of your portfolio drop today isn’t much fun. But I doubt anyone reading this needs 100% of that portfolio capital today or this month or this even year (even if you’re retired). We invest for the future, and what matters is the value of our portfolio years down the road. Opportunities like those we have now are what allow us to set ourselves up for that long-term success.
I have no idea where the market will go from here, or if the share prices of our companies will continue to drop (perhaps even significantly). But forgetting about that for a moment, and looking ahead to the future, I personally am excited about the opportunities for long-term returns.
Just a thought this morning.