Reread this WEB commentary and thought it resonated:
“We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what the business earns in the succeeding decade or two.“
Hope and sense that they continued to put a lot of money to work in Q2, beyond the OXY. We find out in 2 weeks, correct?
“We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend.
Though it’s a great sentiment, and great words to live by, I’m not sure that’s greatly relevant to the current situation.
I just don’t perceive that level of great deals, panic, or chaos.
I have seen what I thought were some good deals and I have deployed cash.
But I don’t see the shooting-fish-in-a-barrel situation.
Numerically?
Let’s consider stocks with a total return of -50% or worse since their 52 week total return highs.
That’s a generous measure of good deals because things might have been very expensive recently:
a fall by half isn’t a good deal if something started off overvalued by a factor of three : )
Over 200 of the S&P 1500 stocks have met that test about 15% of trading days since 1994.
The number of stocks down by half was over 200 on 91% of the days from mid 2008 to August 2009: over a year of good hunting, spiking to 1002 stocks, just over 2/3 of them.
For comparison we have had 200 stocks down that much only 1 day since September 2020. (June 17 this year, in case you’re wondering).
Only 185 of the 1500 are down that much right now. Long run average is 103.
It seems to me that a disproportionate amount of press and emotion is invested in those 185?
What about stocks with smaller falls?
On average, only 4.8% of days has it been true that at least half of the S&P 1500 have fallen 30% or more from their 52-week highs.
There were 203 such days during the credit crunch and 51 during the pandemic bear, but none since then.
As Mr Munger said just last week, Berkshire had cash coming into this drawdown, not because it foresaw a correction in stocks but because they previously couldn’t find things that were attractive or made sense.
My two cents:
Things are less unattractive but not even close to table pounding attractive
Berkshire may well deploy all of the $106 Billion cash as at 31 March 2022 less Mr Buffett’s insurance family silver liquidity Billions. Whatever that number is, call it $30 too $50 Billion. But it’s actually the recurring Berkshire operating free (after maintenance capex) cash flows which are really significant to capital allocation. Especially over the next, say 3 years, if we are in a true bear market. That big number is not earmarked for dividends. It’s in the hands of very smart capital allocators. And could well transform Berkshire yet again.
Bla bla bla…
Anyway, Berkshire is a very attractive investment at current prices and relative to other options, even if the cash just piles up but if it gets deployed it’s even better. It’s surprisingly good value. $50 Billion in adjusted economic earnings. $106 Billion in cash. Assets getting cheaper each month. It’s a beautiful thing, compared to other things.
2. Berkshire may well deploy all of the $106 Billion cash as at 31 March 2022 less Mr Buffett’s insurance family silver liquidity Billions.
Pretty bold prediction.
But I too have been thinking that we might see rather a lot more cash deployed than usual.
Perhaps even fairly boring stuff.
The inflation expense of sitting on the cash is enough to push the trade-off towards settling for
some “slates” of stocks, like the sogo shosha, or what appeared to be a health care slate.
There’s as much meat on a dozen wildebeest as there is on an elephant.
The inflation expense of sitting on the cash is enough to push the trade-off towards settling for some “slates” of stocks
Yes, it becomes more costly to sit on cash.
But: Why investing that now when in the meantime it’s obvious (to me, but of course I might be wrong) that we are in a bear market that is far from over? That the general mood is one of more and more depression and acceptance of that fact (but far from panic)? Why buying when not only the expectation is that of a slowly further declining market but there is a more than purely theoretical chance it might come much worse?
Yes, some things might have attractive prices right now. Being lazy I was hoping the compared to me superior investors here and on two other boards would “decide for me” what the most attractive ones are. But finally I couldn’t hear that uniform “GOOGLE!!!” anymore and over the weekend did a bit of homework myself, resulting in clear decisions, now based on my own calculations (to be invested in BABA+META+BRK and, yes, GOOGL).
But I also came to the conclusion that there is no hurry, to avoid what I always do, buying and selling too early, that in this market not only time is on my side but it might be dangerously early for “all in”.
But: Why investing that now when in the meantime it’s obvious (to me, but of course I might be wrong) that we are in a bear market that is far from over?
I think you’ve answered your own question.
Expectations of market direction can be wrong. When you see something, go for it.
Of course, we also don’t yet know what Mr Buffett has been doing in terms of capital allocation.
Like market direction, expectations can be wrong.
I imagine buybacks have continued at least to end June, but not at a wildly higher pace than the usual speed limit.
If you want inspiration, here are some picks from a random quant screen.
HRB TEN ABBV AMGN ALSN CAH CTXS WU BCO SEE
All have some signs of high ROE, low multiples of current earnings, and good recent price performance to catch some momentum. No other criteria.
I am not recommending them and don’t own them, just trying to make you happier about the paucity of ideas : )
This particular quant approach, had it been followed for the last 36.5 years, would have beat the S&P by about 4.9%/year after trading costs with lower risk on some relatively meaningful metrics.
e.g., the worst rolling two year stretch was -12%/yr rather than -27%/year for the S&P.
Sadly the picks aren’t good for long…since it uses momentum, it checks the list monthly.
I think you’ve answered your own question. Expectations of market direction can be wrong. When you see something, go for it.
Jim, you do that, as from your posts it’s clear you already put cash at least into Google. What happened to your vague idea of diversifying away from US? Any action yet?