Beyond The Headlines
Always keeping a steady course
We talked about it, we wrote about it, but now that it is happening, it’s never fun to watch. We discussed how the market valuations are inflated, how the fundamentals are stretched, and how 2019 eye-popping stock performance was driven by prices going up, not by earnings rising. We knew that it’s a matter of time when the market catches up with the reality. What is always impossible to say is – when.
We took the best approach that worked in the past, and was likely to work in the future. We took money off the table, pruned the most vulnerable positions, held excess cash, avoided the highest-flying stocks that have the most room to fall.
We wrote how cash is not only a buffer on the way down, but most of all dry powder that we can use when the market or individual stocks drop.
The last year and half, we slowly added a number of new holdings whose prices dropped to multi-year lows. We took advantage of the December 2018 sell-off, few other corrections since. This week, many of you intuitively knew already that we have been slowly, but consistently putting more money to work as the market started to drop.
This week we have witnessed one of the fastest corrections on record. Earlier this week, we shared a study showing how historically bear markets can quickly reclaim the bull markets’ gains. What we have seen so far is the market taking back the entire gain recorded since last summer, including the Federal Reserve sponsored rally. Historically, the faster the rise we enjoy, and the less substantiated by fundamentals it is — the more dramatic the fall.
For a while, we had believed that U.S. equities had entered a bubble territory, and it was a matter of time what “pin” will pierce it. There were many clouds on the horizon, but nothing was able to slow down the climb. Today, it seems that it’s the coronavirus scare that broke the camel’s back.
Now, we have no way of knowing what the end impact of the virus will be on our health, the economy, and the stock market. We are well aware of the global exposure of U.S. companies, and we would expect a meaningful, but hopefully short-lived impact on earnings, thus also stock prices in the near future.
In many conversations over the last months, and years, our clients asked if we anticipate one big sell-off or a sideways market. We always said that we are ready for both, and will adapt to either, and do what we do best — identify quality businesses, and buy them at attractive prices. We also emphasized that stormy markets show who was lucky, and who is doing the work, and conducting a diligent stock selection. In a rising market, everybody seems to be a hero. In a difficult market, there are many more opportunities, but not for passive investors or “index huggers”, but for those who know what to buy, and when to do it.
Calm markets or stormy markets, we are always keeping a steady course. As we wrote on many occasions, we have an extensive wish list of businesses we would like to own, and when others panic, and prices drop, we have a tremendous opportunity to buy them at very attractive prices.
Our patience always eventually pays off. We have been in no rush to chase the market to its top, and we are in no rush to jump in, but you will see us take very decisive, but gradual steps adding to our holdings in the coming days, and months.
Slow and steady wins the race.
If you have any questions, we are always here to help.
The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.