If there are two recent charts that best illustrate what a crisis can cause in the Stock Market, these would be our nominations.
A Crisis to Solve is an Opportunity for Investors
This is the first global stock market crisis that is mixed with social media and free trades. So, be prepared for the startling confusion that is over-reacted on.
- Chart 1: One obvious beneficiary from massive cancellations of business travel is online video conferencing.
Zoom was already becoming a well-known name at companies worldwide using their powerful technology. But, something unusual happened in the stampede to get more of one stock that traders knew would work in a crisis, furiously bidding shares up 140%+ in a few days. There was only one problem…
…it was the wrong stock! This Zoom company does not do video conferencing. It does not do anything; it’s been OUT of business for years!
That trading action was NOTHING like the confusion in another ticker symbol.
- Chart 2: The all-time record for trading of a single security in one day was shattered with $128 billion in volume. (Previously, no security even crossed $100b). Any guesses on the most volatile name you can think of?
This is the SPY, the exchange traded fund (ETF) for the entire S&P 500 Index of stocks. Notice who panics the most now.
Below are the largest holders of the SPY. No moms or pops among them. The big investment firms are the ones over-reacting -- and more indiscriminately than ever before.
YOUR Tremendous Advantage as an Individual Investor
At a time of extreme confusion and fear, here are two irrefutable facts we hope you can use as important guideposts.
1. It is more than okay to say you do not know. NOT having a strong opinion (like those convinced ZOOM buyers) on something you do not fully understand is an underrated course of action. You have fine company at that humble table:
“You’d be amazed by the amount of businesses I don’t feel I know well.” -- Warren Buffett
2. Realize what an advantage you have over big institutional investors. They must sell panic; you do not. Big investment firms are trading the entire market as a basket of S&P 500 stocks.
A recent Vanguard study revealed individual investors are less likely to act on changes in optimism or pessimism than institutional investors. Another huge difference is individual investors’ expectations are statistically much more realistic than institutional rates of return projections. Individuals do not have to answer to committees or crowds -- so, we are not forced to react.
After 131 straight months without a traditional 20% market correction -- the longest running bull market on record -- the crowd of large investors were ready to use any scary excuse to sell stocks.
When all stocks get sold together in a basket, thrown away with no regard to prices received for very, very different underlying businesses, THAT is when an individual has their biggest advantage of all.
“Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them.” -- Andy Grove
The Fears ARE Real THIS Time…
It is really scary out there, for all sorts of new health reasons. Travel and business plans this year are being changed, and they should be. Slowdowns in the economy will result with long-lasting effects.
To quote the leading health authority of the day:
“Disease germs hiding in neglected places about the homes and surroundings are ready to attack.”
That message was printed in this health bulletin from a company you may have heard of, Johnson & Johnson, and that day was in 1915.
That little company’s earliest health care solution started from an idea to solve a previous crisis.
Robert Johnson was on his way to a vacation and struck up a conversation with a railroad doctor on the train. Johnson was told about the frequent injuries from the grueling work of railroad workers. Those doctors had to be everything from the general practitioner to occasional surgeons (away from medical facilities) with no sterilization.
The conversation led to a brainstorming session where they discussed packaging sterile surgical gauze and dressings into boxes to keep on the trains.
Johnson went back home and wrote to railway doctors across the country and asked their opinions on what supplies would be most helpful to put in that first box he planned to make. The Johnson & Johnson first-aid kid that we still buy today was born 132 years ago.
We keep solving bigger problems with better solutions. Too often it takes a crisis to remember how good we have it, and temporarily forget how much better we will make it.
Consider the last terrible flu strain outbreak called H1N1 over a decade ago. As a result of that crisis, hand sanitizers are now installed on the walls of almost every building you walk into, doing incalculable good all around us every day.
“Man’s mind once stretched by a new idea, never regains its original dimensions.” -- Oliver Wendell Holmes
Our best guess at what the long-term result of this current crisis is? The world will get a little bit better, once again.
Investing Wisely, For Good Reasons
We see relentlessly improving standards of living, which is the only reason needed to believe in investing.
Of the Top 20 Research and Development budgets among U.S. Companies, half are in healthcare. In the past twelve months alone, those few healthcare companies combined to invest $75 billion FOR us, to do more GOOD.
For some perspective on that kind of risk being taken for innovation, 420 stocks that make up the S&P 500 (84%) are smaller than that one-year expense. Each one of those entire companies is worth less than $75 billion.
Those two crazy charts at the beginning are just more reminders to separate yourself from the crowd’s reactions. Use the increasing advantage you have as an individual investor. Have a plan and make certain it is invested wisely.
Know exactly what you own, and why it will stand the test of time. If we can be of any help to you, we would be thrilled to serve as a guide.
Give us a call or send us an e-mail and it will be responded to personally.