Whitney Tilson’s email to investors discussing Empire Investment’s special report: ‘the Coronavirus panic is overblown, so it’s time to buy’; Charlie Munger transcript; Berkshire Hathaway 0% debt offering; Americans are avoiding Corona beer; refinance your mortgage.
Q4 2019 hedge fund letters, conferences and more
1) Earlier today, we sent out a special report to Empire Investment Report subscribers entitled: "The Coronavirus Panic Is Overblown, So It's Time to Buy." Excerpt:
Have you heard about the terrible pandemic that has struck 32 million Americans since last September, sending 310,000 to the hospital and killing 18,000?
No, it's not the coronavirus, which is dominating the headlines, but seasonal influenza (better known as the flu) that comes every year...
The U.S. Centers for Disease Control and Prevention estimates that since 2010 the flu is responsible for between 12,000 and 61,000 deaths annually in the U.S. Globally, the World Health Organization estimates that the flu kills 290,000 to 650,000 people per year.
In stark contrast, at last count, there are just over 111,000 confirmed coronavirus cases worldwide, which have led to 3,884 deaths. In the U.S., there are only 566 confirmed cases of coronavirus, which have led to 22 deaths (13 tied to a single nursing home in Kirkland, Washington).
There is good news from China, the epicenter of the pandemic, which accounts for 72% of cases and 80% of deaths to date. As we'll show, new coronavirus cases there peaked more than a month ago and are falling steadily. In fact, there were only 40 new cases in the past day across the world's most populous country, the lowest level since the start of the crisis.
We note the irony that the strongest evidence to date that this pandemic can and will be contained was reported on the very day that stock markets around the world are experiencing their worst sell-offs...
And here's more good news: starting this month, the Northern Hemisphere, which includes the 12 countries that account for 97% of coronavirus cases, starts heating up. Warm and moist weather kills almost all respiratory viruses, which is why the flu dies out in America every year by May at the latest, and likely why Australia has fewer than 100 cases and South America and Africa have almost none.
But investors right now don't care about any of this. They are only focused on the rapid rise in coronavirus cases in a handful of countries – and the fact that nobody knows with certainty how bad things will get.
But is a full-blown panic – like what we're seeing today – warranted?
We think not. And, we'll explain why and what we recommend to subscribers of the Empire Investment Report in this special mid-month update.
Before we do so, however, we want to make two things clear. First, we are giving investment, not medical, advice. To be successful as an investor, you must be willing to accept uncertainty and take risks, because if you wait to buy until the skies are clear, stocks will have already rallied. But when it comes to the health and safety of you and your loved ones, we'd tell you the opposite: don't take unnecessary risks (however you define that).
Second, while we recommend taking advantage of the current panic by investing in certain stocks (discussed in the full report), we aren't "calling the bottom." We claim no ability to precisely identify when stocks will stop going down. In fact, we can almost guarantee that any stock you buy right now will be lower – perhaps much lower – at some point in the future.
So why do we recommend putting some dry powder to work now? Because we think the coronavirus pandemic won't be as severe as most people think, for reasons we outline in the full report. And because we have the experience, wisdom, and humility to know that neither we, nor anyone else, will know the exact moment when stocks have bottomed. Instead, we're doing careful analysis of both the coronavirus pandemic as well as a handful of companies we know well, in order to be directionally correct in the timing of our buy recommendations.
Perhaps it sounds illogical, indecisive, or fatalistic to recommend buying stocks while also warning that they're almost certain to go lower. But, as veterans who have profited from many other market panics, from the Asian and Russian financial crises, Long-Term Capital Management, the bursting of the dot-com bubble, the Great Financial Crisis, and the European sovereign debt crisis (not to mention health scares like Ebola, SARS, bird flu, and MERS), it's the best we can offer – and it's the truth...
Based on the headlines, you'd think the world was coming to an end. Here are several from the past few days:
- Cases surpass 100,000 worldwide; deaths top 3,400
- Virus strains U.S. health system with supply, test shortage
- U.S. cases pass 300, the East Coast reports its first deaths, and Amtrak cancels trains
- 21 people test positive for coronavirus on California cruise ship, out of 46 tested so far
- New York declares a state of emergency
- South by Southwest Festival Canceled
- An attendee at a conference where Trump and Pence spoke tests positive
- Spiraling Virus Fears Are Causing Financial Carnage
- Air Travel Poised for Worst Year on Record Amid Virus Outbreak
- Credit Market Endures Worst Day in a Decade on Virus Rout
- Coronavirus Could Cost the Global Economy $2.7 Trillion
- Drop in Travel May Cost $50 Billion
- It's Time to Really Fret, Says Manager Who Beat 98% of Peers
- Wall Street's Pros Fess Up: We Don't Know What's Going On
These headlines are causing investors to freak out. But should you?
In a word, no.
The first thing to keep in mind is that the headlines are written by journalists looking for the maximum number of readers and are published by media companies looking for maximum engagement. And of course, fear equals engagement.
Journalists choose which experts to interview – there's no shortage. Given that no one knows for sure how bad the coronavirus pandemic will get, which experts do you think will get the most publicity: those with doomsday forecasts, or those who predict that "this too shall pass"?
We saw similar dynamics at work during earlier health scares. The difference this time is, in part, due to how contagious the coronavirus is. Given how rapidly it has spread across the globe, a greater level of concern is warranted. But we suspect that an even bigger reason why people are panicking is simply because we live in a more interconnected world in which both information and rumors travel with lightning speed.
During times when others are losing their heads, savvy investors keep their wits about them and focus on facts rather than rumors and the most likely outcomes rather than the worst-case scenarios.
Empire Investment Report subscribers can read the full report here. If you're not signed up already, you can learn more about a subscription – and how to get 40% off the regular price – right here.
Charlie Munger Transcript
2) During chaotic times like these, I like to recharge my batteries with the timeless wisdom of Berkshire Hathaway (BRK-B) Chairman and Vice Chairman Warren Buffett and Charlie Munger. In that spirit, here's a 45-page transcript of what Munger had to say at last month's Daily Journal (DJCO) annual meeting.
Berkshire Hathaway 0% Debt Offering
3) Speaking of Berkshire Hathaway, the company just filed a prospectus for a €1 billion, five-year senior note debt offering paying an interest rate of – I'm not making this up – zero percent. That's right: debt investors are so freaked out right now that they're willing to lend Berkshire money and receive no interest...
Americans Are Avoiding Corona Beer
4) Here's another sign of the insanity out there: Americans are avoiding Corona beer amid coronavirus outbreak, survey finds. Excerpt:
Some American beer drinkers are avoiding Corona, the beer, amid the deadly coronavirus outbreak, according to a new survey.
A surprising 38% of beer drinkers insisted that they would not, under any circumstances, buy Corona as the deadly virus spreads across the globe, according to the survey conducted by 5W Public Relations...
Refinance Your Mortgage
5) Mortgage rates are hitting all-time lows today, so if you have a mortgage, refinance it now!
Best regards,
Whitney
