Buy Equities When They’re Cheaper? Good Luck Trying

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Global Return Asset Management letter to investors “Update on our perspectives” on why it COULD be time to buy equities

Below are five important points I want to share and that I think will help with the current perspectives. And if you read nothing else, read the last section About this moment in history.
First, over the last three years people have been asking, “When is the bull market going to end?” We all knew this moment would occur, and yet now that it’s hear people are discouraged, afraid and feel uncomfortable. The reason it feels uncomfortable is because it happened quickly. Had our markets declined a little each month it wouldn’t feel so bad even if the results are the same.

DO not time buying equities

For example, who remembers how much the S&P 500 declined in Q4 2018? The answer is 20.2%, which as of last Friday, is about the same amount the S&P 500 has declined in the last month.
Second, many people (including me) made comments like, “Equities are over-priced, I’ll wait to buy after prices come down.” Well, equities are a lot cheaper now, so I’m enthusiastic about buying stocks and am confident in our long-term prospects.
Also, because we thought equities were over-priced, we kept Cash. Now we’re in an enviable position of having Cash to invest when the time is right. We don’t need to sell anything to raise Cash.
Third, everyone I talk with says they’d rather “Buy equities when they’re cheaper.” But when equity prices “go on sale” people’s courage to buy seems to crumble. And in fact, some even wonder whether they should sell. I’m surprised at this collapse of a long-term perspective on investing. I’m not saying that now is the time to buy equities, but I am saying now is not the time to sell.

Measuring risk

Fourth, I’m prepared to invest when the risk can be measured, and the virus’s growth subsides. I have excellent information and a deep network of people in many industries that are on the front line fighting the Coronavirus. On a regular basis, I’m receiving information from an Epidemiologist at Stanford University, Federal employees in Washington D.C., ER doctors in New York City, and many more people.
I’ve developed bear, base and bull case scenarios and will adjust these as information develops. I do not think now is the time to buy equities, but I certainly haven’t lost my long-term perspective and I look forward to investing our Cash.
Fifth, I want to recognize that, yes this is an uncomfortable moment. And yes, there will be mark-to-market losses. However, emotions should not override our better judgement. Long-term investing means that we will be invested during periods of market declines. And this is why we’re prepared with Cash – to invest during times like now.
I’d like to end with an investment example and a few points about this moment in history.
In Q4 2018 the markets declined 20%. We began that Quarter with 19% of assets in Cash and ended the Quarter with 0%. In the following Quarter we generated a 19% return and went on to earn 41% for the year. I’m not saying this same thing is going to happen again, but what I am saying is this: We benefit when the market declines because I’m able to buy more stock with less money, so when the market rises we outperform. Investors who have the fortitude to remain invested, or even invest more, will be rewarded.

Buy equities for the long term

About this moment in history. It’s true that we have not experienced this before. And it’s true that in the short-term the Coronavirus outbreak will get worse. However, the world is not ending. Companies still need to sell products and services to people who need or want them. Consumers are going to consume again. We will be able to leave our houses again. Tourism and travel has not ended forever.
Where there is crisis there is opportunity. I plan on seizing this opportunity to make myself and Global Return bigger and better than ever. I will not let fear inhibit me. Nor will I fall victim to the delusion that life will never be the same, or that stock prices will never go up again.
A crisis reveals a person’s real temperament: Are they driven to make irrational decisions based on emotion? Do they get paralyzed with fear? Or do they face the opportunity head-on by creating a plan of action? Are they calm and focused? Are they being proactive about implementing solutions?
Watch for these behaviors over the next several days and weeks. Those people who are calm, focused and have a plan of action are the ones who will rise to the top. Darwin’s axiom will be in full force – Those who can adapt are those who will grow stronger and survive. I’ve made my choice and I hope you join me.
This article first appeared on ValueWalkPremium

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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