Farnam Street Investments special update for the month of March 2020, discussing the global pandemic and its impact on the markets.
Q4 2019 hedge fund letters, conferences and more
The Economic Impact Of The Global Pandemic
It's no secret I’ve had concerns about how expensive the market was for a while (OK, too long). Who knew a global pandemic was on the horizon? As of this writing, the market is about 25% off the mid-February highs. And as scary as it all seems, we still have a ways down before we hit long-run “normal.”
Statistics dictate you have to spend time below the mean as well. A bear market typically lasts 18 months, although the early severity of 2020 so far makes comparison difficult. There are no laws adhering markets to the typical. Over the last fifty years, when the S&P 500 has dropped this far, total losses have ranged from 27% to 57%.
That doesn’t mean we do nothing in the meantime. Some businesses will go on sale sooner than others. The plan is to go slowly and accumulate all the way down. We won’t tick the bottom. We’ll deploy too early, or too late, but we’ll carpet bomb attractive prices along the way. We’ve already started. The list of companies I’d like to own is long. But the price has to be right.
For the last three years, FSI has been effectively closed to new investors. I didn’t have many obvious investment ideas and frankly, my confidence was low that I could do a good job in a perpetually inflating market. I’m too price sensitive for aged bull rallies.
We’re in a new paradigm with the global pandemic now hitting.
Time To Go Long
Now would be a great time to add long-term money to your accounts. Or if you know someone who could use a steady hand during trying times, please send them our way. The headlines are likely to get scarier from here, and it might be a relief to know the investing side is looked after. You’ll know your money is invested right next to ours. Heck, if you’re a previous client who wanted more action, welcome back. This year is providing more fireworks than any of us planned for.
Four days ago Berkshire issued €1 billion in eurobonds at a 0.00% interest rate. Add to that $125B of cash at Omaha headquarters and Buffett is well positioned. We’ve maintained a similar Berkshire percentage of cash in our portfolios. It seems our patience may finally be rewarded.
Enough of the global pandemic financial.
The COVID-19 virus is bad news. We haven’t seen anything like it. Our local service economies are likely to be hardest hit as we quite-correctly self-quarantine. We’ve never shut down an interconnected world like this. The second and third order effects are humbling.
If you have a steady paycheck while working from home, do what you can to help others. It’s going to feel lonely and bleak for many of us. No one will forget your kindness.
A few ideas I plan on implementing related to the global pandemic:
- Buy gift cards from family-owned restaurants to give them much needed working capital.
- Set daily “office hours” where anyone can call and not worry about disturbing me during a set time.
- Run errands for the elderly: picking up prescriptions, etc. They’re the most vulnerable population.
If you have other ideas, please send them my way. Or if I can be specifically helpful to you, please let me know.
Feel free to call or email us; we're never too busy to help!
Jacob L. Taylor
Chief Executive Officer