Buying the Apocalypse
Remember the Speculator’s Edge…to demand supply and supply demand. Doing your job as a speculator sometimes requires buying when there’s blood in the streets or under other circumstances when all but the bravest are selling. Indeed, the best trade (investment) imaginable would be buying stocks at the Apocalypse. You’d get them while their worth less than their intrinsic value (value of future cash flows discounted back to the present). The discount rate is the yield on the ten year bill (the risk-free rate) which is now under one percent…Therefore those future cash flows will be discounted by very little...In other words think long term where there is less competition for the information that really matters. And remember at times of emotional extremes, be contrary. Don't be part of the herd...stand apart!
A few reassuring words from Bruce Flatt from his latest letter to the shareholders…
While we manage our underlying business for the long term, we realize that you are also interested in our stock performance. Its 50% increase in 2019 was an anomaly; at the same time, the previous year the share price was down, which we also viewed as an anomaly. We estimate that we earned approximately 20% annual returns on our intrinsic value over the two years. As a result, over the two years combined, our stock had a return that was about the same as what we generated in the business.
In short what is now happening in the stock market is an anomaly. The run-up up to the current sell-off was an anomaly…Focus on long term values…hold your nose and buy or just hold on to what what you have.
Remember, at times of extreme emotion...BE CONTRARY!
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