A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Equity markets look to take a hammering Monday as the spread of the coronavirus in Italy, Iran and South Korea threaten global economic growth along with further tragic loss of lives.
S&P futures indicate an 85 point or 2.5-per-cent drop at the open. The less reliable TSX 60 futures indicate a 1.6-per-cent fall domestically.
There’s not a lot to say or write at times like this. Investors have been taught not to panic and sell during downdrafts so the only task is to look for prices at which target stocks are screaming buys.
“Cramer on market plunge: Coronavirus impact on companies could be ‘more severe than thought’” – CNBC
“WHO director-general Tedros Adhanom Ghebreyesus is racing against time to stop the new coronavirus from becoming a global crisis” – Bloomberg
“South Korea may consider supplementary budget to head off virus impact” – Reuters
“Millions of Chinese firms face collapse If banks don’t act fast” – Bloomberg
Citi strategist Tobias Levkovich compiled a list of stocks most widely held by hedge funds. These lists are interesting but not easy for investors to use – most commonly held stocks tend to outperform in the short term because of price momentum, but underperform in the longer term.
The top of the list holds few surprises – Amazon.com, Microsoft Corp. and Facebook Inc. are the top three – but there are some surprises lower down, including Restaurant Brands International Inc., Cheniere Energy Inc., and Linde PLC.
“@SBarlow_ROB C: Most widely held stocks by hedge funds” – (table) Twitter
Warren Buffett’s annual letter to shareholders reflected his confidence that equities are set to outperform fixed income for the foreseeable future,
“'If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,' Buffett wrote in his annual letter to Berkshire Hathaway shareholders, which was released Saturday morning”
“Buffett says it’s ‘almost certain’ stocks will beat bonds over long term if rates, taxes stay low” – CNBC
U.S. portfolio manager and author Meb Faber made an excellent point about hindsight bias and investor risk tolerances in “How Long Can You Handle Underperforming?,”
“An investor who put $10,000 into Berkshire Hathaway in 1965 would now have $200,000,000. That’s Two. Hundred. Million. Dollars… But most could never have endured the roller coaster to get there. It’s easy to fantasize about the $200,000,000 finish line…but think about suffering through one of Berkshire’s multiple 50% drawdowns… Right now, revisit some past chapter of your life – say, saving for that down payment, or opening your kid’s enormous college tuition bill … You go to check your finances for the first time in a while, only to realize you’re down 50% because Berkshire has been tanking.
Would you have held?”
“How Long Can You Handle Underperforming? (or, How To Beat 94% Of All Mutual Funds)” – Meb Faber
Newsletter (Friday): “One portfolio risk to rule them all, the bank stock to own this earnings season, and the ETF Buyers’ Guide for U.S. equities” – Globe Investor
Diversion: “Tech Experts Are Pessimistic About Their Industry: Silicon Valley has hit a midlife crisis” – The Atlantic
Tweet of the Day:
Going to tweet out some interesting stuff from Goldman’s latest hedge fund report that worry me. First of all, as everyone knows by now, the US stock market rally has been pretty narrow, and the 10 biggest companies are now 25% of entire market - highest since dotcom bubble. pic.twitter.com/HTnsoWxmha— Robin Wigglesworth (@RobinWigg) February 24, 2020