The COVID-19 Crisis – A Time Of Opportunity?

In his famous 1986 letter to investors of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Warren Buffett came out with one of his most famous pearls of advice:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

“I’m A Contrarian… Honest!”

Investors across the world have endorsed and repeated this advice for years, describing themselves as dedicated contrarians.

Indeed, one need only consult Twitter to see an endless flow of age-old contrarian adages that are loyally reiterated with complete faith.

However, another adage is especially relevant, considering the international market’s plight at the invisible hands of coronavirus disease (COVID-19), ‘It is easy to be brave when there is no danger.’ That is what is becoming abundantly clear. Shareholders are currently selling hard in a blind panic.

If you are a contrarian investor, be a contrarian investor. This is the exact economic environment the phrase was coined for. Investors spend their entire lives with faith in a certain investment philosophy but abandon it at the first sign of risk. Yes, anxiety in this situation is a natural human reaction, but the simple reality is that unless you are willing to accept a certain degree of risk, investing isn’t for you. Volatility is a fixture in the world of investment, and this is an inescapable reality. If you want to play this game, be brave, or suffer the consequences. Just as a disclaimer, in case it isn’t already obvious, that doesn’t mean being reckless. Don’t invest money you can’t afford to lose.

COVID-19: Remarkable Fear

So, COVID-19; I’ve been shackled by jury service for the last few weeks and returning to work has been frenetic to say the least.

With Wall Street experiencing its biggest drop since the Black Monday crash of 1987, and the FTSE 100 & 250 plummeting further with each passing day, fears of a global recession are becoming as menacing as the virus that is causing them.

A graph of a market crash

There is no one piece of universal advice that can put investors’ minds at ease in a situation like this. Make no mistake, the COVID-19 pandemic creates a level of concern that I haven’t witnessed for many years, not least because of the initial un-co-ordinated response by governments around the world and the lack of clear data used to make these decisions (fake news is alive and well folks). This virus is going to take, and already has taken, thousands of lives across the world. We need to take this scenario extremely seriously, react selflessly and follow advice from our national medical establishments.

half of America will get sick

Goldman Sachs In An Emergency Conference Call To Clients Last Sunday

In fact, in an emergency Sunday conference call, The Goldman Sachs Group, Inc., told 1500 clients that “half of America will get sick.” They acknowledged the fed is in serious trouble and provided some additional insights into the current market situation. I’ll be looking at those in a future article.

Volatility = Opportunity?

However, despite the obvious and somewhat justified fear, it does not mean we cannot be pragmatic.

This is not a time to panic. Do not buy into the media-induced hysteria that is currently sweeping the land. While COVID-19 is terrible, potentially fatal news, investors must not lose sight of reality: this is a time of immense volatility, but also of immense opportunity. Stocks across the board have gargantuan discounts, and investors need to keep their cool, unlike the thousands of inconsiderate individuals piling their trolleys, quite bizarrely, with mountains of toilet rolls. We’ll be looking at some specific undervalued stocks in the near future.

All indications from the mining industry are that COVID-19 shouldn’t have a particularly damaging impact on the mining sector. I’ve spoken to many CEOs and the message is a cautious ‘it’s business as usual.’ Mining communities are often housed in isolation, away from general society and urban areas, and the workforce is usually young and fit, with no underlying health conditions. This means that while the virus will undoubtedly cause some disruption, the vast majority of the workforce is not in an at-risk category. Therefore, business should continue close to normal with minimal major health concerns. It is worth noting that this could change, and investors should monitor this situation closely as it develops.

So, what should investors be doing right now? They shouldn’t be panic selling, and they shouldn’t be abandoning investment philosophies they have believed in for so long. Selling at a loss and hoping to get back in the bottom, or even to preserve cash, seems an approach at odds to contrarian mentality. It seems much more like fear than rational thought.

attempt to be fearful when others are greedy and to be greedy only when others are fearful

Warren Buffett

Most gold producers have seen meaningful drops to their share price in the past month. What happened to gold being a safe haven investment? Possibly, the fear is not about what the markets are doing and is instead more of personal fear: a fear of dying? Whatever it is, it is changing the way investors have traditionally reacted and behaved in previous scenarios. Has the situation been exacerbated by social media and fear-mongering online? Some terrifying health headlines out there seem very far from the reality of the situation.

It might be time to stop, take a deep breath and pause for thought. It’s not like we don’t have plenty of time on our hands in this new stationary world.

An empty toilet roll shelf in a supermarket: the consequence of panic buying.
Panic Buyers Seem To Be Big Fans Of Toilet Roll

Without wanting to sound like a Hunger Games obsessive, we humans adapt, evolve and survive. Based on every single piece of data from the scientific community, while coronavirus is here to stay for the short-term, this is not something that is going to affect markets forever. Using existing evidence, investors need to decide on a timescale estimate, after which point their shares should have rebounded towards pre-outbreak levels. Investors will also need to decide if they think a company can survive this new obstacle. It is without question that COVID-19 will drown some companies that otherwise would have splashed and spluttered to shore in normal market conditions.

The biggest discounts are likely to be had in the coming weeks. Remember before COVID-19 hit, the institutions had taken some profit off the table, so they will be back. However, like an ‘everything must go’ shop sale, investors need to make sure the goods they select have a strong resale value.

Stay healthy. Stay sane. Think.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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