Growing up in Omaha Nebraska meant that Warren Buffett was more than just a household name. While he became a billionaire, he made many more millionaires along the way. When studying Benjamin Graham and Warren way back in business school, there were many nuggets I took away but perhaps the most important of all was Warren’s famous quote about the psychology of investing:
“BE FEARFUL WHEN OTHERS ARE GREEDY AND GREEDY WHEN OTHERS ARE FEARFUL”
In light of the coronavirus pandemic, I think it is safe to say that many people today are more fearful then at any point in their lifetime and the markets are clearly reflecting this. Following Warren’s logic, I am assuming a few key factors looking forward:
1. Stocks will likely never be cheaper than they are now down 30+% from their highs. From an historical context, the crash of 1929 which led into the great depression had a drop of only 25% over 4 days.
2. Once the economy returns, which it will, many surviving companies with good fundamentals will come roaring back and most people will wish they had bought them at the bottom.
3. The negative effects of the virus will pass– it is only a matter of how and when. In 18 months, I am betting that the equity markets will likely be back near where they started the year. So, if you have a 401K and are at least 2 years away from retirement, your losses will end up being largely emotional in the end.
So, in honor of my fellow Native Nebraskan here is what I am buying now (by calling the bottom at 30%):
FACEBOOK: Down 35% from it’s high, who is likely to get more activity online while we are all “social distancing?” It is likely the “social distancing” network nearly all of us now use called Facebook. The fundamentals of FB are stronger than ever and once the economy comes back, they will already be in great shape. Short of an anti-trust breakup, FB will continue to be a cash cow to owners.
SALESFORCE.COM: Down 32% from it’s high, SFDC is one of the strongest SAS models in the industry. This company has literally become a cash register in a system that is as sticky within a business as super glue. Chances are your business already uses a SFDC system and if it doesn’t, it likely will in the future.
HOME DEPOT: Down 37% from it’s high, the housing shortage will continue once we recover – which means more home flipping, renovations, and improvement. The demand will return and likely pretty quick…the stock price should follow.
DOCUSIGN: Down 17% from it’s high, Social distancing will change certain aspects business well beyond the virus and Docusign is in a good position to take advantage of this. Having recently IPO’d, I would not only see a strong and quick recovery, but also a potential acquisition down the road here.
AMAZON.COM: Down 16% from it’s high, Amazon has already announcing the additional hiring of 100K people to handle their increased demand and if there are still people who haven’t already discovered the “social distancing” value of buying online, there will be more coverts after we recover from the virus.
BERKSHIRE HATHAWAY: Down 25% from it’s high, BRKA/B is run by the man who knows how to buy better during opportunities then anybody in the world. They were already sitting on $128B in cash so if the value buys are there, don’t expect Buffett to be sitting quietly by. For those who want to play it safe, ride the wave with him and keep it simple.
BOEING: Down 71% from it’s high, BA is still reeling from issues related to the 737 MAX and now the virus shutdown. Normally, I hate airlines which comes from many year’s experience flying on them weekly but I am confident that the Pentagon does not want to cede their local business to Airbus so I expect plenty of government support (ala “too big to fail”) and once there is more clarity around the Max litigation and the economy starts to improve again, this stock should take off with it. It is a bigger gamble than the other aforementioned stocks but the potential upside is bigger as well.
Any additional stock buys I might be missing here? Leave your comments below…
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