“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.”
– Warren Buffett, 2016 Letter to Berkshire Hathaway Shareholders
Table of Contents
1. Keep Breathing
2. I Was Not Prepared
3. Key Crisis Takeaways (So Far)
4. Non-Investors Are Asking a Lot of Questions
5. Let’s Get Practical
1. Keep Breathing
It’s been a WEEK. Or two weeks. Or three weeks?
Someone said to me recently that each day in this market is like a year, and that’s how I feel not only for the market, but for life as a whole.
This is The Event. It’s the market drop we’ve been waiting for. We can understand what’s happening, know that it’s short-term and will rectify, and that certain companies will still exist and possibly even do better when this Event is over. It’s filled with terribleness, unhappiness, economic uncertainty, job losses, life losses, pain, and worry. Other than as an investing opportunity, there isn’t much good about an Event, and we’ve known that and prepared for it mentally and emotionally in our investing practices.
The only good bit about this mess is the investing bit. It makes me feel extraordinarily better to have one part of my life be going well and be filled with hope. I thank the investing gods for my investing practice right now. Without it, there would be nothing to look forward to.
The world is effectively shut down. The response to this coronavirus has almost universally been to stop all people congregating together to try avoid human-to-human spread of the disease.
Makes sense. Reasonable.
It’s driving me crazy, though, to know how much better we could be doing in this situation if we had effective testing for the virus. Once we know who has the virus, those people who are infected stay home and quarantine. Those people who are not infected or have antibodies already, though, could still be out and about – working, shopping, eating in restaurants, serving in restaurants, keeping commerce and the economy humming. With widespread testing, the world wouldn’t shut down.
We know this works because it’s what other countries have successfully done.
Why not take a large portion of those billions and trillions that governments are coming up with out of thin air right now, and push it out to anyone who could contribute to making more and better COVID-19 tests: doctors, scientists, entrepreneurs, government agencies, companies? Get us all tested, and get most of us all back to work?
It’s our jobs back that we need. It’s revenue. As revenue slumps and companies fail, and then personal income slumps and reaches crisis levels, tax revenue will drop dramatically. It’s the makings of a recession. The longer we stay in isolation with limited testing, the worse the effects on the economy will be.
Note that without widespread testing, we all need to stay inside and isolate. Without information, we can’t know who has it and who doesn’t. Lots of people who have the virus are asymptomatic. So we all need to stay in and respect the situation. I just wish we could use the technology we have – the tests – to know what measures are actually necessary.
So, here’s what we know, and what we don’t know. (Note: All of the following links are to The Guardian, because they still offer free access and are a top reliable newspaper. I truly appreciate having a non-paywall trustworthy news source to which I can link here and know that you can access, and I donate to them. Please consider donating to The Guardian if you can.)
What we know:
We know that the US recorded the most jobless claims ever this week. We know the virus is still infecting more and more people in Europe and in the US. We know that there is still a massive shortfall of tests for coronavirus infections, and therefore, probably more reliable is the number of deaths.
What we don’t know:
We don’t know how long the number of deaths will rise. We don’t know when the economic pain of shutting down entire countries will get so bad that politicians will choose to open up business again, even if the virus is not yet waning. We don’t know how people will handle being near strangers again. We don’t know where “the bottom” is. Are we there now? Maybe. Maybe not.
Instead of trying to time the market or call the bottom, I am buying shares of good companies when they are cheap, without regard to how the market feels. The inevitable consequence of doing so is that the price WILL go down immediately. It’s the Emotional Rule of Investing that the price will go down, and it’s entirely BECAUSE I bought it. Super annoying. But, I remind myself constantly, if I try to time the market, I will get it WRONG. Very wrong. Super wrong. I can’t predict the future and whenever I try, I get burned. Keep it simple.
Overall, I’m watching the news for virus testing. When we have widespread testing, we will truly be through the worst part, and the economy will start to get back on track as people go back to work.
2. I Was Not Prepared
Before this crash, I had tried to prepare for it. I had simulated what I would buy. I had practiced my mental and emotional calming techniques. I also knew that I would discover a lot of holes in preparation once it happened in real life.
Unfortunately, I was right. There were a LOT of holes in my preparation, and as I’m going through this crisis in the market for the first time as an investor, I’m continually grateful for my mental preparation. Because I’ve practiced investing consciously and mindfully, I have been able to observe the day-to-day parts of my investing that haven’t gone so well. The higher-level thinking that I’ve been able to do as a direct result of my investing practice is making me better every day at handling this ongoing crash.
After talking to Matthew Peterson for the last issue, TIP #30, was illuminating. His crisis checklist was so practical and real that it inspired me to write my own. I had imagined the crisis in my head, but it wasn’t until he said he had a checklist on paper that it occurred to me that I did not. Mine had stayed in my experience only. Not smart, when emotions are flying. So, I’ve been observing, everyday, the areas in which I feel weak or unprepared, and how I could do better or be better, and I have written down those points.
I’m still in the middle of it, obviously, as are we all, so I don’t want to share a definitive full checklist. But I’ll share a few points that I feel confident will stay on mine. (Just to drive home the point about having a written-down crisis checklist: when I typed the above and then went to type the first point on the checklist, my mind went completely blank and I couldn’t remember a single thing on my list except “get sleep.” So, actually write the list down, on paper or a note-taking app or save it as a document, etc. Keep it somewhere you will easily find it again.)
3. Key Crisis Takeaways (So Far)
Be careful of non-investors. They are in their feelings. They are discovering the market in real time, and even if they are in my family and I’ve been drilling long-term value investing principles into their heads for years, they could get overly depressed or excited about market news, and those sheer emotions can throw me off. Even if logically I know x, y, or z, those emotions coming at me can make me feel X! Y! Or, Z! “Ack! Yikes! I must do something about it!” Nope. That’s the exact time to chill and focus on cutting down on the noise. I don’t have a good solution for this yet. More on family members and their irritating newfound interest in the market below, in Section 4.
Stay connected to other value investors. As a counterpoint to all the freaked out people in the point above, stay in communication with long-term investors who will remind me to keep my practice steady. I do that through talking on the phone to investor friends, through Whatsapp groups with investors, and through our calls together in The Invested Practice.
Check my work for peace of mind. I thought I was ready with my Wish List and prices. In real life, I looked at that list and I didn’t know when I had last updated the prices. I didn’t know if there was new information that should change the prices. I looked at that list and felt like I had no list at all. Immediately, I felt inadequate, unprepared, and generally useless. So, I started re-tracing my steps and checking my work, and I’m still in the process of doing that because it’s a lot. Internally, I let those feelings run until the good thoughts came back, reminding myself of the years of work it had taken to get to that Wish List, that without those years of work I would have no work at all to re-check, and that my need to confirm my decisions is a great safety mechanism against quick actions which makes me a good long-term investor. If I had known at the beginning to expect that I would need to check my work for my own peace of mind, I could have skipped feeling down on myself and ashamed, and just gotten on with it. Same outcome, more happiness.
Travel is the enemy of useful deep work. If traveling, get home immediately. If cannot get home, set up base wherever I am so travel time does not take over.
Stop drinking alcohol. Even a small amount can make my brain a little bit dull the next day.
Get more than 8 hours actual sleep. Tendency is to say to myself, “It’s a crazy time, sleep is secondary because I’m working so hard, go me.” Not true. Sleep is primary.
Don’t forget to Get Bored. There is so much noise in my head and around me. I’ve needed to have space. I haven’t posted on social media much, and I’ve tried to do yoga or walk around the block without a podcast or audiobook in my ears. It feels very contrary to the immediacy of how much work needs to be done right now, but I have to make the effort to spend time with my brain having a quiet break, and getting bored, more than than I ever have before. (For background on the importance of getting bored, see Issue #21 and Issue #22.)
I will never be fully prepared. Something will always come up that is a new crisis. It will throw me off. Take that thrown-off feeling in my stride and, once I’ve noticed that it’s happened, use it to get better at handling the next crisis. Using it to get better is antifragility in action.
4. Non-Investors Are Asking a Lot of Questions
Suddenly, everyone is interested in the market. Have you been dealing with this? It’s the interest I’ve been hoping for and working towards for years – we need more small investors in the markets! However, I worry that without real understanding of companies, without knowing what competitive advantage a company has, without knowing its managers have integrity, and without understanding what a good price is, everyone who is suddenly interested in the market is just looking for a quick buck. There are no quick bucks to be had in this Event, in my opinion. (Foin, there are probably some quick bucks, but they come from speculation in short-term price movements, not real investing for the long-term. I personally can’t predict what’s going to happen day-to-day right now, but if you can, then go for your quick bucks, I wish you well! Just don’t bet all your money, and remember that it’s a bet, and you could lose it all.)
I recently sat by, in shock, while a family member, who shall remain nameless to protect them when they look back on this in a week or a year and remember their craziness, rushed into the living room and turned on Bloomberg TV to hear the latest projections of next week’s jobless claims. Projections. Not actual numbers. Could there be a less long-term value investing Buffett/Munger/Rule One piece of information to discover? Argh. This is a person who has shown only occasional and tertiary interest in investing in companies and virtually no interest in markets, literally now turning on the TV shortly after waking up so they don’t miss anything important that could move the market.
Another family member, who also shall remain nameless for the same reason, used to tell me they had no time whatsoever for investing practice and they’d get to in a few years. Now this person calls me almost every day to find out what stocks they should buy that DAY. All of a sudden, they seem to have the spare time. Magically. It’s not just those around me. So many people who had no interest in preparing for exactly what is happening right now with this market crash suddenly are extremely interested in making money in the market. Basically, when it seemed like nothing was happening and they’d have to prepare and practice, they couldn’t be bothered. Now that that practice and preparation are paying off, they want it all. Right now.
I have an angel and devil on my shoulder sort of reaction to all these newfound calls and questions. The angel side of me says, it’s wonderful! I’ve been trying to get them into investing for years. If what it takes is a market crash to get them curious, then I’ll take it – as long as it leads them into long-term practice and, hopefully, a real appreciation of the art of investing.
The devil side of me says, it’s insanely irritating that these Johnny-come-latelies want to join the market because of short-term news, and that I have to keep reminding them to behave as true investors, when they haven’t done the work or the practice to be ready for it. They’re going to get burned and I’m going to have to listen to the pain, all of which could have been avoided so easily.
I don’t have a great solution. When I don’t have the energy to engage, I completely shut down and refuse to talk about it. When I do have the energy, I encourage them to practice true investing. I simply remind them that even if they want to try out getting into the market on a short-term basis, do it with a company they would be happy to own long-term. At least, that way, if they get stuck owning a stock that goes down, there’s some protection. They can just wait it out holding a great company.
This approach has been working. I had the energy to get into a longer conversation about the market with one of these dear loved-ones of mine recently and they assured me they understand long-term value investing is the way to go to be able to sleep at night, and they were just having fun looking at trends with all this volatility going on. Furthermore, when I mentioned what a great opportunity this is to mindfully notice their emotional reactions to the market news, for the first time, this person related to what I was talking about. They had started to notice their reactions to money are strong, and deeply hidden within. I walked away from that talk with a huge smile. So I’m having some influence. Thank goodness.
LET’S GET PRACTICAL:
Apparently, commentary from Ray Dalio on a new study he’s done. I find this post confusing: is it an introduction leading to the actual study coming soon? Seems like a strange tease to me.
Howard Marks’s latest memo is out and, as always, is a great reference point to think more clearly.
What takeaways for your investing practice do you have from this market crash so far? Write them down. Even if you change them later, write them down. You WILL forget.