What the hell is going on?
“What the hell is going on?”
It was mid-March — in the depths of the corona panic — and I was in our weekly editorial meeting.
Something weird was happening at Barefoot. While the headlines were full of people hoarding toilet paper, we were seeing a huge spike in people asking me how they could buy … shares?
A few weeks ago ASIC solved the mystery:
The regulator found that daily share trading volumes exploded during the lockdown, driven by a “sharp increase in the number of new retail investors to the market – up by a factor of 3.4 times”.
The same thing has been happening the world over, as virgin investors try their luck trading. In the US, the three biggest brokers signed up over 1.5 million brand-new customers in the March quarter alone.
Where are they getting their money?
Well, “trading stocks” was cited as among the most common uses for the recent US government stimulus cheques in nearly every income bracket, according to CNBC.
So are they little lambs to the slaughter?
Heck no, these first-time traders are swaggering around like big daddy rams!
This week the S&P 500 had its biggest 50-day rally in history, climbing a staggering 37.7%.
And that’s ...
Despite the largest global economic downturn in our lifetime.
Despite record unemployment in the US, with 40 million people out of work.
Despite rising trade war tensions between China and the United States.
And despite the largest civil riots since the 1960s.
One more time … what the hell is going on?!
Well, share markets around the world are being driven by two acronyms:
FOMO (Fear Of Missing Out), as the US Federal Reserve does everything it can to prop up asset prices.
And TINA (There Is No Alternative), with interest rates low … where else are you going to put your money?
However, there’s one experienced investor who isn’t buying:
Warren Buffett.
The legendary 89-year-old investor has wisely accumulated a billion cash war chest so he can famously “be greedy when other people are fearful”.
And so, when the Corona Crash wiped 37% off the market, we all assumed he’d be buying up big.
He wasn’t.
Instead, he did the exact opposite, dumping his entire holding of airlines, and more recently selling billions of dollars more of his bank stocks.
At the Berkshire Hathaway annual general meeting in May, Buffett cautioned that the $137 billion cash he had on hand “isn’t all that huge when you think about worst-case possibilities”.
Gulp.
The reaction to Buffett’s caution has been savage.
Many pundits have written him off: He’s too old. He’s too cautious. He’s lost his touch. His (short-term returns) suck.
Then again, the last time the press wrote him off like this was at the height of the Dot-com Bubble …
Right before the market crashed.
And in the decade after those headlines Berkshire Hathaway’s book value per share rose by 88%, thrashing the total index return of just 12%.
So, what am I taking out of this?
Well, a couple of things:
I’m still following Buffett’s long-standing advice and regularly buying low-cost index funds.
However, I’m not getting too excited. I believe there’s a good chance Buffett will ultimately be vindicated and we’ll see shares pull back at some stage.
I’ll leave the last line to the guy who’s delivered a 2,744,062% return over his 55-year career:
“I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year.”
Tread Your Own Path!
