I wrote this piece on my website last Friday. Hopefully it remains of help to people. Note that this is published subject to the Disclaimer published at www.sharechap.com
The most important condition for the emergence and continuation of panic is a feeling of entrapment with an impending threat. Enrique Quarantelli (The Nature and Conditions of Panic)
As I sit writing this on a Friday evening in March 2020, the World seems in meltdown. The words above of Quarantelli seem almost prophetic and the man even has an Italian name. Entrapment is particularly apposite. We know high risk elderly people who are planning to “self-isolate” for months. Many businesses have asked their employees to work at home for an indefinite period. In the UK we all know the threat is coming and will peak in coming weeks and months. It is scary and induces worry.
Thursday March 12th 2020 should have seen horse racing at Cheltenham jostling for attention with the peak day of the largest world property shown in Cannes. The horses were far from the headlines and the property jamboree was cancelled. The reason? The threat of Covid-19/Corona Virus had induced full on Market panic. The World Stock Market falls were the steepest in 33 years. To put that in perspective? Liverpool FC have won two league titles since then….
The only time I’ve known a reaction like this to a growing threat was the blind panic of mid-September 2008 when the World was in financial calamity. Even then the one day falls were not as precipitous as we saw last Thursday. With the damage that was done by the 2008 financial crisis, it took a full six months for Markets to hit the bottom in March 2009. Although the ride up after that hasn’t been smooth, if you’d bought most equities in the Market in March 2009, you’d have made a lot of money by January 2020.
And that’s the thing. Savvy investors can make good money by buying over-sold stocks at times like these. Lots of people and institutions have sold their stocks because they see the threats that present as immediate and that survival depends on instant action. Potential bargains start to pile up to be sifted through by the opportunist.
In times like these, one metric that I like to look at when sifting companies is dividend yield. Now before you say, “beware…
