How wealth is created
My favorite political consultant is Greg Valliere. He has over three decades of experience following Washington for investors and analyzes policy and politics and their impact on the markets. Last week, he wrote in regards to public opinion on race relations in America, “that in my 35 years of polling, I’ve never seen opinion shift this fast or deeply. We are a different country today than just 30 days ago.”
It has become such a politically charged environment. After the rallies and riots, I was waiting for the next shoe to drop and it came with a boycott of social media. It started with smaller companies such as Patagonia Inc., VF Corp., North Face, Eddie Bauer and Recreational Equipment Inc. Then larger companies joined, Verizon Communications, Unilever, and Coca-Cola announced spending freezes. On this news, Facebook stock dropped $20 or 8% and the selling spilled over into the entire market. Unilever went as far as saying it would pull its advertising from the social media companies for the rest of the year. “Given our Responsibility Framework and the polarized atmosphere in the U.S., we have decided that starting now through at least the end of the year, we will not run brand advertising in social media newsfeed platforms Facebook, Instagram and Twitter in the U.S.”
The boycott worked because Zuckerberg announced new civil-rights protections at Facebook. It took a rally, riots, and a boycott to change Facebook’s policy. Change is happening and I’d say boycotts work the best when you hit the billionaires in the wallet. Yesterday many of our technology holdings felt like collateral damage. I know a few of you hate President Trump with such a passion that a 1% loss in your portfolio never gave you such satisfaction. For Trump supporters, it’s been an awful few weeks. The Wall Street Journal got in the action and ripped President Trump in a few opinion commentaries. Peggy Noonan wrote a commentary titled The Week It Went South for Trump. She was never a big Trump fan and wrote, “He hasn’t been equal to the crises. He never makes anything better. And everyone kind of knows.” In this politically charged environment, I’m sure the WSJ lost a few subscribers because they too will be boycotted, but this time by Trump supporters.
If we thought it couldn’t get any worse with this virus spiking in the south, now we are dealing with revenue being lost because of boycotts. The markets really had no chance of going up this week. I never thought I’d miss the days when Trump would send a tweet about trade talks and the market would immediately go up or down 1%. I much preferred trade talks going well or a trade war was going to happen over this harsh reality.
The best advice I’ve read in a long time was from Nanette Jacobson, the Multi-Asset Strategist at Wellington. She wrote, understandably, many investors are gun shy about jumping into value when its performance has been so disappointing for so long. Ironically, this may be precisely why now is a good time to give value stocks a look. I would add that the only reason for most of the market to be down so much is that something has to be broken. The investor optimism poll by Wells Fargo/Gallup had the largest short-term drop since its inception! Ric Edeman, the founder of the nation’s largest independent financial planning warned advisors in a new report that “until a vaccine is widely distributed, the economy is not likely to fully recover.” He gave great advice and went on to say, “Advisors should be talking to clients about whether they have the financial wherewithal, as well as the emotional wherewithal, to maintain their portfolios for as long as this might last,” he said. Some of his clients are opting to put more funds in cash reserves and lessen their holdings in equities so that they are not forced to sell stocks when prices are down. “It is better to make that determination now than after the market falls again. Taking a cavalier attitude toward the pandemic is not advisable.”
I’d like to finish with a quick story about one my of my best calls I’ve had in a long time with a client that is retired 30 minutes before the market closed on Friday. The Dow was down 750 points for the second time in a few days and he said I’m having trouble sleeping at night. But it wasn’t for the reason you would think. He wanted to buy way more of a stock he held and had been following for years. The dividend on the stock was now at 7.17%. I’d recently listened to a call with the CEO and the dividend was safe and could be as high as 10%, if the company wanted to pay out all of their free cash flow. The stock is not without its risks with its high debt level, but the client said I want to buy and hold and don’t care if it falls more, I know it will eventually come back. He couldn’t be any more right. It took a global pandemic, riots, rallies, boycotts, President Trump to tank in the polls, investor optimism dropping to its lowest levels, warnings from the largest investment advisor, to create the value in this company to now yield 7.17%. This opportunity doesn’t come along when the sun is shining and investors are feeling happy. We ended the call both fully understanding that this is unlikely to be the bottom for the stock because nobody really knows how the rest of this pandemic will play out. But he has the financial wherewithal and emotional wherewithal to suffer some inevitable short-term losses to reap longer term gains. This is how money is made in markets. You have to have more longer-term holding power, understand what you own and the risks, and buy when everyone else is selling because they no longer have the emotional wherewithal. If there is ever going to be a time to buy it’s when everything begins to look bleak. In the first sell-off, we really didn’t know what we were up against and it was stressful, but in this second wave of selling, we are all much more aware of the risks that we face and how our own personal circumstances have changed because of this pandemic. There are some people that are no position to take more risk and might have to follow Ric’s advice because their lives or businesses have been upended. But for others who are in a better position and have a longer time horizon, this could become the opportunity you have been waiting for. I know it was for the client that I spoke with that seized on his opportunity. Hopefully, he now has a better time sleeping at night. 🙂
