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BIG TICKET INVESTORS ARE BUYING BARGAINS…

March 16th, 2020 by TopGun Press

BIG TICKET INVESTORS ARE BUYING BARGAINS
brushing Coronavirus concerns aside, professional investors worry more about a Democratic win in November.
For Immediate Release – New York, NY, March 16th, 2020 (TopGun Press)

Questions:

1) Are you planning to be a net buyer in the near term 3 months? (Net buyer means own more $ in equities than you do today.)

Yes = 100%
No = 0%

2) Will you be buying using cash reserves or switching existing positions into higher quality names that were overpriced but have become cheaper?

Yes = 60%
No = 40%

3) How long do you think that decreasing real spending, lower earnings and supply chain issues directly caused by Coronavirus will prevail as deterrents to investing?

1 Month = 0
3 Months = 70%
6 Months = 15%
1 Year = 15%

4) Will markets/prices come back to January 2020 levels? 0-100%

Yes = 86%
No = 14%

5) How long will this recovery take?

1 Month = 15%
3 Months = 70%
6 Month = 15%

6) How do you rate the future effect of a change in the US administration from Trump to a democrat in November as a market performance risk 0-100%? (Risk of a negative impact on prices)

Yes = 100%
No = 0%
Average Level of added risk = 57%

TYPICAL INVESTOR COMMENTARY:

“Everything is down so there is a lot of stuff to buy. It’s unusual. We’re sorting through where to take action and where not to. Every time you find something, then you find something else because it’s down up to 60 percent and it’s a good company. Generally speaking, companies that were good in January are still good today. However, there are exceptions to that rule. Obviously, airlines and other sectors that will be materially affected by the business impacts associated with Coronavirus typify those exceptions. And, then there are also those companies with debt. Most companies are companies that we were very interested in three months ago and are now more interested in them because of the lower stock price. For example, we have wanted to own _____ for a long time, but didn’t because it was a bit pricey. It’s now very reasonable. That’s the kind of company that we would take a 10-year view on. We would view it as a permanent holding. If it goes lower, we will look at selling something else so that we can buy more _____. We were not fully invested before the market tanked. We had 5 to 10 percent cash to deploy. Once we are fully invested, we will have to start swapping in and swapping out companies. So far, we have had lots of fun. Is it possible that things worsen? Yes, but we don’t think the impact of Coronavirus is going to be huge in North America. There may be a small, technical recession of a couple of months. It most certainly won’t be a financial crisis. If there is something that turns it that way, we’re not aware of it. Coronavirus will have a negative impact, but it is mild, relatively temporary and has created an opportunity to buy some of those companies we’ve wanted to own for a long time and now can.”

“We don’t really think it matters who is in the White House. Even if Bernie Sanders was elected President, we don’t think there would be enough support across the American political spectrum to get his agenda implemented, thus hurting the financial markets. It would be scary and there would be uncertainty. And, some stocks would be hit in the short-term and valuations would compress, but we don’t believe it would amount to anything material in the next five years. If Sanders became President, some multiples may go down and stay down for a while, but it wouldn’t impact the business itself.”

“We will be buying in the very near term. We will be using cash to get in cheaper, and switch into some quality names that are now much more affordable. We believe stock prices will come back. Everything should be clear by the end of this year, and when the outbreak ends we will get a good sense of the calendar for the timeline of going up.”

“We think there is going to be disruption created by the Coronavirus in the financial markets, but we don’t think that it will last longer than two quarters. So, that could be a technical recession. The world was looking pretty good at the beginning of 2020. If investors value certain companies on 2021 numbers and, assuming everything gets back to normal, they should be a screaming buy. There is a lot of fear out there right now that some companies are just not going to make it through this period because of quarantine-like activity. There are a lot of negative headlines and the market feeds off of that. There’s more passive money than ever and, if everyone is selling their ETFs or selling their stocks completely or indiscriminately, it’s not fun when it happens. When it comes to investing, we don’t try to time the market. We stay invested in the companies that we think have the best opportunities to perform at that particular point in time. What we are really looking for right now is high quality companies that we think have been unfairly sold off. Telecom companies have performed well, but they have been down further than the market in recent days, which seems kind of crazy.”

“Our view is we will get through the current Coronavirus matter. We are confident that things will look a whole lot different in two to three months from now. The greatest challenge facing the technology industry is sales, in the near-term, because of the Coronavirus.”

“We’re low turnover generally so we aren’t very active but we are looking for opportunities where stocks have been sold off disproportionately to the change in fundamentals.  We’re heading to the positions that we have high conviction around and where we don’t see any change in fundamentals, they’ve just sold off with the market.”

“Is it just a short term gap period, where it’s like, things were doing pretty well and actually, China was looking like it was turning? This goes all the way back to maybe February 1, maybe mid January, when that was the case, and then they had their thing and then more things, and then it just blew up to where it is now. It is stunning when you see the relentless passive selling, it’s been pretty crazy, anything goes, any yield stock, any defensive and it’s just weird. I saw today utilities down 20% across the board and I’m thinking this is just people trying to turn stuff into cash. I’m 99% sure that this will go away and we will return to being like normal people again. People will start eating in restaurants again and people will start going to their office again, you’re not going to be afraid to say hello to your neighbour. If it was just February or March of any other year and there’s a bad cold and flu season, you’re still doing your regular activities and there’s people in your office that are hacking and there’s people on the subway sneezing on you. This is the way of  the world and if you were to contract this new virus, you would feel a little bit sick for a few days and then whatever. I mean, we’re basically just trying to control the transmission of it. It’s not, from what I can tell and from what I see and read more, much different than the ordinary flu. There is just so much media on it. It’s so incredibly powerful and it’s exhausting too. So to me, it’s still not really the virus itself, it’s the response. It’s scary, it’s in the media and it’s creating an issue with pretty much every stock out there. I also would not discount the Saudi thing this week with OPEC. That was like an extra ton of gasoline on the fire, literally. It’s horrible and the timing was incredibly deliberate.”

“I think at this point the best stocks had been so expensive for so long, such as the really special ones and then there’s been no bid for anything that’s already bad. The stuff in the middle was always kind of sheepish but nobody was overly excited about it and right now the best stuff is definitely more than reasonable. Then there’s some stuff from the middle bucket that is so ridiculously cheap. Something like _____ is maybe outperforming the market. My sense is there’s a lot of passive now, so the market was down. Composite was down. Quality wasn’t really down much more so it kind of looks like investors were just looking for liquidity. It could just be a bunch of index sales.”

“The recent market drop is not like the financial crisis of 2008 because the stock price movements have been more intense and concentrated. The financial crisis of 2008 was bad and a total structural break. This market drop is a medical problem. A lot of individuals had Coronavirus symptoms this flu season and probably had the Coronavirus and did not know it. The passing rate is probably understated. It is a bad flu; nothing more.”

“I believe investors will be buyers, one way or another, in the not too distant future. The investment community is looking for charity on the government response and Coronavirus prognosis. The Fed and Central banks’ responses are already baked into stock prices. Investors want to understand the rules of the game before re-entering the market. Cyclical stocks would be the ones to buy because the stock prices were pegged to a recession.”

“On a short-term basis, there is a risk with a change in the US government from Republican to Democrat. I am not sure on a long-term basis. One of my long-term problems with the economy is wealth distribution. A lack of inflation, GDP growth and interest rate growth will, by effect, cause a more centralization of wealth because individuals spend less and corporate capital spending will become less important. There will be a decreased amount of large projects. If a corporate takes half of the money allocated to capital expenditure and completes buy-backs, the money is not being recycled back into the economy. Capital expenditure creates jobs and increases GDP growth. The multiplier of the dollars is much higher. This is one of the major roots of the inflation problem. We can not fix this problem with fiscal policy.”

About Brendan Wood International:

Brendan Wood International (BWI), formed in 1970, is a private partnership generating independent performance audits throughout the world. Brendan Wood debriefs large institutional investors worldwide on a daily basis. There are 2000 investors in the panel collectively managing + $40 trillion in equity investments. Relying on real time intelligence, the firm advises public companies, institutional and activist investors, investment banks and broker dealers on strategy, performance and recruitment of TopGun talent. The firm’s partners have formally presented at 1000+ C level strategy meetings and corporate off sites in fifty cities. Brendan Wood founded the exclusive TopGun Club.

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Brendan Wood International
+1 416 924 8110
jnovak@brendanwood.com

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Managing Director
Brendan Wood International
+1 416 924 8110
aknott@brendanwood.com

 

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