The Changes I’ve Made To My Portfolio During This Crisis

I can’t answer for everyone but I thought it would be useful to discuss the changes to my portfolio I’ve made since the crisis started.

Absolutely Nothing

This may be anti-climatic but I’ve done absolutely nothing to my portfolio.

I’ve not added any stocks nor sold any positions.

The reason is quite simple.

I’ve not added any stocks to my portfolio because I am saving the cash I have now to invest in my own business.

And I’ve not sold any stocks because my portfolio of stocks is resilient.

Most of the stocks in my portfolio have more cash than debt.

This means that these companies can pay off any fixed expenses while business is down and can still borrow more due to their strong financial position.

As such, they are in a great position to survive this crisis.

In addition, most of the stocks in my portfolio also have resilient businesses that are either less impacted by Black Swan events or are likely to thrive when business is back to normal.

But Stocks May Fall Further so Why Don’t I Sell Now and Buy Back Later?

I’ve read multiple reports suggesting that we are in a “dead cat bounce” and that the current uptrend of stocks will not last.

I don’t like to speculate on how stock prices will gyrate in the short-term.

But I believe that what we are seeing in the stock market is quite reflective of the expectation of the real economic impact on companies.

Financial experts point to the fact that the S&P 500 has rebounded strongly in the last couple of weeks but the truth is that the S&P 500 is not reflective of the entire economy.

Financial blogger and investor Michael Batnick wrote in a recent article:

“The S&P 500 is doing well, but many stocks are not.

The pain that retail companies are experiencing is being reflected in their stocks. Nordstrom and The Gap are both down 60%, Macy’s and Bed & Bath are both down 70%. That’s year-to-date, and to remind you it’s only the second quarter.

The pain that hotels are experiencing is being reflected in their stocks. Marriott and Hyatt are both down more than 40%.

The pain that casinos are experiencing is being reflected in their stocks. MGM and Wynn are both down more than 50%.

The pain that energy companies are experiencing is being reflected in their stocks. Halliburton and Apache are both down more than 60%.

The pain that home builders are experiencing is being reflected in their stocks. PulteGroup is down 47% and Toll Brothers is down 57%.”

There are stocks that are still down a lot despite the recent rally in the S&P 500.

This suggests that the market is pricing in the economic impact for the companies that will be hurt the most.

The S&P 500 is heavily weighted by mega-cap stocks such as Apple, Facebook, Amazon, and Alphabet.

They have lots of cash and will likely survive and even thrive in this crisis.

For perspective, these four companies collectively hold US$353 billion in cash and short-term investments, according to data from Ycharts (based on their last-reported financials as of 29 April 2020).

As such, the S&P 500’s performance is positively skewed by their performance.

Focusing on What I Do Know

That said, we never know.

Even fundamentally sound stocks may fall in the coming weeks and months.

But I can’t be certain and I don’t want to bet on it.

I prefer focusing on the outcomes that I know will happen.

We don’t know how long it will take for the world to return to normal, but what we know is things will return to normal, eventually.

The economy will reopen, the COVID-19 curve will flatten, and consumer sentiment will improve.

It may take months or years but eventually, it will happen.

When that occurs, consumer confidence will return, businesses will expand, and the economy will grow.

Investor confidence will make a comeback and stocks will rebound.

Knowing this, I much rather hold on to the stocks I own, and let them ride out the current volatility.

When economic growth returns, I want my portfolio to be well-positioned to succeed.

Final Words

“In investing, what is comfortable is rarely profitable.”

Robert Arnott

Seeing your stocks fall is painful.

No one likes to see their hard-earned money vanish into thin air.

Unfortunately, volatility is part of investing.

Recessions are normal.

Bear markets are normal and investors have to live with it.

In times of massive volatility, it is often tempting to take action to reduce your losses or to try to time the market to make a quick gain.

However, timing the market is extremely difficult. It’s simpler to wait out the volatility and give your investments time to grow.

Charlie Munger perhaps summed it up best when he said:

“If you’re not willing to react with equanimity to a market price decline of 50 percent two or three times a century, you’re not fit to be a common shareholder.”