Van Bryan’s Note: Van Bryan here. I’m Jeff Brown’s managing editor. As longtime readers know, our mission at The Bleeding Edge is to bring readers the best insights from the world of bleeding-edge technology. But when we find other ideas that we believe readers will find useful, we pass them along.
Today’s guest essay comes courtesy of Whitney Tilson, founder and CEO of Empire Financial Research. Whitney is the man dubbed by CNBC as “The Prophet” for his timely market calls.
And like Jeff, Whitney believes the fear-induced selling we’re seeing today is creating an excellent investing opportunity. Read on to see why Whitney believes savvy investors stand to profit when the dust from the COVID-19 panic settles.
Why Now Is the Perfect Time to Be Buying Stocks
By Whitney Tilson, Founder and CEO, Empire Financial Research
Have you heard about the terrible pandemic that has struck 32 million Americans since last September, sending 310,000 to the hospital and killing 18,000?
You know, the one that was responsible for 6.9% of all deaths in America last month… with the highest hospitalization rates it’s ever caused among children and young adults… for which the vaccine is only 45% effective?
No, it’s not the coronavirus, which is dominating the headlines, but seasonal influenza (better known as the flu) that comes every year…
The U.S. Centers for Disease Control and Prevention estimates that since 2010, the flu is responsible for between 12,000 and 61,000 deaths annually in the U.S. Globally, the World Health Organization (WHO) estimates that the flu kills 290,000 to 650,000 people per year.
In stark contrast, at last count, there are more than 360,000 confirmed coronavirus cases worldwide, which have led to more than 16,000 deaths. In the U.S., there are more than 41,000 confirmed cases of coronavirus, which have led to roughly 500 deaths.
There is good news from China, the epicenter of the pandemic. New coronavirus cases there peaked more than a month ago and are falling steadily. In fact, on March 19, China reported no new cases of COVID-19.
And according to recent data published by the journal Nature Medicine, the mortality rate of symptomatic cases in China is actually closer to 1.4%. That’s a far cry from the 3.4% originally reported by the WHO.
And here’s more good news: the Northern Hemisphere will start heating up as we enter the summer months. Warm and moist weather kills almost all respiratory viruses, which is why the flu dies out in America every year by May at the latest.
But investors right now don’t care about any of this. They are only focused on the rapid rise in coronavirus cases in a handful of countries – and the fact that nobody knows with certainty how bad things will get.
But is a full-blown panic – like what we’re seeing today – warranted?
We think not. And in a moment, we’ll explain why we believe now is the perfect time to be putting money to work in quality investments.
Putting “Dry Powder” to Work
Before we do so, however, we want to make two things clear. First, we are giving investment, not medical, advice. To be successful as an investor, you must be willing to accept uncertainty and take risks, because if you wait to buy until the skies are clear, stocks will have already rallied.
But when it comes to the health and safety of you and your loved ones, we’d tell you the opposite: Don’t take unnecessary risks (however you define that).
Second, while we recommend taking advantage of the current panic by investing in certain stocks, we aren’t “calling the bottom.” We claim no ability to precisely identify when stocks will stop going down.
So why do we recommend putting some dry powder to work now?
Because we think the coronavirus pandemic won’t be as severe as most people think. And because we have the experience, wisdom, and humility to know that neither we, nor anyone else, will know the exact moment when stocks have bottomed.
Instead, we’re doing careful analysis of both the coronavirus pandemic as well as a handful of companies we know well, in order to be directionally correct in the timing of our buy recommendations.
Perhaps it sounds illogical, indecisive, or fatalistic to recommend buying stocks while also warning that they have the potential to go lower. But as veterans who have profited from many other market panics, from the Asian and Russian financial crises, Long-Term Capital Management, the bursting of the dot-com bubble, the Great Financial Crisis, and the European sovereign debt crisis (not to mention health scares like Ebola, SARS, bird flu, and MERS), it’s the best we can offer – and it’s the truth…
Based on the headlines, you’d think the world was coming to an end. Here are several from this month alone:
COVID-19 cases top 200,000 globally, death toll over 8,000 – WHO
Virus strains U.S. health system with supply, test shortage
US coronavirus cases surpass 35,000, now the third highest in the world
New York declares a state of emergency
South by Southwest Festival Canceled
An attendee at a conference where Trump and Pence spoke tests positive
Spiraling Virus Fears Are Causing Financial Carnage
Air Travel Poised for Worst Year on Record Amid Virus Outbreak
Credit Market Endures Worst Day in a Decade on Virus Rout
Coronavirus Could Cost the Global Economy $2.7 Trillion
Drop in Travel May Cost $50 Billion
It’s Time to Really Fret, Says Manager Who Beat 98% of Peers
Wall Street’s Pros Fess Up: We Don’t Know What’s Going On
These headlines are causing investors to freak out. But should you?
In a word, no.
The first thing to keep in mind is that the headlines are written by journalists looking for the maximum number of readers and are published by media companies looking for maximum engagement. And, of course, fear equals engagement.
Journalists choose which experts to interview – there’s no shortage. Given that no one knows for sure how bad the coronavirus pandemic will get, which experts do you think will get the most publicity: those with doomsday forecasts or those who predict that “this too shall pass”?
We saw similar dynamics at work during earlier health scares. The difference this time is, in part, due to how contagious the coronavirus is.
Given how rapidly it has spread across the globe, a greater level of concern is warranted. But we suspect that an even bigger reason why people are panicking is simply because we live in a more interconnected world in which both information and rumors travel with lightning speed.
During times when others are losing their heads, savvy investors keep their wits about them and focus on facts rather than rumors and the most likely outcomes rather than the worst-case scenarios.
So let me reiterate one more time: we know the recent market volatility can be unnerving. But from our view, now is precisely the time to be investing in stocks.
P.S. The old maxim “be greedy when others are fearful” is certainly true today. Remember, we’ve profited from other financial panics like the dot-com bust and the financial crisis of 2008 and 2009. When everybody else is panicking, savvy investors can pick up great companies at “bargain” valuations.
That’s why we’re hosting an urgent investor briefing tonight at 8 p.m. ET. We’ll give updates on the coronavirus crisis, discuss where the markets are likely heading from here, and explain how to take advantage of this massive buying opportunity. This event is absolutely free to attend – and we’ll even be giving away two of our favorite stock ideas, just for watching – but you must register in advance. Save your spot right here.
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