50% of our calls with our clients during the lockdown hinges around the client probing us on whether the bottom has been reached (in terms of the Indian market bottoming out). As you would expect, our view is that neither we nor anyone else knows whether the market has bottomed or whether it will bottom out next Wednesday at 11.20am. However, clients don’t like hearing this answer. So, reading this piece from Ben Carlson, the famous wealth manager at Ritholtz, the New York City based wealth manager, brought a smile to our locked down faces.
As with all good writers, Ben begins by making an obvious point: “I’m surprised we haven’t heard of a bazooka purchase from Warren Buffett and Berkshire Hathaway yet. Buffett is known for finding deals at favorable terms during a crisis.
There is no shortage of companies or entire industries that could use Berkshire’s war chest of cash at the moment. This feels like a ‘when?’ not an ‘if?’ situation and I’m sure plenty of investors will be interested in seeing what Buffett and Munger finally do when they make a decision. Regardless of what the Oracle ends up buying, Buffett can’t time the bottom any better than you or I.”
And then Ben points out Buffett doesn’t need to time the bottom insofar as Buffett’s ability to generate returns is not dependent on him timing the market: “When the stock market took a nosedive in the 1960s, one of Buffett’s clients called to warn him that stocks would surely fall further. Buffett responded with two questions:
As with all good writers, Ben begins by making an obvious point: “I’m surprised we haven’t heard of a bazooka purchase from Warren Buffett and Berkshire Hathaway yet. Buffett is known for finding deals at favorable terms during a crisis.
There is no shortage of companies or entire industries that could use Berkshire’s war chest of cash at the moment. This feels like a ‘when?’ not an ‘if?’ situation and I’m sure plenty of investors will be interested in seeing what Buffett and Munger finally do when they make a decision. Regardless of what the Oracle ends up buying, Buffett can’t time the bottom any better than you or I.”
And then Ben points out Buffett doesn’t need to time the bottom insofar as Buffett’s ability to generate returns is not dependent on him timing the market: “When the stock market took a nosedive in the 1960s, one of Buffett’s clients called to warn him that stocks would surely fall further. Buffett responded with two questions:
- If you knew in February that the Dow was going to 865 in May, why didn’t you let me know it then?
- And if you didn’t know what was going to happen during the ensuing three months back in February, how do you know in May?”
Then Ben goes on to highlight that 3 and 5 year returns in the US after a bear market have usually been pretty good: “Average returns following bear markets have been 52%, 89% and 132% respectively over the ensuing one, three, and five year periods. Of course, these returns come from the depths of the bear markets….
Six out of the eleven bear markets of 30% or worse went down more than 40%. Stocks would have to fall another 15% or so from here to be down 40% in total.
Three of the eleven bear markets of 30% or worse went down more than 50%. Stocks would have to fall another 30% or so from here to be down 50% in total.”
Finally, Ben gives an example of how Buffett makes buckets of money even without nailing the bottom: “In mid-October of 2008, Warren Buffett penned an op-ed for the New York Times entitled, “Buy American. I am.” At that point the S&P 500 was nearly 40% off its highs and in the midst of the worst financial crisis since the Great Depression.
Buffett stated: “The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I’ve been buying American stocks.”
Sound familiar? Stocks would fall a further 30% or so from the day Buffett said he was buying stocks. Even the world’s greatest investor cannot nail the bottom in a falling market.
But had you purchased a simple S&P 500 index fund on the very same day Buffett said he was buying, you would be up more than 220% right now (and that includes the recent sell-off).”
Six out of the eleven bear markets of 30% or worse went down more than 40%. Stocks would have to fall another 15% or so from here to be down 40% in total.
Three of the eleven bear markets of 30% or worse went down more than 50%. Stocks would have to fall another 30% or so from here to be down 50% in total.”
Finally, Ben gives an example of how Buffett makes buckets of money even without nailing the bottom: “In mid-October of 2008, Warren Buffett penned an op-ed for the New York Times entitled, “Buy American. I am.” At that point the S&P 500 was nearly 40% off its highs and in the midst of the worst financial crisis since the Great Depression.
Buffett stated: “The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I’ve been buying American stocks.”
Sound familiar? Stocks would fall a further 30% or so from the day Buffett said he was buying stocks. Even the world’s greatest investor cannot nail the bottom in a falling market.
But had you purchased a simple S&P 500 index fund on the very same day Buffett said he was buying, you would be up more than 220% right now (and that includes the recent sell-off).”
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
