It’s safe to say no one saw a drop this big coming. Coming off an all-time high just a few weeks ago, the market has had the lowest percentage drop since 2008. The speed at which this market collapsed is unprecedented. This drop was facilitated by high-frequency trading algorithms running at speeds that sometimes defy common sense -if the drop were coming, one would have had to be plugged in, watching the tell-tale signs of the incoming storm, like seismographs registering earthquakes before a volcanic eruption.
The average investor has no protection from drops like these except in diversification. Yet, little protection is afforded when the entire market drops in unison. Such hive-mind behavior in the market mirrors the single-mindedness of the programs that run them, as well as their human counterparts.
So how can an investor profit off a drop like this? How can the adage, “there’s always a bull market somewhere” survive when the market itself is in bear territory? What’s required is an extraordinarily agile investor -one that has his ear on the ground, listening to the movement of money, thinking critically about how the market responds and reacts and where the places of greatest return on investment can lie. If there’s a war, the intelligent investor, moral questions aside, owns the bullets and the bandages.
In the case of the coronavirus, there are the companies that manufacture face masks, detergents, vaccines, etc. The intelligent investor would note which companies have acquired lucrative government contracts to perform cleanup, which do not have their supply chain exposed to epicenters of contagion. Ordinary things in ordinary times may suddenly acquire extraordinary value -the speed therefore in which an investor moves his positions require him to be attentive and agile, lest the rest of the market plays catch-up.
Case in point, while most of the stock market dropped, a few companies remained in positive territory, these include:
* IBIO Inc. (biotech)
* Altimmune (biotech)
* 3M (general purpose, facemasks)
* Clorox (cleaning products)
As of Feb 28th, 2020.
I am not going to do anything now. There’s not much to do other than to ride out the storm and maintain faith, as it were, that the US stock market will rise again and the economy will recover. However, I recognize that this will take time. I wonder though, if an intelligent investor as I’ve described previously, would have been shielded from the fallout, or perhaps even gained from it. I am not advocating for trading -that’s a pricing strategy which I do not follow. Rather, I wonder if a prudent intrinsic valuation of companies in context of the events that surround them could yield insights that more narrow-minded investors, or programs, have missed.