How has the equity team at City Different reacted to the market downturn and all this talk of recession?
The short answer - we haven't.
We believe market timing is a loser's game. If you have a financial advisor — or a suitable asset allocation and long-term plan — you should fight the urge to react to big market moves.
What a first half. The worst for stocks since 1970. Even crazier, the worst for Treasuries since 1788!
There are so many market prognosticators out there with so much to say. Some even sound smart when they say it. We wouldn't suggest paying too much attention to any of them. As a Princeton-trained economist, I love this quote:
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.”
― Laurence J. Peter
During my 21 years as a professional investor, I've seen two major market bottoms: in 2002 and 2009. I was an associate portfolio manager during the burst of the internet bubble — what an environment to learn the business! Those early years forever engrained a healthy skepticism into my investment work.
I became a portfolio manager just before the Great Recession. As the markets went lower and lower, there was a different level of stress and pressure having trigger-pulling responsibilities for my client's assets. As a team, we mostly attempted to take advantage of dislocations and buy securities at steep discounts to our calculation of intrinsic value. We had success on that front. But did I accurately call the bottom? Not a chance.
During this time, I started to ride my bike to work. By day two, I was already racing the time I had set on my first bike ride the day before. It was dark out, I didn't have great lighting on my bike, and I hit an exposed sewer head flying down the last hill. When I came to, I called my wife Christina, an ER doctor, who was finishing an overnight shift. Over the phone, she was able to tell that I hadn't punctured a lung. She told me to call my friend and colleague, Greg Dunn to take me to the hospital — and she may have told me to toughen up and stop crying. I had broken my collarbone and both wrists. Which is to say. . .
When the market bottomed in 2009, I was in a hospital bed, recovering from surgery and on painkillers.
Luckily, I had a strong team around me keeping a close eye on the portfolio — and in some ways, I'm thankful that I couldn't take action that week. The activity that would have "felt good" at the time (selling stocks to limit the pain) would have been wrong. Frenzied selling is what makes a market bottom.
Again, fight the urge to react. Because what are you really reacting to? It takes the NBER six months to declare that a recession has begun. Often, by the time we know we're in a recession, the market has already bottomed.
Has the market bottomed? Will we head into a recession?
We don't know! But here are the questions we at City Different are focused on:
- When will the shifting stop? Significant shifts are happening in the market. (We wrote about some in January.) We've already seen extensive corrections across many of these. Whether those shifts are over or not is hard to call
- What will happen to the former darlings of the market as they reign in their sales and marketing spend? How fast will sales growth decelerate? Discerning different outcomes here will be vital to finding good investment opportunities amongst the wreckage.
- Which businesses have pricing power in an inflationary environment?
- Where are supply constraints causing temporary impacts to businesses, and where might they change long-term competitive dynamics?
- Where will we get the energy we need? How long will commodity prices remain high?
- Which consumer behaviors spurred by the pandemic were accelerations of secular trends vs. behaviors that may not continue as the world normalizes?
The information and statistics contained in this communication have been obtained from sources we believe to be reliable but cannot be guaranteed. Any projections, market outlooks or forecasts discussed herein are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.