Archive for March, 2020

Investment decisions in times of crisis!

March 28th, 2020 Comments off

Following the spread of the new Coronavirus financial markets got into a turmoil even older market participants have not yet seen

(Warren Buffett: „it took me 89 years to experience something like this“).
But for sure we shoud not only blame the new virus for this.

For years now markets were flooded by central banks with cheap money or – even worse – money at no or negative cost. The stock market until January 2020 reached tremendous highs. The bond market and the real estate markets even worse.

Private, corporate and public debt has risen to levels not yet seen in human history.

Younger traders in financial institutions at the age of 30 never experienced a „bear market“ in there life! They are shocked now!

Therefore a correction was overdue. But the problem is that only in retrospect we can see whether we were in bubble territory or not.

So what to do now as an investor in stocks?

.….. sometimes the best in life …. nothing!

In all this downturn I never sold shares of stock, not even one!
I am convinced of my holdings and the losses are only in book value. When the crisis is over shares will go up again. This is not the end of the world. Be patient!

Our blog follows 2 stocks, Shopify Inc. (NYSE:SHOP) and Markel Corp. (NYSE:MKL)
The investment thesis of both companies has not changed within the last weeks. Shopify’s prospects have even improved!

1.) – Let’s start with Markel:

Markel operates in the specialty insurance and in the reinsurance business and it has a long history of underwriting profitability.

Unlike other insurance companies Markel invests not only in investment grade bonds but also in equity. At the end of 2019 about 40% of markel’s investment portfolio was in stocks.
Those stocks are certainly down now but they will recover.

In the meantime Markel earns money collecting dividends and earns money in their basic insurance business which by the way is not very sensitive to economic changes.

And if this is not enough to convince you Markel at the end of 2019 had $3.1 billion of cash and cash equivalents on the balance sheet, that’s 25% of today’s market capitalization!

So Markel today is a clear „buy“.

2.) – And what about Shopify?

We think that Shopify’s prospects actually improved during this crisis.
In the past online commerce grew significantly year after year. Just watch Amazon!

And in these days where many people are stuck at home they are buying online with etailers delivering essential goods to their door.
This structural change from offline to online shopping will accelerate. E-commerce is booming now!
Amazon as the biggest one will profit from this trend and is already hiring additional logistics workers.

But Shopify powers the independant and smaller online merchants and is even building up a logistic network for them. Shopify over time will become an alternative for third party sellers on Amazon.
And even better: Shopify is the merchant online solution admitted for legalized Cannabis selling in Canada and the US.
A lot of consumers of „recreational cannabis“ these days will buy online and not in shops for health reasons.

Shopify belongs to the group of companies that will profit from this crisis and the accelerated structural change of retail. Shopify is a „strong buy“.

But let us be clear!
Buy only stocks now with money you do not need for at least 5 years.
If you are loosing your job during the crisis or your monthly pay is reduced don’t invest in stocks but stay in cash. You will need financial reserves!

And if you decide to invest now be prepared that another severe market correction could always be around the corner. You could follow the old rule „buy in thirds“ and start to invest only with a small portion.