This article is authored by MOI Global instructor Bogumil Baranowski, co-founder and partner at Sicart Associates, based in New York.
The last few weeks have been anything but calm. We keep on learning more about the coronavirus spread around the world, and the decisions made to address it. We certainly hope that all the right steps will be taken to not only slow it down, but also to provide sufficient help, and care to those in need.
We feel that if anything, this peculiar time has brought many of us closer. We heard from many of our clients, some called, some emailed, some let us know they are keeping up with our updates. We are always here if you need us. In the last few days, we also spent more time talking to our families, our friends around the world, including those we haven’t had an opportunity to talk to in a while. I even had a chance to chat with a good grad school friend who recently relocated to Vietnam.
Megan and I have been taking daily long walks along the Hudson River waterfront. This weekend, we also took our bicycles out for the first time this season. If you are feeling overwhelmed with the news flow, a nice walk, a bike ride can do more good than any dose of hand sanitizer.
In times like this, our ability to remain available to our clients, and our ability to conduct business as normal are our priority. We remember well, how Sicart Associates was launched from our respective living rooms in the summer of 2016. I was sitting at home in my shorts and flip flops, with my laptop, and a phone ready to embark on this new adventure. Building a new firm, we made sure we use the right technology that can enable us to work, and stay connected even if we are apart, and we need to work remotely. We plan to lean on that capability more in the coming weeks.
On the investment side, it’s a good time for a reminder of what we do, what our approach is, and what our values are. We are long-term patient disciplined investors, and we manage family fortunes over generations. We are stock pickers, and business owners. To us, shares of companies represent ownership in real businesses. Businesses that provide goods and services that people need, and want.
When we buy a business, we see it as a purchase of its stream of earnings from now until the end of its existence. A few months, or even a year-long drop in earnings, has little impact on the long-term earning power of the business, in our opinion. It may have an impact though on the quoted stock price, but the lower the price we pay, the better returns we can expect in the future. The businesses we buy we intend to hold for at least 3-5 years, and if possible, forever.
The businesses we like are here to stay. Looking at the businesses we own today, we can say with a good degree of confidence that consumers will still buy soap, tomato sauce, make phone calls, use the internet or receive packages. In some businesses, we may actually see a pick up in demand as shoppers briefly adjust their preferences, and habits in response to recent developments.
This week, the bull market would have had its 11th birthday. Instead of new market highs, we have seen a big increase in market volatility with big daily drops, and rallies. The stock market indices in the US dropped by about 17-20% from their highs.
For passive index investors or those who are always fully invested, there are very few options left other than waiting it out without giving in to panic selling.
For a while now, we have held ample cash preparing for a potential market correction given inflated market valuations, and the stretched fundamentals. We have also emphasized in our stock selection the resilience of the businesses, and their financial strength. We also used a variety of market protection tools – we hold gold, and in some cases exchange traded funds that go up when the market drops or the volatility picks up.
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About The Author: Bogumil Baranowski
Bogumil Baranowski has a Master’s degree in Finance and Strategy from Institut d’Etudes Politiques de Paris (Sciences Po), and a Master’s in Finance and Banking from Warsaw School of Economics. He has over 12 years of investment experience. Before joining Sicart Associates, LLC, he worked at Tocqueville Asset Management L.P. as a portfolio manager and senior equity analyst. With a European background, his special focus is on consumer sectors, and the broadly defined New Economy. He is the author of Outsmarting the Crowd – A Value Investor’s Guide to Starting, Building and Keeping a Family Fortune (2015). His articles are frequently published on Seeking Alpha. He is an active member of Toastmasters International.
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