January 30, 2020
By Peter Bower
News of the spreading coronavirus has cut stock markets around the world in two ways. The first is that it threatens to slow or even abort a hoped for recovery in worldwide economic growth. The second is that growth worries have extended investor obsession with growth at any price. After all, if economies will not provide a boost to many basic and cyclical industries, then one should seek out those special companies that can grow regardless.
Stretched valuations for growth are getting even more so. As more and more investors pile into this category, it gains momentum attracting even more interest. The Bull and his partners have noted for some time that this was creating a riskier investing environment. Extremes in investor behavior can lead to increased volatility and possibility of a drawdown phase. The volatility has arrived, expect more of it. Corrections also come and go and are normal.
However, the Bull must note that it may very well be that the growth obsession may be the correct strategy for some time yet. Value stocks need the prospect of better GDP growth to enhance valuations; the coronavirus outbreak puts that into doubt. Rebalancing portfolios reduced the risk from outsized positions during this period. We continue to make modest adjustments to remove stale positions in favor of growth opportunity. We will keep a foot in both the growth and value sectors; flexibility is our moto. The recent history of virus outbreaks is that they are eventually contained so don’t be blinded; stay steady, my friends.
The Lonely Bull
