Why we must all dare to win, in times of adverse market conditions.
Warren Buffett lost $50 billion in the latest stock market rout. That’s not all his money of course, many of his shareholders carry the load and nothing to fret about, when you still have more than $137 billion of cash at hand. Meantime, Jeff Bezos, the founder of the on-line behemoth Amazon, made a few bob, as we are all shopping from home during the lock-down. I remember back in the nineties, when technology first made growth investing so popular, it was very similar. There was a passing of the guard as the old value legends made way to the new internet moguls.
That trend reversed quite dramatically in 2001. Did you know that at one point Amazon had lost 98.5% of its stock market value? Oh, to be in a position like that again and buy things when they are trading on such lows. So why didn’t we all pile in? Was the price not cheap enough? Clearly, something must have happened for a stock to lose almost all of its value. We all thought the internet died in March of that year. All the hype, the over-valuations and the whole idea that one can just grow themselves out of all those losses, it all came crashing down, never to be heard of again. Sort of, not really and never has the stock market got it so wrong.
So why can’t we see the obvious, why can’t we all be in when the opportunity is so clear, but to take just a little punt? You could have put a tenner into AMZN back then and become a millionaire, less than 20 years on. There’s a lesson here surely and contrarian investing is nothing new. The problem is, it all has to do with human behaviour and that is notoriously difficult to predict.
Take the current crisis. Billions of people in lock down, fighting a common enemy for the first time in our history and any little alteration to a pattern, practiced at once, by so many will have a massive impact on the world around us. Are we going to commute to a physical place of work less than five times a week? The need for office space will be much reduced, the roads will be clearer, parking will be less of an issue, the transportation infrastructure will need to be repaired less often, and even the environment will be better off.
No one knows what happens next. If we did, we wouldn’t be sitting at home now would we? But lest we forget we could find the opportunity of a lifetime, when things are trading at such large discounts to where they once were. So, set aside a budget, take 1%, 2% or maybe even 5% of your money and write it off. It is that part of your wealth that you invest into the “next Amazon” pot. If you get it right then happy days, if not, well you only put a small portion of your money at risk. Think of it like a wealth tax on yourself, because you want to go hunting when the prospects are potentially this good.