Hey Friends,

Given that none of us have navigated waters quite like the present pandemic before, what does an investor do next? How does one assess risk? How does one assign probabilities toward forecasting outlook(s)?

Indeed, the uncertainty is unlike anything we’ve seen. It is even hard to compare the current situation to other uncertain eras of the past. The stock market has recovered significantly from its March lows. The Nasdaq Composite Index, largely comprised of technology-based companies, achieved its all-time high just 3 months ago on February 19, peaking at 9,838. One month later, on March 23, it dropped to an almost 18 month low of 6,631 — a 33% decline. Yesterday’s close was 9,014, a 36% increase from the March 23rd low. Friday’s close means the Nasdaq now stands just 8.4% off its all-time high.

However, do we understand yet much about the nature of the current economy or how it will respond next? Do we know what re-opening looks like far enough out to do much more than guess? The economy is one thing and the stock market is another, of course. There’s no place to park money with interest rates near zero. To garner a return, it seems that the “market’s” choice, to date, is to stay with equities. In my view, while that seems rational enough, I sure want to be invested only in businesses with very ample liquidity on the balance sheet — ample enough to weather a prolonged storm, if necessary. There will be business defaults, perhaps many. So, it is especially wise to “choose wisely” under these conditions.

Some of you may have read about the latest on Warren Buffett’s stock moves. It seems the most recent (March 31) filings of changes in his Berkshire portfolio is telling with regard to how difficult it has become to assess the risk associated with the economic shutdown. Go here to read about Buffett’s recent investment changes.

So, this is a time for due care and diligence with regard to making investments. Sometimes when you don’t know what to do, the best thing to do is nothing. Being significantly on the sideline at a time like this after the market has already strongly rebounded on anticipation of a quick economic recovery could certainly be argued as erring on the side of being prudent.

See you next time.