buffett fear

Be Like Warren Buffett and Buy Fear

Right now the media is obsessed with the coronovirus and fear is running rampant. Even my local school district in NJ had to comment on coronovirus despite there being only 60 cases in the entire United States and none in NJ. While we don't take this subject lightly, we do believe that this is providing one of the yearly "buy the fear" points, not a time to sell.

Growth slowing

First the bad news: global growth is clearly taking a hit in the short term. This is inevitable and the market has sharply adjusted expectations in the last week. Goldman Sachs has revised their growth forecasts for the S&P 500 from 7% growth to flat or no growth in 2020. The most severely impacted companies are those related to travel like cruise ships and airlines.

Turning a corner in China

Now the good news. China is improving. China was the epicenter of COVID-19 (coronavirus) and the bulk of the cases were in Wuhan and the Hubei Province (5% of China's GDP). On almost all key metrics, the outbreak in China is under control. You aren't hearing this in the media because it doesn't generate clicks. In the last two days, total active cases has declined over 9% to 43,041. In fact, total healed to new diagnosis has been tracking at about 7 to 1 over the last few days. China's daily new confirmed count outside of the Hubei province has declined for the past 13 days. While not out of the woods, the trend is positive.

The media (and health officials) is now focused on international numbers which have been increasing but still low in total with roughly 4000 confirmed cases vs 78k in China (65k in Hubei). While this is negative, countries like South Korea and Italy are ahead of the curve and aren't playing catch-up like China had to when they didn't know what they were dealing with.

Fear and Greed Index registering Extreme Fear

 

coronavirus fear and greed

One financial indicator we look at is CNN's Fear and Greed Index. As you can see from the chart, the markets typically give you one to two buying opportunities per year when the index registers extreme fear (below 20). The index is currently at 15 and registering extreme fear.

While the coronovirus is creating global fear, the markets are showing increased value relative to interest rates which are registering all-time lows. Central banks remain extremely accomodative and the Fed will likely be even more aggressive in light of slowing global growth. Be like Warren Buffett -- "Be fearful when others are greedy, and be greedy when others are fearful."

Are you buying or selling the dip?

 

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About the Author: Chris Wang

Chris Wang

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