Toilet Paper Investing (Covid-19 Update #10)

Covid-19 Update #10 – 1st April 2020

“If you have one economist on your team,
it’s likely that you have one more than you’ll need.” 

Warren Buffett

The above graphic shows the ongoing increase in COVID-19 infections, as well as an ongoing increase in recovery too.

The graph on the left shows the movement in the Dow Jones Industrial average over the last 5 days.  The graph on the right shows the movement over the last 12 months. 

Okay, so what does toilet paper and investing have to do with each other?! 

Well, it appears that some people have been panic buying toilet paper. When you think about this, there is actually some validity to it. 

Initially (not that I am keeping any numbers on the buying or the usage of toilet paper), it did have some merit because things were uncertain.  We really did not know what the Coronavirus meant in terms of access to toilet paper and whether indeed we might run out.  It makes you wonder what humans did back in the day before toilet paper was invented! 

There was also panic buying of other items.  Hand sanitiser is a good example.  In our house, in fact, it turns out we did not have much hand sanitiser left, just by chance, and when we went to buy some, there was none to be had. At the time of writing, I still do not know that we have any hand sanitiser in the house.  That is a direct result of panic buying. 

Interestingly, so far, I do not have any symptoms of Coronavirus, even though I have not been able to access hand sanitiser. 

So, the tie up between toilet paper and investing is the fact that people do things for reasons that do not always line up with common sense or logic.  I think I was taught, nearly 40 years ago, that people make decisions based on emotions and then rationalise with logic. 

Anyway, when you look at what people do, there is usually some sort of validity to their actions. 

With regards to toilet paper, there was uncertainty and people could have run out of it.  As it turned out though, there was no need to panic buy – same with hand sanitiser (although it appears that the ones who did panic buy have got plenty because others like us no doubt do not have any either). 

Valid vs Right

It could be argued that it is valid to worry about a certain meteorite heading for Planet Earth that was discovered a while back. If we do not develop the technology to change its course, then Planet Earth is in trouble. 

We can argue it is also valid to worry about black holes in space and how they can swallow up whole universes.  Planet Earth would not stand a chance! 

You may think that I have ‘lost the plot’ with all this talk.  

What I am seeing around the markets is a fair degree of panic selling as distinct from panic buying.  People are panic buying toilet paper and hand sanitiser and people are panic selling their direct shares on the market.  We know this is true because of the sharp volatility that has erupted over the last few weeks. 

You can also check it out by taking a look at the VIX Index.

The above graph measures market volatility.

If you ever looked at this chart before, have you ever wondered why it is that the chart has big spikes and small spikes?  People sometimes do not worry much – valid.  Other times, people worry a lot – valid.  Of course, everyone’s situation is different and yet if we invest in quality assets, those upward spikes on the chart above are actually buying opportunities for us as investors – right.  The rising spikes on the VIX chart above is actually declining markets.  Lower prices … you know the drill! 

Are markets irrational?

Pretty much. 

Now, I am not saying that the market and the people in it are not intelligent or educated but right there, we have three separate and different facets. 

Education is different to intelligence.  Intelligence is different to mindset or behaviour (rational or irrational behaviour, etc). 

I know a number of analysts and investment managers who watch markets very closely.  The idea is that they do not want to be caught out when the market makes a sharp move.  That is because the rise or decline in the cash up value of the portfolio they manage is constantly compared to their competitors.  They don’t want to look bad. 

Supposedly, when other people start selling, the prevailing wisdom says that being in investments must be risky, so it follows that you and I are supposed to sell out as well, on that logic! 

The last time I checked, lower prices means better value and more opportunity. 

What is interesting about this is, if you were to talk to any one of my clients, this is something that they truly understand. 

The evidence I put forward is the fact that, quite apart from the relentless value/eBiz Investing ‘training’ that I have given my clients over decades, at WISEplanning, we track clients who are feeling uncertain or scared. 

Although there may be more than we know about, so far, out of several hundred clients, we have two on the tracker.

Clients at WISEplanning are not representative of the market.  We know that because my clients are not selling in this market.  Indeed, they are buying.

But, we do not know how long this thing will last!

I regard this as a ‘toilet paper’ type comment. 

We do not know when we will get back to ‘normal’.  We also don’t know that (once back to normal) when we drive our car across an intersection, that we are not going to be taken out by someone on ‘P’ or under the influence of alcohol.  Yet, how much time do we spend worrying about that? 

Of course, we do not know how long the coronavirus is going to go on for and we know also that China now runs the risk of the second wave of infection – just when we thought they were getting back to normal.

Becky Quick:           “Is there anything that you’re particularly worried about at the moment, given COVID-19 and the impact on markets?” 

Warren Buffett:        “Well, there is always all kinds of trouble coming – the real question is where will that business I invest in be in 10 years’ time?” 

There is always something to worry about.  For some, even if there was nothing to worry about, they would still worry about the fact there was nothing to worry about and that surely, there must be something wrong!  Do you know what I mean?

Don’t worry about the markets.  The markets have no idea what is going on or what is coming up and are just simply reacting to the latest news of the day.  The market possesses neither a plan nor a strategy.

Are you a servant or are you served?

I raised this point a week or two ago about whether or not, as an investor, you jump to the tune of the market and react or alternatively, whether you step back, watch and wait and take advantage of lower prices, and are therefore served by the market?  Where do you sit? 

“You know, we are in the business of investing in businesses that grow long term.  We are not in the business of moving money about from one place to another.”

                                               Warren Buffett