Super-successful US trader/investor Mark Minervini tweeted something the other day that made me think. He said: “Everyone is trying to nail the bottom of this ‘once in a lifetime’ buying opportunity.”
And I can understand why that might be. Share prices have fallen a long way already, and many decent stocks with defensive, cash-generating and higher-margin underlying businesses have been thrown out with ‘the bathwater’.
Minervini’s heads-up
But Minervini raised two points. Firstly, he reckons this isn’t a once-in-a-lifetime opportunity. Indeed, in my investing lifetime, I’ve already seen many, including the 1987 ‘flash crash’, the ‘tech-wreck’ at the turn of the century, the ‘credit crunch’ in 2007 and now the ‘Covid collapse’ (do you think that last name will catch on?)
Secondly, Minervini reckons that ‘picking the bottom’ isn’t the opportunity. He also wrote: “The bull market that follows is the opportunity.” And he thinks there’s plenty of time to benefit from that.
I agree with him. If you look at charts for share prices and market indices following the credit crunch, for example, you can see that you wouldn’t have needed to be wearing greased roller skates to seize the opportunity from rocket-propelled share prices. Indeed, there were many false dawns. I can remember being buffeted about by volatility, buying too soon, and many shake-outs and disappointments before anything like upwards momentum finally gained traction.
My guess is that the market will disappoint those hoping for a generalised snap-back rally. Sure, there are some stocks that have been bouncing. And some have elevated and fallen back again. But from the universe of shares I’m watching, such lively critters are few and far between. Most shares seem to be locked in down-trend.
Watch those sharp upwards reversals
But one thing about bear markets is that they tend to feature sharp reversals to the upside every now and again. But if the bear is still growling, such rises soon peter out and the stock resumes its plunge. The overall effect can make the downwards action look a bit like the teeth of a saw.
And I reckon that happens because of bottom-pickers. People just can’t believe the apparent value they’re seeing, so they buy. But we’re in an extraordinary situation right now, and I think it’s futile to anchor on the apparent value we see when using historical data. The future is more unknowable today than I’ve ever known it to be in my adult lifetime (and I’m 57!). So how can we value shares?
The solution, for me, is to work hard on my watch list. And that’s what I’m doing. But now I’m being fussy about stocks and will only settle for the very best. It’s at times like this when we, as investors, can insist on excellence from the businesses underlying our shares.
I’m going to leave you with one final thought from Minervini. He once tweeted words to the effect that shares take the staircase up and the elevator down. With that in mind, I’m continuing to be patient about shares and, in words Warren Buffett might utter, allowing the right pitch to cross my plate before striking.
