Update: Coronavirus and the Stock Market

Hey Friends, I hope you are well!

Go HERE to read my blog post on the coronavirus and the stock market from February 22. Little did I know that the stock market crash would start on Monday, the next trading day that followed the post. We’ve witnessed an amazing free-fall since then over the past 3 weeks.

As an update, let me share just a couple of things relative to stock investing. But first, here’s a portion of what I wrote on February 22:

“It seems that now may be a time to be very patient with stock selection. Given a stock market that keeps putting in new record highs amid this present uncertainty, it may also be a good time to review portfolio allocation.”

When I used the words “very patient,” there certainly was not the notion of a downdraft that would occur so quickly. Nonetheless it has happened. So, what now?

Years ago, while studying for a finance comprehensive exam in my doctoral program, I recall the following definition of money which made me do a double-take. It said that money is a creation of our minds and exists because of the strength of our faith. Indeed, currency might as well be the board game Monopoly’s paper money if we cease to believe it holds value as a medium of exchange. So, while using good judgment in containing the coronavirus and avoiding contracting it is sensible, panic is not rational and can pose far more risk to economic infrastructure than the virus could manage to impose. Trusting in the Lord, each and every day, come what may is the constant answer for avoiding the ills of “fear.”

Proverbs 3:5,6 says:

⁵ Trust in the Lord with all your heart
    and lean not on your own understanding;
⁶ in all your ways submit to him,
    and he will make your paths straight. (NIV, Bible)

God is in charge and the only One who can give us security today and forever.

As to making stock investment choices at a time like this, let me offer a couple of references. One is from Mark Hulbert at MarketWatch. Several articles from him were included in a post here back in December of 2018 when the market was languishing and actually was putting in its bottom during “that” correction, in retrospect. Mark is a contrarian and employs his self-devised contrarian index. Go here to read his article from this week (Monday). Note that we must be much closer to having built that wall of worry today than we were when the article came out on Monday, given the hammering across stocks during the week.

To follow the progress of the coronavirus, THIS is a good site that is updated constantly. I figure that when the numbers start to show signs of lessening in terms of virus expansion, the market will start to settle down more.

In my book, “Choose Stocks Wisely,” I offered a stock screen for locating potentially low-priced, solid-quality value stocks. My screen is a self-designed one that employs the screener tool found at finviz (go here for the finviz screener tool); my screen is now showing more stocks (as you’d expect given the market crash) and if you drop the insider transaction filter criterion from the 7-filter set specified in my book, you’ll find a host of companies to check out. Relaxing or removing the P/E filter will produce even more.

Commodity stocks always carry a higher risk because they are capital intensive in asset composition (less liquid balance sheets) and dependent on the underlying commodity price. Oil, for example has been pummeled due to the Saudi-Russian price skirmish and this has left a lot of “what appear to be” inexpensive stocks as a result. However, commodity companies are often very levered meaning they must generate cash from the business to manage debt payment schedules. If oil prices remain compressed for extended periods of time, this raises the issue of default risk in some cases. Whenever you buy any stock, you want to find a good value by the numbers with reason to believe the future of the business is bright. With commodity stocks as compared to non-commodity businesses, it’s harder to forecast (or speculate on) the future due to the level of dependency on the commodity price and “when” it will do “what.”

In closing, remember friends that God is in charge of the affairs of people and all of life. I pray that none of you are personally impacted health-wise by the coronavirus and that God will keep and watch over you. Be encouraged by His Word: