Let not your heart be troubled – Part 1

In the last week or so, panic seems to be the order of the day.

He who feels it knows.

Dictionary.com describes panic as:

noun

• A sudden overwhelming fear, with or without cause, that produces hysterical or irrational behavior, and that often spreads quickly through a group of persons or animals.
• An instance, outbreak, or period of such fear.
• In Finance terms: a sudden widespread fear concerning financial affairs leading to credit contraction and widespread sale of securities at depressed prices in an effort to acquire cash.

Panic is perhaps the most expensive single word I can think of aside from ‘divorce’. Incidentally, both involve a separation of owners and their assets except that in one case it is voluntary while in the other it is less so. I will leave the reader to distinguish between the two. It is worth noting, that neither is recommended unless in the most dire of circumstances, but that of course is another story for another day!

“Panic causes tunnel vision. Calm acceptance of danger allows us to more easily assess the situation and see the options.” –
Simon Sinek

Regrettably, a mood of panic set in amongst the general investor class at this time. On Friday, February 2nd, 2018, the Dow Jones Industrial Average (DJIA) Index plummeted by 665.75 points (2.54%) to close at 25,506.57. The investor reaction was relatively-muted, but persons stood up and took notice. Monday, February 5th, 2018 was akin to jumping into the fire from the frying pan as the DJIA fell another 1,175.21 points or 4.6%; its largest intraday fall ever. A point that has been lost in the midst of turning wheels is that in absolute terms, February 5th, 2018 was the largest intraday fall ever, but not in relative terms. One could reasonably argue that the fall of 777.68 points on September 29th, 2008 was the largest intraday fall ever as the DJIA lost 6.98% of its value on that day relative to the 4.60% lost on February 5th. Further yet, on October 15th of the debilitating 2008, the DJIA lost another 733.08 points which translated to 7.87% lost.

Bearing this in mind, it would not be an accurate portrayal of fact to say that the market turbulence of February 2nd and 5th was unprecedented for we have been here before.

In truth, we have witnessed two potentially material events in the markets in recent times, namely the election of President Donald Trump in November 8th, 2016 and the BREXIT – the withdrawal of the United Kingdom from the European Union (EU) – of June 23rd, 2016.

The latter was particularly disturbing for the markets and did bring its 2-day air pockets with some bumps and bruises. Like air travel, it is unlikely that one will experience air pockets for the duration of a long-haul flight. It seems that the lesson within for the investor is that everything evens out in the medium-term and those who should be fearful are those in it to make a quick buck via short-term trading!

Upon the BREXIT announcement, low-cost carrier Ryanair (no connection to this author) opened the 2016 calendar at $86.46 and in our estimation was a great buy, considering that we had started to buy in the mid-$60s in mid-2015. At the time of the BREXIT of June 23rd, 2016, it fell 21.69% to $67.71 with no significant change in its business model aside from The United Kingdom stating its intention to exit the EU.

“Fear cannot be banished, but it can be calm and without panic; it can be mitigated by reason and evaluation.” –
Vannevar Bush

Rather than responding fearfully, we took the opportunity to buy Ryanair at the depressed price and to no surprise, within 12 months, we were able to exit at a price in the range of $108-$110; a minimum gain of 60.78%.

Accordingly, a crisis is sometimes an opportunity in disguise. The same premise holds in the aftermath of the 1841.96 drop over the two days in question as opportunities continue to abound in the absence of fundamental changes in business models or revenue-driving capacity.

In the concluding part of this article, I will speak in greater detail to what panic is calling investors to.

Wish you well.