Friday, March 20, 2020

This week's interesting finds

What Benjamin Graham Would Tell You to Do Now: Look in the Mirror
Forget about what the stock market is going to do. Instead, focus on what you, as an investor, ought to do. That advice from Benjamin Graham, the great investment analyst, and Warren Buffett’s mentor, can help you navigate the market’s latest storm. 

First, determine whether you are an investor or a speculator. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices and the speculator, on the other hand, cares mainly about anticipating and profiting from market fluctuations.

If you’re an investor, price fluctuations have only one significant meaning. They are an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.

Speculators are in thrall to the mythical, moody figure Graham called “Mr. Market”. Mr. Market always wants to trade. Much of the time, the prices he sets are sensible. Often, however, they are “ridiculously” high or low. Puzzlingly, many people become more eager to trade with Mr. Market as his prices become more chaotic. A speculator is happy to buy more shares when prices rise, betting that Mr. Market will buy them back later at even crazier prices. When Mr. Market’s enthusiasm turns to fear and prices fall, the speculator sells into that panic.

Buying spree
At least one group of investors has gone bargain hunting during the wildest stretch on Wall Street in over a decade. Corporate executives and officers have been scooping up shares of their own companies at a breakneck pace in the first two weeks of March, exceeding the total of the prior two months. Insider buys are outstripping sales by the most since 2011. “When insiders are buying, they think their companies are well undervalued”.
Vanguard’s $55bn fixed income ETF hit by price huge dislocation
This chart is the Net Asset Value (NAV) of the Vanguard Total Bond Fund (BND).  It is the difference between the price of the ETF and the value of the bonds it holds.  The ETF is trading fully 6% below the value of the bonds! This is no random ETF. BND has $50B in assets and is one of the largest bond ETFs. The NAV discount today is bigger than on the worst day in 2008 (Oct 10). The bond market was so bad back then that the Troubled Asset Relief Program (TARP) was announced the next day.
Thoughts on the Financial Markets and the Current Crisis
“Bear markets are born of pessimism, grow on skepticism, mature on optimism
and die on euphoria. The time of maximum pessimism is the best time to buy.”
“To buy when others are despondently selling and sell when others are avidly
buying requires the greatest fortitude and pays the greatest reward.”
-John Templeton

“Be fearful when others are greedy. Be greedy when others are fearful.”
-Warren Buffet

“Buy when most people including experts are overly pessimistic, and sell when
they are actively optimistic.”
-Benjamin Graham