While it seems like an eternity ago, it has been just about a month since the stock market (as measured by the S&P 500 Index) peaked at an all-time high on February 19th. Today, the market is down nearly 32% from this high and 29% year-to-date. Needless to say, this type of rapid decline has ramped up the fear in many people.
In fact, this widespread fear has probably thrown gas on the fire leading to even more exaggerated drops for stocks. It is clear there is a crisis at hand that most likely will send this country into a recession (probably already has). Due to how the powers that be have chosen to address it (right or wrong), our economy has come to a screeching halt. Regardless of when the economy revs back up or when things get back to normal, the question is…if the market doesn’t go lower, is this crisis worth nearly 1/3 of the value of the S&P 500 (or nearly $10 trillion).
Our resounding answer is NO. We are confident in saying this because we choose to focus on what a stock actually represents…ownership in a company. During these unsettled times, it is clear not everyone feels the same way. Fear takes over, panic sets in and the selling begins… and a month later, 30% of market value is wiped out. As Warren Buffett has clearly stated in the past… Panic is not a financial investment strategy.
Now let’s take a step back and realize our stock ownership means we are entitled to our share of what that company produces… it’s profits.
We entrust company management to take our share of the profits and do what’s right. For simplicity, the choices are either reinvest the profits to grow the business, pay down debt, buyback stock or return to you in the form of a dividend. See, there is something of tangible value here… it is not just a stock certificate (or ticker symbol) you are hoping to go up.
One of our favorite investments is The Walt Disney Company (DIS). Here is a one-month chart of the stock price for DIS. The price has dropped from $140 a share on 2/20/20 to $86 a share on 3/20/20 (the chart is only through 3/19/20). The total drop is 38%.
To give this a little more meaning, there are 1.8 billion shares of DIS stock outstanding. Therefore, with the stock dropping $54 a share, DIS is effectively now worth $97 billion less! The current $86 share price is where DIS traded six years ago! Did DIS not grow its business over the past six years?!?! So, as we ask the question about the overall market, is this recent crisis so devastating that the Mouse House is now worth nearly 40% less than it was one month ago?
Needless to say, NO.
As shareholders, we need to remember two facts:
1) We actually own a part of a company when we own its stock
2) if you have invested in quality business and for the long-term, there is a likelihood it will prosper and grow once again in the future.
Remember these facts when the fear starts to set in as the stock market is falling. Hopefully, it gives you some peace of mind to hang on and ultimately emboldens you to invest more while the values are low. Be a proud shareholder!
In the case of The Walt Disney Company, could you really imagine a world without the Magic Kingdom? Neither can we!
Note: Nothing contained herein this should be considered to be investment advice, research or an invitation to buy or sell any securities.