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The Facts Are Hiding In Plain Site…Doesn’t Seem Anyone Is Noticing

Updated: Sep 27, 2022

Our firm has many sayings to describe investing in the stock market. Apropos to the current crisis, we like to say “We can’t tell you when the market will bottom, but we can tell you what value looks like.” With a stock market (as measured by the S&P 500 Index) down 30%+ year to date, we are finding plenty of companies whose stocks are trading at a discount to their true value (i.e., below what we think they’re worth) and YES, we are absolutely buying them.

As advisors who build portfolios of individual stocks, we are less concerned with the overall market then most. That doesn’t mean we don’t pay attention to the stock market as a whole. We do, and currently we wonder if market participants are aware of just how much market value has been eroded over the past month? I mean, with the proliferation of index investing along with the fact that 30% of trading volume is via ETF’s, maybe herd investing has taken over and the downward spiral has gone farther than people realize.

The Great Recession, from peak to trough, over 16 months, saw the market’s total market capitalization decline by $7 trillion. In just about a month (through March 23,

2020), this current crisis has seen the disappearance of $9.5 trillion of market capitalization…. 30% more than the 2007 – 2009 debacle.

On the surface, the impact of this recent crisis on the market seems a bit rash. Adding more context, it seems even more overdone. The Great Recession saw the loss of nine million jobs driving the unemployment rate to 10%. Today, prior to this crisis, we were sitting at an unemployment rate of 3.5%. To reach the level of despair the stock market has priced in, lots of people have to lose their jobs, etc.

Being so recent, the Great Recession is the easy comparison for market pundits… and the common refrain is that our current crisis doesn’t come close to what transpired more than a decade ago. So, what gives? The stock market has already lost more value than in 2008/2009 and some will tell you there is more downside to come. Could it be the pessimists have gotten ahead of themselves?


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