Wartime Opportunity

Quarantine has been used to combat virus outbreaks for centuries. From what I can find, the first use of a quarantine was in 14th century Italy to fight the plague. A few of us have prior experiences of being quarantined. I still remember the police tacking a big yellow sign on our front porch announcing to the world that our house was off limits to all. It said, “Quarantined. Mumps!”The quarantine lasted until my three siblings and myself all experienced the disease. I know how miserable it was for us kids to survive those couple weeks locked up in the house. I can’t tell you how my mother even survived such a lock down. I beg each of you to say a prayer to give a little strength to those parents who currently have young children in the house creating havoc! 

Because this virus is new, without proven cures, and without a vaccine, the old tried and true method of containment “quarantine” is being used. How long it will last is unknown. How much of an impact it will have on society is also unknown. However, we have a great deal of faith that our science and medical professionals will come up with both a cure and a vaccine. 

I have heard much discussion about the time it could take to create, test, and produce a treatment and a vaccine to combat this disease. Some believe it will take eighteen to twenty-four months. Given that, I hear multiple cries asking why it will take so long. I can’t tell you how long it will take, but each and every one of us should be thankful that we can envision that short of a time. Close to the entire population of individuals born before 1957 contracted measles, a childhood disease that was a part of life for generations of children until a vaccine became available in 1963. The first year we were required to report measles to US health authorities was 1912. On average 6,000 children died and 48,000 children were hospitalized per year. It took 50 years to create a vaccine! So, I have hope that the end of this scourge is near, and that the attention given by our scientists and health professionals will surprise us and find a solution faster than we can imagine.
 
Having hope does not change the need to address our portfolios under the current worldwide slowdown caused by the stay-at-home and social distancing orders. Over the years we have talked in detail about the fundamentals of managing your portfolio. This includes the need to address risk at all times and offset risky assets with risk-free assets, or as close to risk-free as we can understand. This balance is determined by quantifying the current level of interest rates with our estimates of current values for the businesses we own. These values are based on discounting future earnings to the present. In addition, we modify our outlook based on the present psychology of market participants. Given that our ability now to forecast earnings, dividends, revenues, profit margins, and financial strength in the short run is extremely limited, we have to extend our time frame and make estimates based on the time period beyond the current crisis. This fact alone requires us to pay particular attention to psychology of market participants world-wide. 

It is helpful to search history for similar periods of stress and see how others successfully navigated crises. I want to share a few words from Bernard Baruch and Philip Fisher, two of the most influential investors of generations past. 

Bernard Baruch wrote these words in his autobiography My Own Story, published in 1957:

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Disclosure: Anderson Griggs & Company, Inc., doing business as Anderson Griggs Investments, is a registered investment adviser.  Anderson Griggs only conducts business in states and ...

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