I’ve been reducing at least some of the so-called “consistent growers”, where the relative valuations remain elevated and there will be at least two quarters of tough earnings. When total demand goes close to zero, even the market share gainers cannot gain share of zero.
I’m watching balance sheet leverage and covenants for the few leveraged companies in my portfolios. If they can make it through, some high leverage names will likely be rewarded.
At the same time, I’m actively looking for domestic and/or China related companies that are getting closer to Lehman style valuations. It currently seems that Japan and China will get out of this crisis earlier, and with a fiscal boost.
Overall, I am maintaining the technology bias in the Company, focusing on names with strong balance sheets and reasonable valuations. I think that there is a good chance that they will lead us out of this, as their demand is likely delayed rather than foregone.
Turning ultra-defensive when the market has already fallen by c.30% and many stocks have halved, is probably not going to be rewarded on a 12-month view.
Bear markets often create new turning points and market leadership. The likely coming fiscal stimulus may throw up new leadership and new winners from discarded losers, so I am recommending that our analysts revisit the dogs as well as the old long-term winners in their coverage. What if the US and/or China implement another auto scrappage subsidy? After the 2011 Japan earthquake, tolls were cut to zero on the motorways to encourage domestic tourism. Things will change quickly when there is some stimulus at the micro level, as then the market will look through the current negativity in those areas.
Finally - it is out of the ruins of this last bull market from which the seeds of the new one will grow. It’s our job to really get out there and find the new winners when everyone else is standing shell shocked. If we keep on visiting/calling a lot of companies and casting the net wider while the market is busy focusing on the daily infection charts, we will throw up the new winners.
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