Buffett’s Billionaire Bust; Nio’s Bailout Is a Must
Who Wants to Invest Like a Billionaire?
We like talking heads here at Great Stuff … both the financial media version and the ’80s rock band.
(“Burning Down the House” is oddly appropriate this week: “Hold tight, wait till the party’s over.”)
So, when Warren Buffett — the Oracle of Omaha himself — chimed in on yesterday’s 1,000-point Dow sell-off, we just had to cover it.
But what does ol’ Warren Buffett do when the Dow plunges and the S&P 500 Index drops like a rock? He abides, just like the dude.
It’s more than that, however. According to Buffett, a stock market rout like this one is “good for us.” In an interview with CNBC, Buffett said: “Most people are savers, they should want the market to go down. They should want to buy at a lower price.”
Ironically, the Oracle admitted that he couldn’t foresee everything — especially where COVID-19 is concerned. Buffett said that he’s “not a specialist,” and that “a very significant percentage of our businesses one way are affected.”
Let me ask you something: What does Warren Buffett look like?
Does he look like a billionaire? Then why are you trying to invest like a billionaire?
Repeat after me, class: “I am not Warren Buffett.”
Now, I like Buffett’s cool demeanor in the face of the COVID-19 outbreak and the ensuing market volatility.
I also admire his investing outlook: “If you’re buying a business, and that’s what stocks are… you’re gonna own it for 10 or 20 years.”
There are two really big problems with trying to invest like Buffett right now.
First, you might not have 10 or 20 years to wait for the market to come back. If you’re in retirement, close to retirement or anywhere inside that 10- to 20-year range, taking Buffett’s advice could be dangerous.
So, while Buffett is right that the current market volatility will work itself out (the market always goes up … eventually) it’s possible you may no longer be solvent when that happens.
Second, you are not a billionaire. (Unless you are, in which case … I have cookies, a mean sense of humor and good bourbon. Wanna be friends?)
Since we are not billionaires, we don’t have the luxury of sitting back all laissez faire and watching the market drop 3% … 4% … 5% … whatever. I guarantee you that even if the market plummeted 50%, Warren Buffett’s portfolio would be just fine. Your portfolio, however, would not.
You need to be much more cautious in the current market environment. You need a different plan.
Here’s the bottom line: Warren Buffett has billions … tens of billions. Will he hit $100 billion before he joins the choir invisible? Who knows … and who cares?
Warren Buffett’s investments won’t make YOU rich. When you look at what the Oracle owns today, you’ll find a laundry list of old-world stocks grinding out pennies on the dollar. When you have Buffett’s billions, I guess that works.
But you are not Buffett. You have an eye for well-run, profitable new-world businesses — not stodgy old companies from decades past.
See, while billionaires are counting pennies (albeit that’s a lot of pennies) they miss out on a whole slew of up-and-coming superstars. I don’t want YOU to miss out on this new wave of innovative, American-made businesses.
Going: Mama, I’m Coming Home
As of this writing, the Dow was again off more than 2% … making Home Depot Inc.’s (NYSE: HD) 1% rally all the more impressive.
Riding the tailwind of a strong U.S. housing market, Home Depot reported much stronger-than-expected fourth-quarter results. Earnings rose 5.8% to $2.28 per share, topping the consensus estimate for $2.11. Sales came in at $25.8 billion, edging out Wall Street’s target of $25.7 billion.
Home Depot also put its 2020 forecast above the Street’s estimates and hiked its quarterly dividend 10% to $1.50 per share.
If not for the coronavirus, HD stock would have gained considerably more ground today. Speaking of which … Home Depot offered no comment on COVID-19 or its potential impact.
Hmmm … maybe that’s the real reason why HD initially surged higher. You can’t have a virus warning sell-off if you don’t issue a virus warning.
Going: Modern Problems, Moderna Solutions
While many biotechs have promised a vaccine or potential treatments for COVID-19, none have begun human testing … until today. Moderna just put forward a coronavirus vaccine for “phase 1” testing.
Known as MRNA-1273 (you guys really need to work on branding!), the vaccine was recently shipped to the National Institute of Allergy and Infectious Diseases for a U.S.-based study.
From start to finish, Moderna’s potential COVID-19 vaccine took just 42 days to develop, which is impressive given that such efforts have taken months in the past.
MRNA shares rallied more than 17% on the open this morning before succumbing to broader-market selling pressure.
Gone: Yuan for the Road
When it comes to Nio Inc. (NYSE: NIO), I stand corrected, dear readers.
Back on February 10, I warned you not to buy the dip in this Chinese electric vehicle (EV) maker. The company reported a dive in year-over-year sales, which it blamed on COVID-19 and the Lunar New Year holiday.
If you went ahead and bought the dip, you’d be up more than 21% right now. However, the only reason you’d be up is because of a Chinese government bailout.
You see, Nio is performing so poorly that the municipal government of Hefei (i.e., the Chinese government) offered the company a partnership. Nio already has its main manufacturing hub there, so it’s a win-win.
The result is that Nio is moving its main headquarters to Hefei in exchange for 10 billion yuan (about $1.43 billion). Wall Street sent NIO shares soaring more than 18% on news of the cash infusion.
So … mea culpa on the short-term outlook for Nio. However, given that this is the same Chinese EV maker that reported an 80% surge in losses and canceled its investor call back in October … I guess I’m sorry/not sorry?
Nio will need more cash beyond this latest infusion. I guarantee it.
Can I just say that I love cherry-picked data like this?
The question is: What happens after the S&P 500 Index falls 2% or more on a Monday?
Clearly, as the chart says, the market rallies … and it rallies big! So, don’t worry about the market sell-off or the coronavirus … right? After all, both MarketWatch and CNBC optimistically projected a “Turnaround Tuesday.”
How’s that working out for you, boys?
The problem with the chart lies in the time frame. Look at it closely.
Excluding yesterday, it’s the period from 2009 through 2019 — the longest bull market run in U.S. history. Of course the market will be higher one week or one month down the road!
Now, I’m not saying that the market will be lower one week or one month from now (though, honestly, I don’t see much stopping COVID-19 to keep a decline from happening). What I’m saying is that past performance is not always a good indicator of future returns — especially when the time frame you’re looking at is the longest bull market in history.
Those dips in the chart above were excellent buying opportunities. It remains to be seen whether the current virus-related dive is an opportunity or a trap for investors used to buying the dip for the past 10 years.
Great Stuff: Marco?
You’ve listened to us yap for the past week. Now, Great Stuff wants to hear from YOU!
That’s right, it’s time to feed the beast! Write in to GreatStuffToday@banyanhill.com and let us know your deepest, darkest market desires! Are you burning down the house? Or have you found a once-in-a-lifetime opportunity? (This is not my beautiful house!)
Here are some questions for this week that you may ask yourself:
- Do you follow Warren Buffett’s investing moves? Why or why not?
- Where do you see the Dow or the S&P 500 at the end of 2020? Up? Down? Flat?
- What are you doing to prepare for this viral market?
- Is Great Stuff a good newsletter or the best newsletter you’ve ever received?
Now, you know the drill. You have about two days to drop me a line at GreatStuffToday@banyanhill.com to make this week’s edition of Reader Feedback.
Until next time, good trading!
Editor, Great Stuff