Weekly Wrap from Pythagoras Investing 25 March 2020. Irrationality, be gone.

The market is pricing a lot of pain – we have priced all of the bad, forever.  Mr/Mrs Market is in deep depression right now. 

With previous crashes, pricing the recovery begins months before the worst of the event has past.  This is where separating the real effect of the virus and the stock market effect is critical.  There are going to be bad economic numbers and coronavirus infections still to come.

Stimulus packages are coming at a rate of knots now.  Some of them are very esoteric.  Co-ordination of central banks has begun, emanating from the US.  If we are right, that the numbers of infection are beginning to be understood, predicted and quantified AND the central banks are committed to continuing their stimulus then this is about as bad as it gets.

China is back to work – in a graduated fashion.  Given China was the epicentre we assume it will be the worst affected.  It took 8-12 weeks to get through the worst and there will be ongoing impacts on the quarterly numbers still to come … but the rest of the world now has a roughed out plan as to how the virus will work its way through a country, its people and an economy. Once stock markets have this understanding, they are brilliant at taking a leap of faith, seeing through the last effect and looking forward.

People are still generally panicked.  As each country deals with the coronavirus and we have more understanding of the peak of cases, confidence will return.  With confidence the economies will begin to free up and build back up to a more normal situation.  This isn’t going to happen all on 1 day.  As rationality returns, we will see the strength gradually returning – with an upward heading market.

You don’t need to just trust our view because billionaire investors are eyeing China’s ability to slow the spread of COVID-19 and are getting quite bullish about the fact that this crisis has a limited timeframe.  They are seeing opportunity as the U.S. government begins to get its coronavirus outbreak under control. Well known billionaires Carl Icahn and Warren Buffett (amongst others) are buying.

Pythagoras works with the volatility in markets to mathematically cut through behavioral biases. We predict share price behaviour as a result of changes in volatility. We have been buying into this correction – anticipating the rise.

Like to know more. Call Michael Dee on 0419726223 or michael@pythagorasinvesting.com