Valuentum Exclusive Analysis for the Discerning Investor

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Dec 5, 2012

FAQ: How Is Your Best Ideas Portfolio Doing This Year?
We answer a question that has come up a lot recently.

Aug 16, 2012

Hedge Fund Manager Bets Big on Health Insurers
Hedge fund manager David Einhorn established positions in several large health insurers. We like the move, but prefer the Healthcare Select Sector SPDR (XLV).

Coronavirus Crisis Deepens, Italy on Lockdown
Image: WHO. The epidemic curve of confirmed COVID-19 cases that have been reported outside of China is steepening. Italy remains a hotspot. The situation with COVID-19 remains dire. A vaccine may not be available for another 12-18 months, which is simply too long before what could be an overwhelming of healthcare systems around the globe. The WHO has already revised the expected mortality rate of COVID-19 higher, now 3.4%, and its catastrophic impact on the large economies of China and Italy is already being felt. The US equity markets have largely lulled investors to complacency the past decade or so, and many have been conditioned to largely ignore major events as a result, employing the buy-the-dip-at-any-price mentality and championing “stocks always go up” doctrine. However, the situation with COVID-19 could be setting the stage for an all-out financial crisis, as we outline in this piece here. With the S&P 500 at 2,972, the market continues to largely ignore the long-term risks that may come from changed behavior as a result of COVID-19. We’re reiterating our near-term 2,350-2,750 target on the S&P 500, and we encourage long-term investors to evaluate long-term charts to assess how far we have come since the March 2009 panic bottom, and how even a modest 10-20% sell-off from here (supported by reasonable forward multiples and earnings) would be largely a blip over the long term. This blip, however, may cause an outright panic, made worse by price-agnostic trading. The Fed, for example, made an emergency 50 basis-point rate cut with the market just a few percentage points off all-time highs. Emotions are running high, and investors are simply not ready for COVID-19. All else equal, panic selling is not selling with the S&P 500 at 2,972, today's levels. Just because stock prices have fallen doesn't make them cheaper. Panic selling, for example, might be selling with the S&P 500 at 2,000 (if it ever reaches those levels), and that's if reasonable valuation expectations don't warrant those levels at that time. Today, we're still at relatively overpriced valuation levels on broader market indices, and the sell-off to this point has been more reasonable than overdone, in our view. Please stay safe out there!