It’s scary out there! But it’s a buying opportunity if you’re patient

I know how scary this is, but close your eyes and buy anyway.

Tom Hanks and Rita Wilson’s recovery could be a turning point in the public perception of the coronavirus Picture: AFP

I know how scary this is, but close your eyes and buy anyway. My mantra has always been “Buy cheap, be patient”.

Now is the time to be cheap, and buy patient!

On days when the market is aggressively selling, initially put up to 10 per cent of your money to work. If you feel comfortable later in the day, put a little more in. Only you know how you will react and factors include how much cash you have to start with.

As I discuss below, you should have more confidence in big caps than small caps because there is more liquidity and they’re more robust companies. But this isn’t always the case. Some small caps have great balance sheets as well. You would be buying some of these companies ahead of Qantas!

When the US Fed announced its Repo action in the middle of the day the market rallied 6 per cent in 10 minutes, only to give it all back again by the close. You can expect more of the same in terms of volatility for the next few trading days. The Australian market — one of the first major markets in the world — initially fell by almost 7 per cent immediately after the latest moves by the US Federal Reserve to cut rates to zero.

We’re close to a tradeable bottom, but this is a moveable feast and we constantly re-evaluate.

If you are buying big caps, you can buy a top bank or a pipeline company, or healthcare provider, basically for 25 per cent less than you would have paid weeks ago. Maybe the stocks were overvalued before, but core stocks with a good yield and a long history of paying dividends are unlikely to stay depressed forever unless a catastrophic outcome occurs.

Buying smaller companies in this environment requires more patience, but these are opportunities that don’t come around often.

This is why I think the opportunity is there to be grabbed now: in the majority of cases, the coronavirus symptoms do not last for longer than five days.

I have an associate in what may be a US hotspot who had attempted to social distance for two weeks, and still felt coronavirus symptoms coming on at the end of last week. He was able to self isolate completely, and the symptoms, which were not particularly bad, seem to be passing.

Think of Tom Hanks and Rita Wilson, who have caught the coronavirus in Australia. If they both recover relatively quickly, this could become a turning point for public perception. Without wanting to deny the seriousness of the consequences of the virus, it does appear that the infections pass: if they both recover relatively quickly, this could be a small turning point for the public perception of the impact of the disease.

The issue is that an ageing and dense population must not be exposed to carriers, and their treatment must not overwhelm the hospital system. But there has been enough warning in Australia and elsewhere that despite policy errors, most of the worse possible outcomes should be avoided.

Richard Hemming is an independent analyst who edits undertheradarreport.com.au

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