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February 25, 2020
All three major US stock market indices (Dow, S&P and Nasdaq) fell by 3.5% yesterday and experienced another decline today in response to the increase in Coronavirus cases outside China. There is real concern for how this could impact global economic growth. There is no question that the Coronavirus is serious in terms of its real and potential human and economic implications.
At Summitry, as prudent investors of our clients’ capital, our main responsibility is to offer perspective in the face of volatility, whatever the driving force or cause. As such, we delivered this message directly to each of our clients earlier this week, and now, will share these thoughts more broadly.
In this case, as in most cases, perspective requires that we discern between what we believe to be the potential short-term impact on the businesses you own and the longer-term impact. It is with a focus on the long-term that we recommend keeping these three things in mind:
(1) The intrinsic value of any business is based on its future earnings, from now to perpetuity. That value will largely depend on earnings that will be generated over the next 20, 30, and 50 years, and not just the next 1-2 years. Consequently, we believe any pressure on earnings in the short term, regardless of the cause, will have a minor impact on the intrinsic value of a durable business. For long-term investors, the next decade is more important than the next year.
(2) At Summitry, we invest in companies that we believe are competitively advantaged businesses, which are being led by capable management teams, and benefit from strong balance sheets. As a result, we believe the businesses we own are well prepared for any challenge and are prepared to weather any storm that might impact their respective industries because of the Coronavirus.
(3) Fear is a normal component of well-functioning markets. Fear could lead some investors to overreact to certain news, which might create bargain prices. For long term investors, market fear is an opportunity to scoop up great businesses at attractive prices.
Our investment team continues to closely monitor the situation and will take action if and when an opportunity presents itself. An important part of our ongoing relationship with our clients is being a proactive partner. We make this journey together, and acknowledge the trust placed in us by being always available – by phone, email, or face to face.
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