March 17, 2020 Newsletter

Dear Friends,

Tangents: HAPPY ST. PATRICK’S DAY!

Today, in summary:  North American stocks rallied after yesterday’s sell-off; the  US dollar strengthened; Canadian  banks slashed prime by half a per cent.

Thoughts on Intrinsic value by Seth Klarman and Warren Buffet:
It is all too easy to let the market dictate your actions when it starts falling. Research shows that humans feel losses more than profits, so wanting to cut your losses and run from a position is only human.
Concentrating on the price you paid for a security can compound this desire. Let’s say you paid $1,000 for 100 shares in XYZ Corp. If the market drops 30%, and the stock follows suit, that investment is worth $700 today. After losing 30% in a short space of time, many investors might be persuaded to give up on XYZ Corp and invest elsewhere.
However, this is the wrong way of looking at the market, according to the Oracle of Omaha, Warren Buffett (Trades, Portfolio).
Forget book cost
Speaking at the Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting of shareholders in 2009, Buffett advocated a different approach. Rather than concentrating on the value or the price paid for a particular security, he advised investors to use intrinsic value as a marker of value.
Specifically, when responding to a shareholder who asked Buffett for his views on whether to sell a basket of stocks if some of them “had doubled in a short time period,” the CEO of Berkshire replied:
“We would own the half of dozen or so stocks we like best…it wouldn’t have anything to do with what our cost on them was. It would only have to do with our evaluation of their price versus value. It doesn’t make any difference what the cost is. And incidentally, if they went down 50%, we would say the same thing. …
The cost basis doesn’t have anything to do with the fund. When Charlie and I ran funds, we didn’t worry about whether something was up or down. We worried about what it was worth compared to what it was selling for. And we tried to have most of our money in a relatively few — very few — positions which we thought we knew very well. We do the same thing now. We’d do the same thing a hundred years from now.”
Buffett then handed the microphone over to his right-hand man, Charlie Munger (Trades, Portfolio), who summarised “he’s tactfully suggesting that you adopt a different way of thinking.”
Buffett’s advice here is similar to that of Klarman. Both value investors concentrate on two things when they buy a security:

1. Risk, defined as the risk of a permanent capital impairment
2. Intrinsic value and the gap between price and value

If the intrinsic value of a security has not changed and its risk has not increased, then no matter what the market is telling them, these gurus will hold onto the position.
At the end of the day, a company is worth its intrinsic value. It is not worth the arbitrary value the market is placing on the stock at any point in time. Intrinsic value is what matters for value investors, and this does not change overnight.
In times of market uncertainty, investors should concentrate on value and ignore the noise from the rest of the market.

Life for people around the world is beginning to look very different:
One of my friends emailed me last night to tell me about the Italian response to the medical crises, which intrigued me, so I looked it up in The New York Times.  Isn’t this a great response?

Italians remain essentially under house arrest. That hasn’t stopped them from a cacophony of music — sung and played from their balconies, from the southern islands to the Alps to Milan, above.

St Patrick’s Day:
St. Patrick’s Day: In the fourth century, Ireland’s patron saint was sold into slavery.  After six years as a cowherd he escaped to France, where he dreamed that the people of his country were summoning him back.  On his return to Ireland he traveled widely, founding hundreds of churches and schools and convincing people to become Christians.  He used the three-leaf shamrock to explain the Holy trinity – the idea that God the Father, Jesus the Son, and the Holy Spirit are one.  On this day Irish people the world over celebrate by wearing a shamrock.-  From The Book of Holidays Around the World.

The leprechaun, traditionally an evil sprite in Irish lore, didn’t become associated with the holiday until Disney’s 1959 film, Darby O’Gill and the Little People gave him a friendlier persona.
The number of people with Irish ancestry in more than 150 countries worldwide is now said to be more than 70 million  – almost twenty

1905 – Franklin D. Roosevelt married his distant cousin, Eleanor Roosevelt, in New York City. President Theodore Roosevelt, FDR’s fifth cousin, gave his niece away. Go to article »

PHOTOS OF THE DAY

The Clifton Suspension Bridge in Britstol, UK, joins Tourism Ireland’s Global Greenings campaign to mark St. Patrick’s Day.
CREDIT: ADAM GASSON/PA WIRE

The world’s most colourful spider was captured with multiple camera flashes to show it in all its vivid, rainbow glory in Bangalore, India. The tiny peacock spider measures just 0.3 inches (0.75cm) in length –  but what it lacks in size, it makes up for in its luminous hues of pink.
CREDIT: PAVAN TAVREKERE/SWNS.COM

A swan swims in the Vltava river in Prague, Czech Republic.
CREDIT: GABRIEL KUCHTA/GETTY IMAGES

A paddle of 14 ducklings follow their mother as they forage for food along the Kennet  & Avon Canal, between Bradford on Avon and Bath, UK.
CREDIT: BEN BIRCHALL/PA WIRE

Market Closes for March 17^th ,2020 

International Markets

Bonds

Currencies

Commodities

Market Commentary:
On this day in 1997, the Dow Jones Industrial Average, two months short of its 101st birthday, got a jolt of juice as the editors of The Wall Street Journal replaced “old-economy” stocks Bethlehem Steel, Texaco, Westinghouse Electric and Woolworth with Hewlett-Packard, Johnson & Johnson, Travelers Group and Wal-Mart.
Canada
By Bloomberg Automation
(Bloomberg) — The S&P/TSX Composite rose 2.6 percent at 12,685.21 in Toronto. The move follows the previous session’s decrease of 9.9 percent. Today, materials stocks led the market higher, as 7 of 11 sectors gained; 126 of 230 shares rose, while 104 fell. Royal Bank of Canada contributed the most to the index gain, increasing 6.3 percent. Silvercorp Metals Inc. had the largest increase, rising 41.2 percent.

Insights
* In the past year, the index had a similar or greater gain two times. The next day, it declined after both occasions
* This quarter, the index fell 26 percent, heading for the biggest decline in at least 10 years
* The index declined 21 percent in the past 52 weeks. The MSCIAC Americas Index lost 12 percent in the same period
* The S&P/TSX Composite is 29.4 percent below its 52-week high on Feb. 20, 2020 and 6.7 percent above its low on March 16, 2020
* The S&P/TSX Composite is down 15 percent in the past 5 days and fell 29 percent in the past 30 days
* S&P/TSX Composite is trading at a price-to-earnings ratio of 12.7 on a trailing basis and 11.8 times estimated earnings of its members for the coming year
* The index’s dividend yield is 4.1 percent on a trailing 12-month basis
* S&P/TSX Composite’s members have a total market capitalization of C$1.89t
* 30-day price volatility rose to 69.72 percent compared with 69.03 percent in the previous session and the average of 25.64 percent over the past month

================================================================
| Index Points | |
Sector Name | Move | % Change | Adv/Dec
================================================================
Materials | 132.1521| 9.2| 38/9
Financials | 77.9305| 1.9| 11/15
Industrials | 53.6374| 3.7| 19/12
Communication Services | 47.1615| 6.1| 6/2
Utilities | 36.8032| 5.4| 16/0
Information Technology | 35.7710| 4.5| 7/3
Consumer Staples | 14.0181| 2.5| 8/3
Health Care | -0.0432| 0.0| 6/4
Real Estate | -3.3717| -0.7| 10/15
Consumer Discretionary | -15.5230| -3.5| 2/14
Energy | -53.7266| -3.4| 3/27
US
By Jeremy Herron and Vildana Hajric
(Bloomberg) — U.S. stocks rebounded from the biggest rout since 1987 as the U.S. government stepped up its efforts to offset the financial damage caused by the coronavirus. Treasuries tumbled. The S&P 500 closed up almost 6% after trading in the red earlier, continuing a streak of volatility last seen during the Great Depression. The Dow Jones Industrial Average notched a 5.2% gain. Treasuries eased, erasing all of the nearly 25 basis point drop in yields on Monday. The Trump administration moved to send checks to Americans as soon as in two weeks to stave off the financial effects of an unprecedented upheaval in social interactions that looks set to plunge the world into recession. It also asked Congress for hundreds of billions in aid. The Federal Reserve reintroduced additional crisis-era tools to stabilize financial markets.
“What we’re seeing now is the exponential growth in the policy response to the exponential growth in the spread of the virus,” said Conor Sen, portfolio manager at New River Investments and contributor to Bloomberg Opinion. The policy responses came after stresses appeared in the short-term funding and front-edit credit markets. The three-month dollar Libor rate jumped the most since 2008, and similar maturity cross currency basis swaps for euro-dollar, a proxy for how expensive it is to get the greenback, traded at the widest since 2011. “This is a little bit unlike anything else we’ve had before because of the unknown length and the unknown implications of it,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. We’ll “continue to see these crazy swings.” With the coronavirus grinding the global economy toward a standstill and central banks central banks dramatically stepping up efforts to stabilize capital markets and liquidity, The Trump Administration asked Congress for more than $1 trillion to combat the virus’s effects, a third attempt to juice government spending.
     “A bear market does not preclude rallies,” said Eleanor Creagh, market strategist at Saxo Capital Markets. “The biggest rallies can be in bear markets — erratic swings are exacerbated by the present high-volatility regime and strained liquidity conditions. With VIX remaining significantly above the long-term equilibrium, alarm bells are still sounding and traders should be wary of relief rallies.” Data showed U.S. retail sales fell in February, indicating the main driver of the economy, consumer spending, had begun to slow even before outbreak containment measures began. Companies began to scramble for cash, with Kraft Heinz, Caesars and MGM drawing down credit lines.
These are the main moves in major assets:
Stocks
*The S&P 500 Index gained 5.99% to 2,528.96 as of 4 p.m. New York time.
*The Dow Jones Industrial Average increased 5.2% to 21,237.
*The Nasdaq Composite Index rose 6.2% to 7,334.
*The MSCI All-Country World Index climbed 3.6% to 424.45.
Currencies
*The euro dipped 1.6% to $1.1008, the weakest in almost three weeks on the biggest dip in 21 months.
*The Japanese yen depreciated 1.7% to 107.66 per dollar, the weakest in more than two weeks.
Bonds
*The yield on 10-year Treasuries rose 28 basis points to 1%, the highest in almost two weeks.
*The yield on 30-year Treasuries gained 32 basis points to 1.60%, the highest in almost two weeks.
*Germany’s 10-year yield climbed three basis points to -0.43%,reaching the highest in more than three weeks on its sixth straight advance.
*Britain’s 10-year yield increased 12 basis points to 0.554%, the highest in more than three weeks.
Commodities
*West Texas Intermediate crude declined 6.4% to $26.87 a barrel, the lowest on record.
*Gold strengthened 1.2% to $1,532.63 an ounce, the first advance in more than a week.
–With assistance from Claire Ballentine and Dan Murtaugh

Have a great night.

Be magnificent!
As ever,

Carolann

God made the grass, the air and the
rain; and the  grass, the air and the
rain made the Irish; and the Irish
turned the grass, the air and the rain
back into God.
–Sean O’Faolain, 1900-1991, in Holiday, 1958.

Carolann Steinhoff, B.Sc., CFP®, CIM, CIWM
Senior Investment Advisor

Queensbury Securities Inc.,
St. Andrew’s Square,
Suite 340A, 730 View St.,
Victoria, B.C. V8W 3Y7

Tel: 778.430.5808
(C): 250.881.0801
Toll Free: 1.877.430.5895
Fax: 778.430.5828
www.carolannsteinhoff.com