It is our intention to ride out this storm and high-grade our portfolio whenever an opportunity arises.
After inching closer and closer for weeks, the S & P 500 finally dipped into bear market territory Friday, as defined as a 20% drop from previous high. But a strong late-day rally wiped out all of the steep losses from earlier in the session. The broad market index actually closed slightly higher Friday — finishing less than 20% lower than its January record high. Wall Street semantics about what constitutes an official bear market aside, the seventh straight down week for both the S & P 500 and the Nasdaq has been brutal. The tech-heavy Nasdaq has been down more than 20% from its previous highs since early March. The Dow Jones Industrial Average, still only in a deep correction as defined by a decline of 10% to less than 20% from prior highs, logged its first eight-week losing streak since 1923. The main culprit of the continued market sell-off remains red-hot inflation, and concerns the Federal Reserve isn’t doing nearly enough to tamp it down quickly enough. Macroeconomic reports in recent weeks have certainly broadcast that prices were rising fast. But it was this past week’s one-two punch of disappointing quarterly results from retailers Walmart (WMT) and Target that really sent the market over the edge. Despite top-line beats for both companies, earnings greatly missed expectations and forward guidance was revised lower. The reports put on full display that even the best operators have been caught off guard by the rapid rise in fuel and logistics costs. In addition, the quick shift in consumer preferences to trade down in certain goods — and the reallocation of discretionary funds from goods to experiences — dragged on earnings. With all of that in mind, we want to reiterate to investors what we said earlier this week: Panic is not a strategy. It is our intention to ride out this storm and high-grade our portfolio whenever an opportunity arises. That means focusing on adding high-quality, cash-generating businesses with pricing power as their stock prices go lower. While it may not feel like it right now, for an investor — not a short-term trader, but a long-term investor looking beyond the next couple quarters — this is where the money is ultimately made. The entire market is on sale right now. The best names in the world are selling at a discount, right alongside the SPAC garbage that was unloaded onto unsuspecting investors while the Fed was pumping more liquidity into the market during the height of the pandemic. If you can identify and separate those high-quality names from the ones that arguably wouldn’t even be public right now if not for the wild speculation saw in 2020 and 2021 — and we believe Club members can — then you need to be looking at this drawdown the same way you do any other sale: as an opportunity to scoop up something great at a cheaper price than you otherwise would have.
