Today is the last day of the quarter. For me, who manages a small hedge fund, that is terribly exciting, because I don’t have to wring my hands with worry about guarding my Q1 results. I’ve got an amazing quarter under my belt, and, frankly, I don’t have to worry about messing it up. I feel far, far more enthusiastic about getting aggressive by day’s end than I did even yesterday.
And what a quarter it has been. Surely in the long history of United States financial markets, if this isn’t the most amazing quarter in that entire span, surely it ranks in the top four. What I’ve had the privilege of enjoying just this month includes:
Some of the best trading of my life;
Far and away the biggest surge of subscribers ever, in the midst of celebrating Slope’s 15th birthday;
Some amazing product/feature breakthroughs on the site.
And we’re only one-forth of the way into the year!
There’s a narrative being pushed in the mainstream media right now that people should buy stocks because they are “on sale.” Here are some examples of stocks which people gobbled up late last week. As of Monday’s close, they have already have lost almost half their value from the purchase price. I would point out that these losses were in the face of a nearly 700 point gain in the Dow on Monday!
People are understandably in a funk these days. They’re trapped in their houses. People are sick or dying. Every day greets us with more grim news.
One thing which has been surprising to me throughout my life is how some of the greatest blessings have been born from what seemed at first to be negative circumstances. I thought I’d share three unrelated anecdotes to make my point.
The first is from back in 1994, when my little business Prophet was at the cusp of going under. (If you’re interested in the history of Prophet, there’s a cool documentary about it here.) I had started the company with an investor (the fabled Andy Bechtolsheim, now one of the richest men in the world) and a programming partner.
In a previous article, I presented a rough approximation to help illuminate how the Covid-19 outbreak might affect the value of American stocks as represented by the S&P 500 Index. Here I take a deeper drive and provide a full spreadsheet model. In the model, the virus has two fundamental effects. First, it depresses earnings next year and second it prevents earnings from ever meeting pre-virus expectations. The best way to see how this works is with reference to the graph below.