– by Murray Sawyer, JD, Founder and CEO
It’s no secret that two of the principals of Westover Capital are huge fans of Roy Williams, the head coach of the UNC Men’s basketball team. Two hundred colleges play NCAA division one basketball. Six of them, including the Tar Heels, have an active Hall of Fame coach.
Williams has been a head coach at the University of Kansas and at the University of North Carolina for 31 years. He is the fifth winningest coach in NCAA history. His winning percentage is .778. That’s higher than the three active coaches ahead of him on the all-time wins list — Coach K, Jim Boeheim of Syracuse and Jim Calhoun of Connecticut (now St. Joseph of CT).
He is the only coach to have taken two different universities to four Final Fours. He took Kansas to 14 consecutive NCAA tournaments. At his alma mater, North Carolina, he has won 3 national championships since 2005. No other coach has won that many national championships over that same time period — not Coach K, not Bill Self, not John Calipari, not Jay Wright. No one.
Until this year he had never had a losing season.
Roy Williams’ Successful 30-Year Run as a Metaphor for Stock Market Performance
This year the Tar Heels finished with a 14-19 record. They were dead last in the ACC. On Wednesday, March 11th, they ended their season with an embarrassing, near thirty-point blowout loss, 81-53, in the ACC Tournament.
The Tar Heels performance was a metaphor for the stock market nosedive on March 12th. The Dow Jones Industrial Average lost 10% as did the S&P 500 and Nasdaq indices. It was the worst single day for the markets since 1987. Saying that brings up an obvious but important point that bears repeating: There has not been a day that bad for equity investors in more than 30 years. Likewise, there has not been a year as bad for Roy Williams in the last 30 years.
Two Black Swan Events That Hurt the Market
So, what has happened to our portfolios? Two Black Swan events converged at the same time to create uncertainty and volatility in an unprecedented fashion. Markets loathe uncertainty.
Event One: the coronavirus or COVID-19. There is no known coronavirus vaccine at this stage, and testing is not yet readily available to the general public. Event Two: the Saudi Arabia-Russia knife fight over oil. I assume we all intuitively understand the challenge of Event One.
Two Black Swan events converged at the same time to create uncertainty and volatility in an unprecedented fashion. Markets loathe uncertainty.
Lest we underestimate the significance of Event Two, let me put it in this context for you — oil prices have dropped to near historic lows. As a rough rule of thumb, oil which is sold for $50 per barrel is said to be the global “break-even” price point, the point where producers and consumers can live in peaceful coexistence. Today, the Saudis are flooding Europe with oil prices at $25 per barrel. They and the Russians say they can hold prices in the thirty-dollar range for years to come.
We suffered both events and at the same time.
Those two matters have had and will continue to have a significant and real impact on an economy that was humming along, before their coalescence. Unemployment was at historic lows — 3.5%. Job gains for the month were 273,000, well above the projected 175,000.
The Impact of an Economic Shutdown
Nevertheless, Broadway has canceled shows for a month; the NBA has postponed its season; other sporting events have suspended or canceled their games, including the NCAA Men’s basketball tournament. Travel has been severely disrupted. States of emergency have been declared from the East Coast (Delaware) to the West (California). The list goes on and on. As I write, I read that the President plans a national emergency declaration.
Economic losses have already started to pile up and compound as fast as Tar Heel basketball losses. At one point, starting in early February, UNC lost seven games in a row, marking another “record” for Coach Williams. With the President’s anticipated declaration, things will get worse in the markets short term before they start to repair.
What’s an investor to do? The answer is quite simple: determine what your time horizon is for the money you need. If it’s one year or less, then hold cash. If it’s two years or more, then stay the course. Be diversified with respect to the equities you hold and be balanced by holding stocks, bonds, cash, and gold. This is precisely the face of all Westover client portfolios.
Yesterday was a microcosm of the Tar Heels’ most recent basketball season. But they both are aberrations. Ask yourself this question: where will the S&P Index be a year from now, on March 13, 2021?
How Will the Markets Heal?
These two things need to be addressed for the markets to heal:
1. Manage and control the COVID-19 pandemic;
2. Have oil prices stabilize at rates the world needs for growth;
I’m willing to predict that sometime within the next year both issues will be solved. There are historic, economic and political reasons for that belief.
From a historical perspective, the S&P has been up 30 of the most recent 40 years. Put another way, if you threw a dart at a board you would hit a green number rather than a red number three out of every four times.
From an economic perspective, we have a strong economy. It will need to recover from the coronavirus and oil shock smackdowns, but it will. Our system of free markets, capitalism, liberty, and democracy is the best system known to mankind.
From a political perspective, neither party wants to do anything to hurt this country. Stumble as they may, both parties will use their best efforts to assist and propel our country forward, both from an economic perspective and to assure the safety of our citizens from a health perspective. Let’s all take a deep breath. Let’s give them some space and time, as they use legislative and administrative tools to address these matters.
You know during our annual reviews Chip, Matt and I always say, “It’s a good time to buy when good companies put their stock price on sale.” This week, and especially yesterday, was a Bargain Basement sale event. Depending on your sector allocation you may have benefitted from Chip’s purchases of UPS, Costco, Walmart, Gilead or CVS.
To return to our Tar Heel theme.
Next year the Tar Heels bring in four McDonald’s high school All- Americans. That’s more than Duke, Kentucky or Kansas. These players will play with Garrison Brooks, who will be a senior and who was voted the most improved player in the ACC this year. Roy Williams did not lose his touch overnight. As the saying goes, he’s not a Hall of Fame coach for no reason. Likewise, markets don’t go up for no reason. If you are an investor and your time horizon is longer than two years, stay the course.
It’s a good time to buy when good companies put their stock price on sale.
Although I have never seen Roy’s portfolio, I think it’s safe to say he is invested in the market, both personally as well as with his 401K account. He’s suffered a double whammy then. He has endured the ignominy of having his first losing basketball season and has seen his portfolio take a free-fall as well.
I’m just happy we’re not him.
Keep the faith.