by John Fox, CEO & Chief Investment Officer
Fenimore’s Investment Research Team continues to immerse itself in first quarter corporate earnings reports and economic data. Last week, we shared what we’re seeing on the company level as a result of the initial earnings reports. This week, we have a better view of the economic picture:
- The GDP (gross domestic product) decreased 4.8% in Q1 of 2020 per the Bureau of Economic Analysis’ “advance estimate” – it was one of the 10 worst quarters in 70 years. Our team expects that the second quarter could decline at a faster pace given the stay-at-home orders.
- Thirty states are in various stages of reopening. We are monitoring their success and formulating our outlook for a national economic recovery.
As we continue to analyze Q1 data, we thought you might be interested in the latest thinking from a very famous investor.
Lessons Learned – Virtually
Fenimore’s Research Analysts continually strive to learn and improve our craft.
The first weekend in May is typically when Berkshire Hathaway holds its annual meeting. For more than 20 years, our entire Research Team has journeyed to Omaha to listen to Warren Buffett and his partner Charlie Munger discuss Berkshire Hathaway, the economy, American business, and how to approach investing in the stock market.
We’ve learned much over the years and tried to put these lessons into Fenimore’s investment management practice.
This year, Mr. Buffett presented online and discussed America’s resiliency while answering shareholder questions. Here are two main takeaways from our viewpoint:
- Never Bet Against America
Recognizing shareholders’ concern about the pandemic’s short- and long-term economic effects, Mr. Buffett broke his tradition of starting the meeting with a video. Instead, he spoke at length on the theme “Never Bet Against America.”
To make his case, he made the following points:
- The wealth of the United States has grown 5,000-fold since 1789.
- We survived the Civil War, in which we lost 6% of our men between the ages of 18 and 60 (today’s equivalent would be 4 million deaths).
- We survived the Great Depression and the collapse of the stock market.
- $1,000 invested fell to $170 in less than two years during that crash.
- The Federal Deposit Insurance Corporation (FDIC), established “to maintain stability and public confidence in the nation's financial system,” was one of the best outcomes from the Great Depression.
- The Federal Reserve is supporting the economy in a big way through various programs – this is very positive.
- If You Bet on America by Buying Stocks, You Should:
- Avoid buying stocks on margin.
- Own a cross-section of the U.S.A.
- Understand that stocks are not just little objects that move around on charts – a share of stock represents ownership in a company.
- Have a long-term mindset, the mindset of a business owner.
- Be emotionally and financially prepared to have stock prices potentially decline 50% or more – 9/11 and COVID-19 have proven that anything can happen.
Your Fenimore Team agrees with Mr. Buffett. While these days are extremely difficult on multiple fronts, we will never bet against America! Our nation’s entrepreneurial and innovative spirit, as well as its ability to reinvent itself and move forward, gives us confidence to invest in quality companies over the long term.
If you’d like to speak with one of our associates, please call 800-721-5391 or email us. We welcome the opportunity to communicate with you. Thank you for your ongoing trust.