Buffett’s big bet on Japan sends global stocks higher

Good morning. We’ve arrived at the final trading day of what’s been a historic August run on stocks. And the rally shows no signs of fading as Asian stocks, led by a bullish investment from Warren Buffett, push global equities into the green. Let’s see where investors are putting their […]

Good morning. We’ve arrived at the final trading day of what’s been a historic August run on stocks. And the rally shows no signs of fading as Asian stocks, led by a bullish investment from Warren Buffett, push global equities into the green.

Let’s see where investors are putting their money.

Markets update

Asia

  • The major Asia indexes are mixed in afternoon trading, with Japan’s Nikkei leading the way, up 1.3%.
  • Japanese investors are cheering Warren Buffett this morning. His Berkshire Hathaway announced over the weekend it’s acquired stakes in five major Japanese trading companies, including Mitsubishi and Sumitomo Corp, worth $6 billion.
  • TikTok owner ByteDance says it will now abide by China’s updated technology export restrictions guidelines, making any potential sale of the viral video platform a bit more complicated transaction for an American suitor.

Europe

  • The European bourses opened in positive territory with Germany’s Dax up 0.5%. London’s FTSE is off today for the bank holiday. (Why do the Brits call it “bank holiday?” Answer: it dates back to Victorian times.)
  • The island of Kastellorizo, a 4.6-square-mile island in the Eastern Mediterranean, is the latest flashpoint between Greece and Turkey, with the latter declaring over the weekend that Greek soldiers there must go. Saber-rattling between the two NATO neighbors has escalated of late in the energy-rich waters of the Med.
  • France’s waste-and-water-treatment giants Veolia Environnement SA and Suez SA are a step closer to joining forces this morning after Veolia made a €2.9 billion ($3.5 billion) bid for a 29.9% stake in Suez.

U.S.

  • U.S. futures are gaining again on Monday as we look to close out the best August since 1986 on a high note.
  • The stock splits for both Apple and Tesla will kick in today. A reminder: holding more shares of a stock only guarantees you have more shares, not more money. But this bull market is testing that truism.
  • Also today, the new-look Dow Jones Industrial Average will begin trading. In a bid to go more techy, the blue chip exchange announced the addition of Salesforce.com, Amgen and Honeywell International last week.
  • What else is happening this week? The big August jobs report comes out on Friday.

Elsewhere

  • Gold is down, trading below $1,970/ounce.
  • The dollar is up, as is crude.

***

In praise of Ms. Steady

She makes just a handful of trades every year. She might even go a few days between checking her portfolio. Oh, and she never ever panics after a stock market meltdown.

She’s taking the long view—years, not days. She’s the classic buy-and-hold investor. Ms. Steady.

And you know what? She’s killing it.

Patience is not just a virtue. It’s a pretty solid equities investment strategy.

As BofA equities analysts noted in a report on Friday, “long-term fundamental investing is out of vogue, but may be the best arbitrage opportunity out there.” Translation: one of the best ways to cushion your losses is simply to extend your time horizon. (This is true for equities, but not true for commodities, btw.)

Consider this. Decade by decade, the S&P 500 has delivered consistently positive returns with just two exceptions: during the Great Depression in the 1930s and during the first decade of this century (9/11, expensive wars, global financial crisis). In all other decades since the 1930s, the S&P returns have been lights-out good.

If the buy-and-hold strategy has been a lucrative one over the decades, the strategy of trying to time the markets has been full of peril. Here’s why: “The S&P 500’s best days generally follow its worst days,” BofA says. “2020 has been no exception: one of the worst days this year (3/12/20, 9.5% decline) was followed by one of the best (+9.3%).” If you sold off in the middle of that markets drop on March 12, you’d have missed out on the best day of 2020 on March 13.

And best-days add up. “Since the 1930s, if an investor sat out the 10 best return days per decade, his/her returns would be just 17% compared to 16,166% returns since then,” BofA reports. As Ms. Steady would tell you, that’s nearly a one-thousand fold difference.

This shouldn’t be all that surprising. When stocks take a beating, the pros often jump back in and buy on the cheap, adapting that Warren Buffett-ism of being “greedy when others are fearful.” When it comes to equity investing, the sky-is-falling, sell-on-the-dip mentality will lose you quite a bit of money over time, the markets have proven.

Instead, the Ms. Steady approach appears to be a clear winner. BofA notes that having at least a 10-year time frame is the best way to keep losses to a minimum.

As the chart shows, day-trading offers the probability of the biggest negative return whereas the five- or ten-year horizon is far less risky on a relative basis.

With the S&P heading for a record August, this kind of analysis seems elementary. But it wasn’t that long ago—less than six months ago, actually—when the markets were in free-fall and it seemed like stock-heavy portfolios would be wiped out.

Fast-forward to today, and all looks rosy. On Friday, the Dow closed up 0.4% for the year, and the U.S. futures point to more gains.

Not a bad way to start off the week.

***

Postscript

In summertime, the neighborly small-talk in Sant’Ippolito, our little hilltop hamlet in Amandola, almost always turns to the subject of animal life—rarely bulls and bears, mind you.

Wild boars, traffic-snarling flocks of sheep that cross the road from one field to another, mice and snakes are the regular protagonists in any chit-chat about life in Sant’Ippolito. And so I wasn’t surprised recently when Mara, my nearest neighbor, asked me about le serpi. Again.

Mara hates snakes, keeping a running tally in her head on how many slither up the common pathway between our homes. I’ve become fairly blasé about these cold-blooded creatures. They’re fairly harmless. I just don’t want them getting into my kitchen. Again.

In addition to being our local snake-counter, Mara is Sant’Ippolito’s unofficial historian. Her dad is Fiore, who’s on the right side of 100. It was her uncle, Alfredo, who sold me our place nearly 20 years ago.

Her great-grandparents rebuilt the house by hand, stone by stone (quarried from the river bed below the house), in the 1930s, she recounted.

I knew this part of the story, but not the rest.

Turns out the money to rebuild came from America. A relative, the story goes, had moved to the States in the ’20s for work. For years, he sent remittances back home to Amandola—enough money for the family to rebuild the stone house where I’ve been writing Bull Sheet much of the summer. (We’re back to Rome next week for the start of the school year).

And so the family always spoke reverently of America, and the mighty American economy that helped this poor little farming community rebuild between the wars.

That a Yank would come along decades later to buy the house felt like serendipity to the family.

I was happy to oblige.

Downtown Sant’Ippolito where there’s little talk of bulls and bears, but plenty of chatter about snakes. Original photo: Bernhard Warner.

***

Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
[email protected]

As always, you can write to [email protected] or reply to this email with suggestions and feedback.

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