How can patience not be a virtue?
How can diligence, research and study be irrelevant? How can discipline hurt you so much, to the point that you may not have made nearly enough -- as much as you could have if you had suspended all rigor and just went for the obvious? These are the questions you must ask as the Dow hits an all-time high in the midst of a raging pandemic that threatens to touch us all.
I am not used to a market that rewards those who aren't early or clever. This morning we learned that Moderna (MRNA) has a vaccine that works even better than Pfizer's (PFE) , as least in a small sample. You can argue that we can wipe out Covid-19 with a needle, not with what some regard as ridiculous and a waste of time: masks and physical distancing. The war against a new way of life, one that is like countries with a more obedient populace, has been won. The optional nature of masks has outed them as a less than reliable and the propensity to not want to close the most known places for transmission, bars and restaurants, is another victory for the anti-public health crusade.
As long as there are no rules about going out and nothing that gets in the way of it, as long as youths can do what they want with the only risk being that they get mildly sick -- or so they say -- then there's no need to think that there's going to be an interregnum. Just get long or be wrong.
How is this possible? I have some theories.
First, there are moments when discipline is stood upside its head. The toughest thing to do is to not part with a stock. You must be willing to suspend judgment about how far stocks can go. You must believe that the bridge to the end of the pandemic will leave a lot more companies standing than we might have thought before Moderna, and, before it, Pfizer.
Let me give you an example: Darden (DRI) . If you don't know Darden, it's the parent of Olive Garden, Longhorn Steak, Cheddar's Scratch Kitchens and a bunch of other restaurants. No industry has been hurt as badly as the restaurant industry where contagion is rife. You can't stop it, because people can't wear masks and the airflow may be stagnant, if you can't open windows. We have tons of evidence that people in the front of a restaurant can get it from someone in the back of the restaurant as the viral load builds up over time.
And that's exactly why Darden's so good. It's been able to pivot, take out a ton of tables, dine in down 50% and still have a very good minus 18% same-store sales. Meanwhile, there has been tremendous cost control and the company cut its bountiful quarterly dividend from 88 cents to 30 cents. Its liquidity position is very strong.
Now, you can say, "So what?"
You don't like to go to Olive Garden. But what matters is that its competitors are mostly private companies that can't operate at 50% capacity, because they cannot get their costs down like Olive Garden can. They tend to have non-variable costs: bartenders who can't tend bar, waiters with just a few tables, a kitchen that has to be relatively well staffed and rent and insurance and electricity that all stay the same. And that's how 40% of the restaurants that compete with Olive Garden are expected to go under.
Now, if we had stimulus or business interruption insurance, something that protected the small- and medium-size enterprises that compete with Olive Garden, you wouldn't want to own this stock. But the fact is the stock, with a dramatically reduced dividend and half the customers, is about to take out the level where it was before the pandemic and has already taken out its low from before the pandemic.
Think of the leaps of faith you have to go through to buy that stock. You have to think that the vaccine is going to be there soon, but not soon enough to spare the individual operators. You have to bet that the government will be harsh and come up with nothing to save these smaller restaurants, and you have to think that those who are cooking at home will abandon that style of living the moment that they can.
Or, how about Honeywell (HON) . Do you know how hard it is to own a stock of a company that's heavy into aerospace that takes out its all time high, blitzing past where it was before the pandemic? You have to have a degree of faith in the management of Honeywell that it will come out so much stronger on the other side of this pandemic, because it's pulled away from competitors and has built up a much better book of business than before Covid-19 hit. Again, I go back to the notion of suspension of critical faculties. I think the world of Honeywell, my charitable trust owns it, but any disciplined person would sell this stock unless you genuinely believed that a Biden administration will be a boon for aerospace, as well as climate control and software that helps businesses run their offices better and more efficiently.
Finally, there's Disney (DIS) . The stock is now above where it was when the pandemic began, even as the parks are running at a fraction of what they can run at, and Disneyland is closed. The cruises are grounded. The movie theaters are closed. ESPN had a tough year with a truncated sports season. And it doesn't matter, because the company came up with Disney +, and, even though it loses a fortune, it's right on the company's time table.
Understand I am not picking stocks of companies like ServiceNow (NOW) , or PayPal (PYPL) or Target (TGT) or any of the essential retailers like Home Depot (HD) , which reports Tuesday and Lowe's (LOW) , which reports Wednesday. Those are the names that are related to the stay at home, work at home thesis. I am talking about companies where there is no hope that the next quarter will be any good. Yet it doesn't matter. Not to these buyers.
I often think who are those guys? Who is willing to look through the valley to the good numbers? How is it possible that they don't care about the near-term or that they think that everything will go well? How can they be so darned optimistic? I have to believe that this is the work of youth. Anyone who has been in the business for any time in the past 30 years would never buy the obvious and be rewarded. I have seen it only once, in the 1980s, when stocks that went to $80 then went to $90 and then $100 and then $120. Don't laugh, that was my sales pitch to a lot of people who were like the pessimists now. It always worked. I mean always.
In the end, I think that the real issue is faith, these buyers have faith in the future, something that seems out of place with so many who feel despair. Those in despair are sellers or doing nothing. Those who believe? There does not seem to be a price they won't pay.