There's at risk, and then there's really at risk. Even after this market has been clubbed for five days, we find situations where things could get appreciably worse, and things could only get worse.
I think that's where the focus has to be -- loss mitigation -- because there are too many companies that could see earnings hammered and stay hammered, while others will see them hammered once or twice or maybe three times only until their stocks represent too many estimate cuts and that's when they will bottom.
To call a bottom before then might be possible in some individual stories, but certainly not the averages.
If you are investing in S&P funds, you should know that if you have cash you probably have to pick at something, just add a little to the market. If it really bounces hard, you can lighten up. But the idea of buying in stages, lower, has worked for all financial crises and biological crises, and this one will be no different except we are early in the epidemic here. We have put a sliver of money to work from my Charitable Trust, Action Alerts PLUS, but we haven't even dented the cash we raised on Monday's stronger opening and Tuesday's bounce. That's going to be put to work today if we find bargains.
But let's deal with a typical individual stock of a company that's in the blast zone. Let's deal with Southwest Air (LUV) . I am picking on Southwest because it is the best of the best, with solid management from Gary Kelly and a long history -- unlike other airlines -- of profitability. This company's been profitable 45 years in a row. That's astounding in any industry, not just this once-hapless sector.
Plus Southwest has long been Warren Buffet's favorite airline: He owns 10%. An amazing endorsement from the best there ever was.
Let me first state my view that ever since this Covid-19 nightmare began, I have said we will not be immune and our markets are not set up for what could occur. You can call me bearish. You can call me disconcerted. But I think I have probably been the biggest bear about this disease when it comes to those on TV, and I have despised anything travel and leisure related. We are in the new stay-at-home/work-at-home economy and will stay there for the duration.
In particular, I didn't want anyone to buy an airline stock because I fear losses could develop if travel declines, which we all know it will. And I didn't like Southwest in particular because it was being hurt by the slowdown in oil spend AND the Boeing 737 Super Max issues as it is heavily dependent upon Boeing planes.
It's just a terrible time to be a Southwest shareholder.
So when Warren Buffett said to Becky Quick on CNBC Monday that he didn't want to buy the rest of Southwest, I reiterated that it can't be owned. That it had to be sold.
The stock was at $55. Now, with oil weaker, the outbreak worsening, a new, community spreader, in Northern California -- the first of many -- and Buffett not buying and the estimates definitely too high, how can you recommend buying the best in the industry if its stock is at $49, up substantially from before the big tax break put through by Trump and Company?
Why should that stock be at $49 instead of, say $36, where it was when Trump got elected? I actually don't know why. It doesn't have dividend support. It will need all the cash it can get to stay liquid, although it has been an opportunistic buyer in the past and has bought back about a third of the company's shares in the last nine years: 775 million down to 527 million, currently.
So what holds it up here? I would say ONLY the prospect that we solve the disease. That really is it, correct?
Does that mean the stock can't stop going down until we find a cure or a vaccine? Perhaps, yes. It can get oversold, it can bounce, it can go up when Boeing (BA) gets permission to fly the Max. Otherwise, though, sadly, I can't think of a reason to buy this stock here. There's too much risk.
Again, why am I picking on Southwest? Because it is the best of the best.
So now go back to Buffett. He told you on Monday basically not to sweat the small stuff. That you don't flit. You invest. If you invested that day you are down, call it one-seventh of your investment.
IF you didn't buy it, and bought it today, you have the edge over the guy who listened. But, and this is the crucial but, will you have the edge over the guy who buys it next week or the week after?
Right now, I say, no. Not yet. So should you sell some? This stock is one of those that is REALLY at risk. Which means, yes, I would sell some. Because I want to be the guy who buys it a few weeks from now.
Not today. Even with oil breaking down here. Not today.