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Forever or For Now

April 14, 2021 | Bogumil Baranowski
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When I think of forever versus for now, I can’t help but picture Bill Murray’s 1990s movie, “The Groundhog Day.” I learned over the years that this innocent comedy has proven to be quite controversial. Some either love it, others the opposite. His character, Phil, a Pittsburgh weatherman, has to endure a work trip to report on the groundhog tradition in the town of Punxsutawney. The groundhog appears, and its shadow predicts earlier or later spring. Phil’s least favorite day repeats every morning, though, and his tolerable “for now” seems to have become his increasingly unpleasant “forever.” In investing, it pays to be able to tell the difference between what could be forever and what’s just for now.

When we come across something we like, we want it to last forever. When we come across something we don’t like, we hope it’s just for now. Even when it comes to the experience of the last twelve months, there are many things we’d like to hold on to forever, and others we trust are just for now. Also, I realize that it’s hard to argue that anything is truly forever, but for the sake of this argument, let’s consider forever those phenomena that could possibly outlast us all.

When I watched “The Groundhog Day” growing up, I liked it a lot, but I thought it’s all Hollywood fiction. Not just the time loop trap, but the town and the groundhog tradition. Having stayed for three months in the Pennsylvania section of the Appalachian Mountains last year, I discovered that Punxsutawney really exists. It means the town of mosquitos in the Lenape language, Delaware Native American. The groundhog day tradition is still very much alive.

When we find a company whose business we like, we’d be very happy to see it grow and prosper forever. Warren Buffett sometimes shares how his favorite holding period is forever. This approach paid off in his career. His early purchases of Geico, American Express, or Coca-Cola grew to become multi-billion dollar holdings. On top of it, whoever bought his Berkshire Hathway shares when it was still a failing textile company, and held it till today, would have enjoyed an incredible rise in value.

The trouble is that in Bill Murray’s groundhog experience, in our lives, and in investing, few things, if anything at all, are forever. Even Warren Buffett sold his airline and bank holdings in the last twelve months and many others in years past. There is just too much change and too many surprises that affect long-term holdings. The 2020-2021 worldwide pandemic alone that led to lockdowns, the stock market correction, and a massive social and economic disruption might have changed the long-term outlook for many businesses and industries.

When it comes to Buffett’s holding forever approach, we still share the same philosophy. Each purchase we make, we assume we’ll hold forever, but we let the changing circumstance dictate what we actually have to do. I’ll point out that cyclical businesses escape that rule. There are good times and bad times to own them, and it pays to buy them and sell them, only to buy them again. The energy sector, in particular, has proven to belong to that category.

The opportunities, though, arise when the majority of investors see something unfavorable as bound to last forever, while it’s only for now. Over the years, we have come across many buying opportunities, when others assumed that some temporary challenges a business experiences would completely derail the future prospect of the said enterprise. Investors tend to have a very short-term investment horizon. If a particular company misses a few earnings estimates, has a failed product upgrade or a delayed launch, the stock market acts quickly to punish its stock price. It’s not rare that we see once market favorites trade 40-50-60% lower. That’s a buying opportunity for us. We are willing to take a long-term view and appreciate that it’s a passing hiccup; it’s only for now, while the forever looks much more promising.

At the same time, the market enthusiasts at times believe that the growth of a certain business or industry will not only last forever but also accelerate. This could lead to some fast-rising stock prices, which leave the underlying fundamentals, the actual value of the business far behind. That’s the kind of behavior that makes us increasingly cautious. We know that the big disconnect between the price reality is always just for now and doesn’t last forever. If we are holding a stock whose price rose much beyond what we believe to be its fair value, we tend to trim and intend to exit the position. It’s a risk aversion that can save us from a painful experience when the market wises up and corrects.

Alternating between forever, and for now, we can both find investment opportunities and identify potential investment trouble. Somehow the human mind likes to oscillate between the two, either seeing no hope when the challenges arise or seeing no trouble when enthusiasm abounds. Keeping a steady course and adapting to the reality in front of us can prove to be the best path to follow. Bill Murray’s character finally awoke from his time loop dream, so do investors each time, no matter if it’s fear or greed that dictates their momentary action.

 

Happy Investing!

Bogumil Baranowski

Published: 4/14/2021

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The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.

This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.