Beyond The Headlines

Investing in times of pandemic

March 23, 2020 | Bogumil Baranowski
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The last few weeks have felt like years to most of us. Out of nowhere, we have been wakened from a low-volatility, 11-year-old bull market to a stormy market crash. We’ve seen record-breaking daily moves, mostly downward. Three years of gains have been erased from the major indices in as many weeks, a process that feels like taking a slow escalator up and a fast elevator down.

To me the wakeup call came in the last day of the most recent conference I attended. It was in late February in Florida, and after spending a few days with CEOs of major US companies, I finally saw the headlines reporting town lockdowns in northern Italy. In response I soon decided to cancel my trip to Europe … then two more trips. Not long afterward, we all started working remotely.

Last week, from the comfort of my home, I had the great pleasure of joining MOI Global’s John Mihaljevic for an impromptu virtual Q&A session aptly titled “Intelligent Investing in Crisis Mode.” Among John’s guests sharing their perspective were Howard Marks, Tom Russo, Guy Spier, and other highly respected value investors from around the world.

Before we dove into the topic of building a portfolio in the time of crisis, John asked me how my daily routine had changed in the last few weeks. My answer: I stay home, I save an hour on my daily commute, and Megan and I have time to bike almost every day to get some exercise. I also admitted that until a day or two ago, I was reading far too much daily news keeping up with the incessant pandemic updates. I decided to change that. Otherwise, it’s business as usual – patiently looking for ideas.

As you might know from our earlier posts, we at Sicart entered this treacherous time in what we believe is a very favorable position. We have ample cash. In addition, we hold what we call a “market protection” in the form of gold holdings, and certain exchange-traded funds that go up when volatility and risk spike. We positioned the portfolios this way not over the last few weeks, but over the last few years.

Ahead of a likely economic slowdown, we had also consciously pruned our portfolio to eliminate overvalued late-cycle names, replacing them with stocks chosen on the basis of their financial strength. We had no way of knowing that a pandemic was around the corner, but we have been cautious for a while. We wrote and talked about it extensively. Market valuations were undeservedly high, fundamentals were stretched, and we believed that we were due for a reality check in the form of a market correction. The panic selling triggered by the virus, followed by the expected drop in demand and diminished economic activity, happened to be the catalysts.

Just as we had no way of knowing when the record-breaking bull market would end, we can’t predict the duration of the current accelerated market sell-off.

As we always have, we will respond slowly and gradually. Mirroring the way we’d been trimming our holdings during the market’s rise, we will begin adding to current ones, and starting new holdings as we wait for the market to bottom. I’ll emphasize “gradually.”

The slow pace of acquisition saves us from having to time the market or attempting to call where its top or bottom might be. At the same time, it gives us the opportunity to build long-term positions in great businesses that would otherwise be too expensive to offer a sufficiently attractive return. This is a moment to start building a portfolio for the next 3-5-10 years and beyond.  

We see that a median U.S. stock is already down 50% (Bloomberg, Value Line Geometric Composite Index), and that market benchmarks are off by one-third. As dramatic as that drop may seem, we believe there is room for further correction, especially among stocks that have been part of the most recent market rally. The ultimate sign of capitulation would be a sell-off in the market darlings of the last few years as panic-stricken investors sell to raise cash. This may not occur soon, and it’s possible that the market darlings might be safe this time around. If we do see a sell-off among the high fliers of the last few years, we believe, it would be an indicator that the bottom is closer.

As we wait for the market shakeout to play out, we started to “nibble” on some stocks. We have a long wish list of those that we’d like to own at the right price.

What are we buying? There are at least three big buckets of opportunities ahead, in our opinion. The first are companies that should experience limited impact from the demand drop triggered by travel and movement restrictions. That group includes a number of companies that fell as much as the market or more. We believe that their sell-off was driven mostly by investors selling indiscriminately, regardless of the underlying quality of the business. These stocks were further hurt by investors who quickly needed to liquidate their holdings under pressure. We’ve made some small acquisitions in this segment of the market.

The second group consists of companies that will experience some impact from current restrictive policies, but should endure on the basis of their position, financial strength, and business quality. Among them, we find a number of stocks whose prices have already come down. This gave us the opportunity to initiate small positions, but we believe we may see lower prices down the road. These are companies that are often too expensive for a disciplined investor, but in times like this may be within reach, and offer sufficiently attractive returns from current prices.

The last group are companies more directly impacted by the economic shutdown. This group has likely the largest possible upside given their turnaround potential in the future. However, they could also carry the real risk of a permanent loss of capital. We are currently refining a short list of companies that we may buy as a basket in order to diversify the risk while still capturing the potential — and possible — growth. Naturally in the last group, we will do our best to avoid any companies that demonstrate an obvious high risk of a total loss.

How will we fund our acquisitions? We have three sources of capital ready to deploy. Despite some minor purchases in the last few weeks, we still hold ample cash. It can be used on whatever timetable appears most productive. The second source of dry powder will be our market protection, which is playing its role for now. Our third source of capital will come from a number of holdings we’ve added over the years which not only held up well in the sell-off, but also offer products and services that are considered necessities. Demand for them will probably remain steady or even spike as shoppers stock up on canned soup and toilet paper, or churn through their phone and data plans as they work from home or binge-watch TV shows.


Yes, this is a “staycation” we didn’t ask for. For us, as disciplined patient investors managing family fortunes for generations, it presents one of the most compelling buying opportunities in our investment careers. While many market observers obsess over where the bottom of the market might be, we act slowly but decisively. There has never been a bottomless market in the history of investing, and this one will have a bottom, too.

As one of our newer clients told me recently, “If I wasn’t with you already, this would be the perfect time to join!” In fact, we are on-boarding a new client in the midst of this turmoil. If you aren’t yet one of our clients but feel that you’d like a steady hand in these times, we’d would be delighted to have you join us.


With a stock market sell-off in background, and a looming economic slowdown, policy makers are searching for quick immediate fixes, utilizing zero interest rates, open-ended quantitative easing, multi-trillion-dollar bailouts — unprecedented money printing, borrowing, and spending. We might be trading one problem for another down the road. When too much money is chasing too few goods, inflation usually follows. This reminds us again that investing constantly requires us to see not where the ball is, but where it will likely be.

The government’s strategy may help soften the economic impact of the current situation but we might need to wait months or even longer to see a real improvement. Let’s keep it in perspective, though: this may feel like wartime in the stock market, but no production capacity is being destroyed and no bridges have been burned. It’s just that some assets may change owners at a lower price.

My grandma, a woman of boundless optimism, told me this week, “I was born during the Great Depression, lived through World War 2, the Nazi occupation, 45 years of communism, and martial law in 1980s Poland — this too shall pass.” It’s a good time to call your family and friends, since they too might have wisdom, and a new perspective to share in these unusual times.

I was supposed to go to Italy in May to attend the wedding of dear friends. That’s not going to happen now. I like to think that it was postponed rather than cancelled, and they have already rescheduled it for May 2021! It’s easier to look at everything else around us as postponed rather than cancelled. The world will go on. Pent-up demand will return. In the meantime, our best choice is to stay home and stay out of the way, for our health and that of everyone else.

Bogumil Baranowski

Published:  3/23/2020


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 clientspecific 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.