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9 Investing Tips from Investing Icon John Bogle That You Shouldn’t Ignore – The Motley Fool

Posted: March 20, 2020 at 3:44 am


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When John Bogle died last year, at the age of 89, the investing world lost a hero. Most investors may not know his name, but he's the founder of Vanguard, one of the most respected financial services companies, known in part for low fees. That's not even his most important accomplishment; he's also known as the father of index funds, and advocated for them for many decades.

Here's a look at nine smart things Mr. Bogle said, along with a little commentary about each.

Image source: Getty Images.

The recent stock market crash has made this abundantly clear. It's important, if you're going to invest in stocks, to understand that the market drops by about 20% or more every few years -- and that after each such drop, it has always recovered and gone on to new highs -- eventually. That sometimes happens within a matter of months, but it might also take years. That's why you only want to invest in stocks with money you won't need for at least five (or more) years.

Consider this: As ofthe middle of 2019, the S&P 500 index of 500 of America's biggest companies outperformed fully 90% of large-cap stock mutual funds over the previous 15 years, according to the folks at Standard & Poor's. In other words, only about 10% of mutual funds run by financial professionals who carefully decide what to buy and sell and when and who focus on large companies are able to deliver above-average results. This is largely due to the fees that they charge. It's common for actively managed stock mutual funds to charge around 1% or more annually, while many index funds that track the S&P 500 charge 0.20%, 0.10%, or even less.

In other words, be a long-term adherent of fundamental investing, where you focus on the companies in which you're a part-owner through your shares, keeping up with their progress and assessing factors such as their market share, profit margins, track record of growth, prospects for further growth, sustainable competitive advantages, debt and cash levels, and so on.

The opposite of this would be jumping in and out of stocks without ever having a solid understanding of the underlying companies, and checking how the stock market and your holdings are doing every day or even every few hours. (I'll concede that when the market has been as volatile as it has been recently, it can be more understandable to take a look more often.)

This is a common mistake that mutual fund investors make, and stock investors make it, too. If you see a mutual fund that soared more than, say, 50% last year, you might jump in, wanting to collect a 50% return yourself. (I made precisely this error once -- and, fortunately, only once.) Well, that's not how it works. Any fund or stock can have an amazing year -- perhaps partly due to investor euphoria and optimism or due to a truly impressive performance. But it doesn't happen every year. And when stocks and funds get ahead of themselves, they're very capable of falling back to more reasonable levels.

Focus on long-term results -- and put more weight on what you expect the company or fund to do in the future than on what it has done in the past.

Image source: Getty Images.

It's underappreciated how important it is to favor mutual funds and other investments with low fees. Here's an example. Imagine three stock mutual funds. One is an index fund charging an annual fee of 0.10%, while the other two charge 1% and 1.5%. If the stock market averages 10% growth over a given period, you'll end up with average annual gains of 9.9%, 9%, and 8.5%, respectively, with those funds. Here's how $10,000 annual investments would grow over time at those rates:

Investing Period

Balance Assuming 8.5% Growth

Balance Assuming 9% Growth

Balance Assuming 9.9% Growth

10 years

$160,961

$165,603

$174,315

20 years

$524,891

$557,645

$622,348

30 years

$1.35 million

$1.49 million

$1.78 million

Source: Calculations by author.

The cost of expenses is clear in the table above -- and remember that some funds or investments charge significantly more than 1.5% annually, too. Emotion, though, is another challenge for investors to overcome. Think about the recent big market drops. They tend to lead many people to panic and sell their stocks (which causes the stock prices to fall further). Market drops are actually great buying opportunities for long-term investors.

As Warren Buffett has explained about his own (wildly successful) investing style: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Simplicity is often best. Many people think about investing and assume they need to learn all about commodities and futures and options and that they have to become experts at reading financial statements in order to study many companies. Instead, think back to Bogle's simple index funds. You can just park money in one or more index funds regularly for many years and do very well -- without becoming a stock market expert.

When you invest in a broad-market index fund, such as one that tracks the whole U.S. stock market, as the ultra-low-fee Vanguard Total Stock Market ETF(VTI)does, it lets you skip looking for the most promising stocks among thousands -- because you just buy into all the thousands.

Finally, if you become an index investor, you just have to stick to the plan. Keep investing in it for many years, without panicking and selling.

There's a lot more we can learn from John Bogle -- and we have a lot to be grateful to him for, as well.

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9 Investing Tips from Investing Icon John Bogle That You Shouldn't Ignore - The Motley Fool

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March 20th, 2020 at 3:44 am

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My view of the PIC/Lancaster investment in Steinhoff – Daily Maverick

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Jayendra Naidoo. (Photo: Qilai Shen / World Economic Forum)

The findings and recommendations of the Mpati Commission of Inquiry into the Public Investment Corporation has generated much media coverage, including several articles which appeared in Daily Maverick. The Lancaster Group, Lancaster 101 (the entity in which the PIC invested in 2016), and I, have been on the receiving end of much undeserved adverse comment. I write this article to clarify issues and place the facts on record relating to the PIC investment in Lancaster 101 (L101).

Ex-unionist Jayendra Naidoo owes PIC R11bn for dodgy Steinhoff BEE deal, inquiry reveals

By way of background, I am the sole shareholder of Lancaster Group, a company I formed in 2014. In 2015, Lancaster Group was invited to acquire a significant block of shares in Steinhoff. This was the result of two years of negotiation. Having had a prior business relationship with Dr Christo Wiese as an investor in Pepkor Holdings between 2003 and 2011, I approached Dr Wiese with a proposal to acquire a shareholding in Pepkor once again.

However, at a point when our discussions were quite advanced, he sold his entire shareholding in Pepkor to Steinhoff, and subsequently arranged for the then Steinhoff CEO, Markus Jooste, to continue the discussion with me. This led ultimately to an offer from Steinhoff to Lancaster Group to acquire shares in Steinhoff. It was a purely commercial transaction, with shares offered at market value, based on the notion of working together as value-adding business partners.

At the time, Steinhoff was a highly regarded blue-chip company listed on the JSE. Many international investment banks had a relationship with Steinhoff as a result of its international operations. To raise the funding for the investment opportunity, I approached several international and local banks, as well as the PIC. I appointed an advisory company who developed an innovative proposal for funding the transaction. In addition, they secured a guarantee from an international investment bank to protect up to R10-billion of investment in Steinhoff shares.

With this capital protection mechanism available, several reputable banks became interested to provide funding, and provided indicative funding term sheets. However, it would have required several banks working together to provide such a large quantum of funding. I was cognisant of the risk of working with a large consortium of banks. At the time the PIC, who had an extensive track record of private investments through their Strategic Investment Portfolio, also indicated their interest in the proposal and saw the possibility of using this transaction to work more actively with Steinhoff to promote broader economic transformation, advancing black management, and creating benefits for black suppliers and local producers.

The prospect of a stronger relationship with the PIC was welcomed by Steinhoff as well, so I elected to work with the PIC on this transaction. Bear in mind that the PIC was already invested in Steinhoff and was interested in increasing its association with Steinhoff.

Once the engagement began, the PIC appointed a deal team that engaged intensively with our advisers. The original proposal submitted by Lancaster Group was explicitly on the basis, which is the commercial norm, that it was open for negotiation. The negotiation between the PIC deal team and our advisers resulted in several amendments. The changes that the PIC secured included the PIC acquiring a direct 50% shareholding in the equity of the special purpose company to be created (which was a new company created for the transaction, namely L101), an allocation of 25% of the L101 shareholding for the benefit of a B-BBEE Trust (to be established by Lancaster Group in accordance with an agreed scope), a reduction in the transaction size to R9.35-billion, an obligation on Lancaster Group (and Steinhoff) to undertake specific transformation activities such as developing black suppliers, and several other points.

During this process the PIC deal team demonstrated themselves to be knowledgeable, professional, and clearly experienced in sophisticated financial transactions. I must emphasise that this was a robust and commercial engagement. The narrative that the PIC deal team was grossly inferior to the Lancaster Group advisers is completely unfair to the skill and expertise of the senior PIC team members who were involved.

Despite the commercially demanding terms, the transaction made sense to me given the PICs interest to partner and further invest in Steinhoff-related initiatives. The PIC approval was granted by their Investment Committee, not by their CEO, Dr Matjila. The inference by the PIC Commission that the reduction of the size of the transaction from R10-billion to R9-billion may signify collusion between myself and Dr Matjila is totally unfounded given that it was simply one of many requirements imposed by the PIC deal team to adapt the transaction to the requirements of their Investment Committee.

Pursuant to this agreement, the PIC entered into a loan agreement with L101 constituted as described above, not with Lancaster Group, nor with me personally. Lancaster Group is a 25% shareholder in L101 and is only entitled to 25% of any benefit which would accrue to L101.

The L101 shareholders agreement entitled the PIC to nominate two directors, and they duly nominated one full-time employee who was part of their deal team, and one of their non-executive board members who was part of their Investment Committee. In my view it is quite normal for an investor to nominate directors to the board of a company it invests in, and it is also quite standard to source people for these roles from within its own ranks.

To the best of my knowledge I understand that the PIC determines nominations to investee companies at its Board, via a formal process. The suggestion that the member of the PIC Investment Committee who was nominated as a director of L101 had a conflict of interest is at odds with standard commercial practice, and frankly unfair to the individual concerned, and to the other members of the Investment Committee who approved the transaction.

I have noted the commission recommendation that the PIC obtain a legal opinion regarding fees paid to the Lancaster Group by Steinhoff pursuant to this transaction. The fee was publicly disclosed at the time of the transaction, as mentioned in the Commission Report itself. I am advised it would not be appropriate for me to comment further on this issue at this time.

The shareholders agreement of L101 tasked Lancaster Group to create a B-BBEE Trust after the completion of the transaction and to transfer 25% of Lancaster Groups shareholding in L101 to the B-BBEE Trust. The Trust was specifically designed to be a means of funding social and enterprise development activities that promote the interests of black people. The Trust was not intended to provide benefits to any individuals nor to serve as an investment vehicle for any BEE groups. In the course of establishing the Trust, the lawyers of L101 highlighted the financial and administrative challenges of current legislation regulating trusts, including the very unfavourable tax treatment afforded to trusts.

They proposed the alternative of establishing the entity, with the same scope and principles, as a non-profit company which would thus enable the entity to retain a greater proportion of its income for its developmental activities. Their proposal was duly considered by the L101 board and shareholders (including the PIC) and approved, with amendments then made to the companys shareholder agreement. As I indicated in my statement to the commission last year, all obligations in respect of the B-BBEE Trust have been fully and properly dealt with in accordance with the Shareholder Agreement.

As part of the transaction, Steinhoff had invited Lancaster Group to become part of a voting pool arrangement, which I had accepted prior to engaging with the PIC. However, at an advanced stage of discussions it was discovered by Steinhoff that the Dutch regulations under which Steinhoff now operated restricted the entry of new members into the voting pool. Accordingly, Steinhoff proposed an alternative, namely, to establish a joint Strategic Forum between Steinhoff, its controlling shareholder, Lancaster Group and the PIC. After careful discussion this was agreed upon, recognising that the Forum could in fact allow for a higher form of strategic participation than may have been available in the existing Steinhoff voting pool.

It was at a meeting of this Strategic Forum that the idea to list Steinhoffs retail assets, acquire Shoprite, and to create an African retail champion, was discussed and supported. This eventually led to the formation and listing of Steinhoff African Retail (STAR).

Pursuant to this decision there was an opportunity to make a further investment in STAR. In order to finance the investment, the Board and shareholders of L101 (obviously including the PIC) proposed that L101 raise new funding from a third party bank. To facilitate that and given the manifest benefits for its stake in Steinhoff, the PIC agreed in its capacity as senior lender to L101 to amend its security arrangements in respect of its loan.

As history records, the underlying assumption of continued high growth in Steinhoff did not materialise. Unbeknown to all including the PIC who had been an investor in Steinhoff for 20 years, those who had sold assets to Steinhoff, myself, many individual investors, sovereign wealth funds, private asset managers, banking institutions and others who invested in it, Steinhoffs apparent stellar track record was in reality a fiction and the result of a long-running fraud.

The Steinhoff share price plummeted as a result of the revelations in December 2017 about Steinhoffs financial misrepresentations. Neither the PIC nor the Lancaster Group were responsible for this state of affairs, and in fact, together with so many other investors, we are also the victims of this financial misrepresentation. As a result, in April 2019, after the publication by Steinhoff of the summary of the findings by the PWC forensic investigation, L101 instituted legal action against Steinhoff for the recovery of the investment made.

PIC has similarly instituted action against Steinhoff for recovery of its direct investment in the company via its Listed equities portfolio. We are engaging with the PIC with a view to recovering what we can under the circumstances.

Whatever else may validly be said, I am comfortable that the transactions described above between the PIC and Lancaster were not only opportune at the time, but also, certainly from my side, entirely above board and at arms length. DM

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My view of the PIC/Lancaster investment in Steinhoff - Daily Maverick

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March 20th, 2020 at 3:44 am

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Fund managers have a message: Cash is king – CNBC

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U.S. dollar banknotes.

Liu Jie | Xinhua via Getty

In the age of coronavirus, cash is indeed king.

That's the view, at least, of many major investors, who are selling everything from stocks to bonds to gold in order to raise cash.

Bank of America Merrill Lynch in its March Fund Managers' Survey indicated that month over month, cash among funds has seen the 4th largest monthly jump in the survey's history, from 4 percent to 5.1 percent. Like buy-side fund managers, sell-side advisors also feel the need to be conservative, waiting on the sidelines for the market selloff to settle.

Jonathan Pain of the Pain Report markets newsletter, who called the selloff on February 24, told CNBC on Monday that he is seeing "a mad rush for cash." The spike in bond yields, with 10-year rising above 1.2% and the 30-year more than doubling in the last few days, marks only the latest way that the typical correlations between assets are breaking down.

"Whatever number you have got, double it. If you are at 10 percent (cash), make it 20 percent."

Gary Dugan

CEO, Purple Asset Management

Gold, a classic "safe" asset, has seen wild swings between $1,450 and $1,550 an ounce, triggering panic selloff by traders looking to liquidate everything they have in order to honor large market positions on borrowed money. Essentially, they need to generate cash to pay for the over-exposed calls that have generated losses.

The big problem for world markets right now is that there just aren't enough dollars to go around.

That's one reason the greenback just crossed the 101.45 mark against a basket of currencies, despite the Fed funds rate going down to near zero. Divya Devesh, Asiaforeign exchange strategist at Standard Chartered, told CNBC's "Street Signs" on Wednesday that even though the Fed has rolled out a $700 billion asset purchase program, the bond market doesn't foresee inflation rising.

Inflation risk is off the table because of the unprecedented crash in oil prices.

The traditional inverse relationship between bonds and stocks has broken in the ongoing selloff. Morgan Stanley in a research note pointed out that the less power bonds have as a hedge for a portfolio, the less overall risk a portfolio should take.

In summary, bonds can no longer cushion portfolios in bear markets where stocks are seeing clear capitulation.

Speaking about desirable cash levels, Gary Dugan, CEO of Purple Asset Management didn't mince his words when he spoke to CNBC on Monday: "Whatever number you have got, double it. If you are at 10 percent, make it 20 percent."

Cash is king not only for investors, but also for businesses. Looking for companies that have strong balance sheets, less debt, stable cash flows and carrying a respectable dividend yield are the preferred plays.

Some fund managers, such as Sat Duhra from Janus Henderson, believe the most attractive sectors in Asia are REITs, telecom and infrastructure assets. "These sectors remain favored in times of extreme volatility and sharp market draw-downs, given their defensive nature," he said.

All that said, there certainly are a lot of contrarian bets out there.

Other assets that are drawing investor interest include China A-shares. The Chinese yuan both offshore and onshore is also gaining investors.

Some analysts say outright that they don't feel cash is such a great idea.

"Raisingcash when the S&P 500 is already off 28 percent from its peak doesn't seem the most appropriate strategy now,"Kelvin Tay, regional chief investment officer of UBS Global Wealth Management,told CNBC via email. "Since 1945, the average drawdown in bear markets has been 34.5%."

Applying that calculation to today's markets would imply the S&P 500 index bottoming out at around 2,200 or another 8 percent from current levels. But no one can be certain, of course. Trying to time the market and buy at the bottom is not a viable strategy when the closely followed volatility index from the Chicago Board Options Exchange, the VIX, is at record highs.

Kelvin said he believes the opportunities could lie in the tech sector online companies, e-commerce giants, 5G companies and cloud computing firms could be winners in a further market retreat.

That would be a "smarter" strategy, he said, than raising cash.

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Fund managers have a message: Cash is king - CNBC

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March 20th, 2020 at 3:44 am

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Coronavirus and retirement savings: What to do with your investments – Fox Business

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World Travel and Tourism Council CEO Gloria Guevara says she fears coronavirus are closing down major metropolitan areas, which is putting a huge dent in the travel industry.

The coronavirus outbreak has sent shockwaves through U.S. markets, leaving many investors concerned about the fate of their retirement accounts.

The Dow Jones Industrial Average has fallen nearly 30 percent duringthe past month, while the S&P 500 has declined more than 25 percent over the same timeframe ending the longest-running bull market in history.

While the number of so-called 401(k) and IRA millionaires hit a record 441,000 as of February, according to Fidelity, its likely that number has been on the decline throughout recent weeks.

So what should concerned investors do with their retirement accounts?

First, dont be a masochist and look at your 401k right now, Greg McBride, chief financial analyst at Bankrate.com, told FOX Business. Youll get your quarterly statement in April and that wont be a lot of fun, but that also may be an opportunity to rebalance your portfolio.

For most, rebalancing involves selling a little of what has done well and buying more of what has not, McBride said, the well-known strategy of buying low and selling high.

MNUCHIN SAYS WHITE HOUSE WORKING TO SEND $1,000 CHECKS TO MOST AMERICANS WITHIN 3 WEEKS

US JOBLESS CLAIMS SURGE AS CORONAVIRUS WEIGHS ON ECONOMY

For older Americans closer to retirement, the situation may mean something a little different, and the stock market tumble points to the exact reason why these individuals should have a diversified portfolio.

Having the first several years of withdrawals bucketed separately in cash and conservative bonds allows you to ride out a bear market, according to McBride.

As previously reported by FOX Business, it is prudent for Americans of all ages to have a financial plan in place. That plan should include having cash readily available in case of emergencies. It should also include safe money on which investors take less, or no, risk, which can be used on planned expenses. And money in tied up in the stock market should be intended to stay there for the long-term.

Having a diversified portfolio generally means downturns and losses have been taken into account and investors should not be making many adjustments or worrying.

Having a plan will also make your results more predictable, Greg Hammer, CEO and president of Hammer Financial Group, previously told FOX Business. Thats why it may be worth sitting down with an expert to proactively plan for these events, based on your individual circumstances and needs.

Overall, its important for workers to understand that, even though the market is extremely volatile right now, it will eventually normalize.

Investors need to maintain their long-term perspective, McBride said. Its extremely jarring but the situation that prompted this is temporary. Dont let any short-term temporary situation affect your long-term financial security.

And the good news? For those still working who have a 401(k) account, you are automatically investing every pay period and getting better prices than you were one month ago, McBride pointed out.

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March 20th, 2020 at 3:44 am

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How to Respond to the Coronavirus Situation From an Investments Perspective – D Magazine

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Even the most seasoned investors have watched the recent swift decline in the stock market with a bit of wonderor horror. Bear markets are a well-documented part of normal stock market activity, yet they still seem to surprise investors whenever they happen.

Right now, you are being told not to do many things, which may make you want to do somethinganything. When the information updates and the financial markets are moving as quickly as they are right now, it can be challenging to find a strategic move to make, especially when the age-old advice is to stay invested through good times and bad.

We spoke with wealth management expert Debra Brennan Tagg about investment strategies to consider during the COVID-19 crisis. The Brennan Financial Services president said, While the upside potential of the stock market is what lures us, we should recognize those big downturnsbetter known as bear marketshave their place.

They remind us that investing is not a risk-free proposition and that no one knows the direction of the market in the short-term. More importantly, investing does not have a one size fits all answer. What is right in my portfolio should have no bearing on what is appropriate in your portfolio since we have different life goals. Now that we are in a bear market, here are five ways you can use it to your advantage.

Here are five strategies to consider, including one major mistake to avoid.

Your financial plan should be specific to you, your risk and resources, and your life goals. While the risk for all of us is elevated during this uncertain time, the structure of your financial plan should guide you to continue to make sound financial decisions.

Editors Note: Debra Brennan Tagg offers securities and advisory services through FSC Securities Corp. (FSC), member FINRA/SIPC, and financial planning services through DBT Wealth Consultants. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Listed entities are not affiliated with FSC. The views expressed herein are not necessarily the opinion of FSC Securities Corp. and should not be construed as an offer to buy or sell any securities mentioned.

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How to Respond to the Coronavirus Situation From an Investments Perspective - D Magazine

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March 20th, 2020 at 3:44 am

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Coronavirus investing strategy: How to profit with stock index options – Business Insider Nordic

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When the US economy showed signs of vulnerability in October, James McDonald took special notice.

The CEO and chief investment officer of Hercules Investments saw the first indication of possible risk to markets when a key gauge of manufacturing activity shrank for two straight months.

At the time, the S&P 500 was in a bull market that was unprecedented in its duration and gains. Also, the Cboe Volatility Index, known as the VIX, was near historic lows, showing that investors expected the good times to persist.

But then came the coronavirus, which was so crippling to the global economy that investors could not shrug it off as they had the manufacturing slowdown, Hong Kong protests, and impeachment trial. Volatility blew up as investors realized that normal life was grinding to a halt across the globe.

McDonald was ready for this. He is among the investors who have cashed in the market's turmoil, thanks to strategies he adopted ahead of time to profit from this kind of volatility.

"In my 26 years, I've never had a trading strategy that has had as much consistency and safety," he told Business Insider.

Back in October, his firm, which manages $150 million in assets, engaged its High Sigma strategy purchasing out-of-the-money call options on the ProShares Ultra VIX Short-Term Futures ETF that profits from higher expected stock-market volatility.

The underlying ETF's price went from about $11 as the S&P 500 peaked on February 19 to above $126 on Wednesday a gain of more than 1,050%.

As a result, McDonald's options trades that bet on this price trajectory have paid off handsomely.

That strategy is over, McDonald said. He is now shifting to what he calls a Gamma Yield strategy that's designed to take advantage of excess volatility and fear in the market.

The strategy monetizes these emotions by selling Cboe-listed options on the cash indexes for the Nasdaq 100, the Russell 2000, and the S&P 500.

His rationale is that options earn part of their value from anticipated price changes in the underlying security. And so the more fear exists in markets, the better the strategy performs.

"As long as there's fear in the markets, these premiums are going to stay high," he said. He added, "I think we can run Gamma Yield all the way to the election."

A cursory look at the stock market's moves during the past couple of days demonstrates why these options have been so profitable. Quadruple-point moves on the Dow Jones Industrial Average have been commonplace since late February, for example. Consequently, these options have become more valuable to account for the wide range of possibilities that traders are pricing in for the future.

"We've done over 700 trades, and every single one of them has been profitable," McDonald said. "We have not had a single loser because of this environment and it makes no sense to do anything else at this point. We're focused on capturing the unique opportunity that we have."

He said the gains of each trade averaged out to 60% to 90%.

McDonald sees no reason to invest any other way for as long as the market is in free fall. He expects volatility to eventually normalize, just as it departed from its normal historical range. But buying index call options should remain profitable all the way through the election because smaller pockets of volatility are likely.

"If we can find a vaccine, that will be great," McDonald said. "But it's not going to erase the negative revenues and the negative industrial output probably for Q2."

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Coronavirus investing strategy: How to profit with stock index options - Business Insider Nordic

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March 20th, 2020 at 3:44 am

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Liquidity Impacts on Fixed Income ETFs and Passive Investing – S&P Global

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Equity markets have fared reasonably well aided by liquidity in ETFs, as my colleague Craig Lazzarahighlights. Steep discounts to net asset values (NAVs) on popular fixed income ETFs are bringing an onslaught of doomsday projections. But while the signs of stress are evident, its important to decouple the dysfunction of the bond market from the investment product as well as the managers skill.

Let us first consider the market context. The rise of interest rate, credit, and volatility risk waspreviouslydiscussed as theS&P U.S. Treasury Current 10-Year Indexyield fell below 1%. Yields then halved and are now bouncing between 0.5% and 1%. Treasury bid-ask spreads were reported to widen to beyond 1 point and NAV discounts were seen in treasury and credit ETFs. Despite that illiquidity, fixed income ETFs experienced their largest daily volume in treasury and credit sectors. Liquidity is a premium. The Cboe/CBOT 10-year U.S. Treasury Note Volatility Index hit its highest point since the end of Lehman Brothers. This measure, along with its credit and swap variants, highlights the stress experienced across the fixed income markets.[1]

In terms of measuring the impact of these shocks on ETFs, Andrew Upward at Jane Street produced agreat historical summarythat was covered in a recent S&P Globalwebinar. In times of credit stress, the discount as a percentage of NAV reflects the price buyers are willing to pay. In recent days, the largest investment-grade and high-yield ETFs traded at over a 5% discount. This could be misinterpreted as a sign a credit ETF isnt functioning well. There are a few critical points to counter that view. First, prices in the over-the-counter bond market are typically shown as request for quoteas soon as one wishes to sell at an advertised price, the trader showing the bid can remove it. The fact that an ETF has an executable price goes well beyond the unwilling participants in the OTC market. The second critical point is the latency in NAV calculation. As an index provider, we pride ourselves on using independent transparent pricing. These price providers play a heavy role in NAV calculation and are often referred to as price evaluators, since they are providing their evaluation on what the price of a bond should be on a given day. Having an independent resource is critical for the index and fund administration community. But they are not employing exacting measures to determine the price of a bond that may or may not have traded that day. The last point is a timing issue; the official index closes at 3PM, while the ETF and its NAV close at 4:00PM. This also causes a mismatch to NAV during times of volatility.

In the webinar, Bill Ahmuty, Head of SPDR Fixed Income Group at State Street Global Advisors, spoke about how fixed income volumes tend to grow during times of stress, while the underlying cash bond market volume tends to shrink. It appears that ETFs fulfill a critical need of liquidity when liquidity is needed most. ETF structure lends well to this, as investors can trade ETF shares without having to source the individual bonds. This only works to the extent that buyers and sellers can match their trades. Once they are matched, the liquidity must be met by the underlying bond market. As the fixed income ETF market grows, it has a better opportunity to meet or improve liquidity, similar to the equity market.

Finally, as investors look for those who successfully navigated these markets, the active versus passive debate will return. While that argument may be over for equity, new index-based strategies are proving their worth in fixed income. We will cover passive strategies and their performance in upcoming posts, but now, we want to highlight how theS&P U.S. High Yield Low Volatility Corporate Bond Indexhas outperformed its benchmark by 2.4% YTD.

While fixed income ETFs have largely performed in line with this market, the growth of secondary market trading will continue to help face future liquidity needs.

[1]For more information on this topic, please see the S&P Global webinarMeasuring Fixed Income Volatility.

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March 20th, 2020 at 3:44 am

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Are you brave enough to buy these three bargain investment trusts? – Telegraph.co.uk

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Most investors know the old adages: Never waste a crisis andbe greedy when others are fearful. But acting upon them is a different challenge entirely, especially when markets are so volatile. But brave investors can find bargains by looking forinvestment trusts that have opened up unusually widediscounts.

Michael Lindsell, of fund groupLindsell Train, recently topped up his holding in his own Lindsell Train Investment Trustafter it hit a rare discount. For fellow bargain hunters, we have uncovered the trusts that seen some of the biggest discount increases as a result of the coronavirus-induced market fallsand are "cheap" compared to historic levels.

By investing in fast-growing biotechnology companies, this fund tries to find the next big medical breakthrough. But this is risky and its share price can fluctuate significantly onthe back of positive of negative tests from the stocks it owns.

Its discount, which measures the difference between the share price and the value of the underlying investment each share buys,fell ninepercentage points in the past three weeks, to 14pc. This means to buy 1 in the trust, investors would only need to spend 84p.

A trust is seen as cheap when its current discount is higher than the longer-term average. International Biotechnology Trust's one-year average discount is 1pc and three-year average is 2.5pc. This means it is extremely cheap compared to normal levels. It yields around 2.5pc which helps compensate for some of the stock market risk.

This giant 2bn trust invests in emerging economies around the globe but has been shunned by investors on the back of fears over poor economic growth and a crash in oil prices. Its discount fell by 7 percentage points in the past three weeks and it is now at 17pc. This iscompared with a 12pc three year average.

Investors that are positive about the long-termprospectfor Asian economies could view this as an attractive entry point. The fund has 25pc in China, 15pc in South Korea and 10pc in Taiwan.

Managed by Simon Barnard but part of famed fund manager Terry Smiths Fundsmith, this trust owns small and medium-sized companies from around the world.

Its discount has grown by around 9 percentage points in the past three weeks and it is now at 6.5pc. It has traded on an average premium of 3pc since it was launched in October 2018, reflecting the strong reputation of Terry Smith and the funds excellent performance to date.

Smaller companies are normally more vulnerable to economic shocks compared to larger firms, but come with greater growth prospects. Investors that have faith in Terry Smith's investment process could capitalise on the market sell off to buy high-growth companies at a rare discount.

Annabel Brodie-Smith, of the AIC, commented: Of the investment companies whose discounts have widened the most during the recent market sell-off, a large number invest in Asia and Emerging Markets, demonstrating investors anxiety about the threat of the coronavirus to the region.

"Other hard-hit sectors include those focused on growth, such as smaller companies and technology."

Continued here:
Are you brave enough to buy these three bargain investment trusts? - Telegraph.co.uk

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March 20th, 2020 at 3:44 am

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Coronavirus Crash: Where to Invest $2,773.48 Right Now – Motley Fool

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There's a saying in the investment world that in a bear market, all stocks go to a correlation of one. That basically means that in times of market panic, investors sell everything, almost regardless of business quality or resilience. It's not that everything goes down by the same amount, but very rarely will great stocks go up when the market is plummeting like it has been.

That's why investors looking to be greedy when others are fearful may want to consider Amazon.com (NASDAQ:AMZN) at 1,689.15 per share, and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) at $1,084.33 per share at this moment of discounted market prices. Those companies' share prices are down 22.7% and 29.2%, respectively, from their recent all-time highs. Yet both companies' resilience and long-term outlooks remain as bright as ever.

Amazon and Alphabet look like ideal buys right now. Image source: Getty Images.

My current criteria for buying stocks amid this market plunge are:

E-commerce and cloud leader Amazon checks off each of those boxes. As we all know, Amazon is the leader in e-commerce, with about 37% of the market. Yet e-commerce itself only made up about 11% of all U.S. retail last year. That means despite Amazon's massive size, it still has room to grow in its core e-commerce segment.

Amazon is apparently seeing a surge in demand during the outbreak, as people stay at home and inundate the Seattle giant with orders for consumer staples.

In a recent blog post, Amazon reported being completely sold out of certain in-demand household items. In addition, Amazon's characteristic lightning-fast delivery has seen delays recently, as the company's capacity becomes stressed by overwhelming demand.

While these aren't positives, they are certainly better than the alternatives faced by airlines, oil companies, and brick-and-mortar retailers, which is extremely low demand. In addition, Amazon is on the case, pledging to hire 100,000 new full- and part-time positions, in order to both fulfill the new demand and help displaced workers from restaurant and hospitality industries who may be laid off. Not only that, but Amazon is raising its hourly pay by $2 per hour through April. The total incremental cost to Amazon will be roughly $350 million for employee pay across the U.S., Canada, and the E.U.

If Amazon comes out of the crisis looking like the essential infrastructure company that it is, it may not only boost its brand image among customers, but also politicians, staving off potential antitrust pressure from Washington this election season.

Of course, Amazon is not only about e-commerce. It's also the parent company of Twitch, the streaming e-sports and online community site, which should no doubt see increased traffic during this time. That's in addition to Amazon Prime video streaming services, whose content won numerous awards at this year's Emmy's with its hit comedyFleabag.

And of course, Amazon Web Services should do nothing but gain in importance during this critical time. In the current environment, the need for a flexibly distributed yet secure workforce becomes even more front-and-center, making cloud computing of the utmost importance. As the dominant leader in cloud computing, Amazon is poised to benefit. In this trying time, AWS is offering credits to customers in the most affected areas, and is also assisting many life sciences companies in the race to find a cure or vaccine for COVID-19.

This all adds up to increased demand for Amazon's overall product and service portfolio, making the company a long-term buy at these discounted levels.

Another company filling out my three criteria is Alphabet. No doubt, with many staying at home for long periods, consumers today will be using lots of Google search and watching YouTube videos at home. Still, that doesn't mean Alphabet will see increased sales. A majority of Alphabet's revenue comes from digital advertising, so it would certainly feel the affects of any COVID-19 economic slowdown.

No one is disputing that Alphabet's ad revenue growth will likely take a hit; however, Alphabet saw its ad revenue, between search, YouTube, and third-party properties grow 15.7% last year. In addition, 2020 was supposed to be even stronger, thanks to political advertising and the Olympics. Therefore, it seems Google's ad growth is only likely to slow, not reverse -- though there may be considerable uncertainty as to how much.

Yet while 2020 ad growth may be severely impacted, once the economy starts going again, Google search will still be the premier ad platform across the world, and YouTube will continue the torrid growth exhibited last quarter, when Alphabet revealed YouTube stand-alone revenues for the first time.

In addition, investors may be overlooking Alphabet's two other prized assets-- its Google cloud platform and its balance sheet. As of Dec. 31, Alphabet had roughly $120 billion of cash ready to deploy on either share repurchases or acquisitions.

Meanwhile, Google's cloud division grew a whopping 52.8% in 2019 to $8.9 billion, or 5.5% of revenue, but the underlying Google cloud platform infrastructure-as-a-service segment grew even faster than that. Google is a distant third-place challenger in the cloud race, but research firm Canalys estimates GCP grew 87.8% in 2019, faster than any other platform and increasing its market share from 4.2% to 5.8%. As mentioned before, nimble cloud operations will continue to be in high demand going forward, benefiting all cloud players, Google included.

Alphabet is a huge, strong company likely to only see a growth deceleration, not a growth decline, even in a recession. With a newly discounted stock price, investors should monitor whether the company will drastically increase its pace of buybacks. Either way, with a boatload of cash and a P/E ratio of just 22, Alphabet looks like an awfully big bargain at the current moment.

In times of great uncertainty and widespread market panic, it's probably wise to focus on the verybest stocks in the market and hold for better times ahead. Today is one of those times.

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Coronavirus Crash: Where to Invest $2,773.48 Right Now - Motley Fool

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March 20th, 2020 at 3:44 am

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Investing in the Time of Coronavirus – Motley Fool

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Alison Southwick and Robert Brokamp, CFP

Mar 16, 2020 at 12:52PM

It's been stressful as countries work to contain the spread of the coronavirus. Motley Fool analyst Bill Mann joins us to share his insight into the top headlines as well as how he's managing his money amid the volatility.

To catch full episodes of all The Motley Fool's free podcasts, check out ourpodcast center. To get started investing, check out ourquick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Feb. 28, 2020.

This video was recorded on Feb. 28, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Bertie Brokamp. I've already called you that one, haven't I?

Robert Brokamp: You're running out because there are only so many things you can do.

Southwick: Personal finance expert here at The Motley Fool. Hello, Bro.

Brokamp: Well, hi.

Southwick: In this week's episode... Well, it's been a doozy of a week for everyone as investors [and the world, at large] try to deal with the spread of the coronavirus. Joining us, in-studio, to help make sense of the headlines is Bill Mann. Hi, Bill...

Bill Mann: How are you?

Southwick: ...analyst at The Motley Fool. All that and more on this week's episode of Motley Fool Answers.

__

So, Bro, what's up?

Brokamp: Well, we're going to talk about stocks a little later. They're not up, but I will tell you what is up because something else is down. As the stock market goes down, often people flee to the bond market driving bond prices up and driving rates down. So the 10-year Treasury, as of this taping on Friday -- so a few days before this episode comes live -- is at 1.15%, an all-time low. The 30-year Treasury is at 1.66%, another all-time low. We've never seen rates this low.

When rates go down, the prices of existing bonds go up. The Vanguard Total Bond Market ETF -- an ETF that I own a little bit of -- was actually up 3.5% this year doing its job -- going up as stocks go down. Over the past year the bond market is up almost 11%.

If you asked anyone a year ago if they would expect 11% from the bond market they would have said no, but that's where we are.

What does this mean for your personal finances? Well, first of all, mortgage rates are also down, so the rate on a 30-year mortgage, according to Freddie Mac, is 3.45%, only a little bit above the all-time low of 3.3% is from 2012.

Mann: Amazing.

Southwick: Giving it away.

Brokamp: Just giving it away.

Mann: Come get a house!

Brokamp: Exactly. So that's good. Now what this also means is probably at some point the Fed's going to cut rates. It was just a few weeks ago when Fed Chair Jerome Powell was saying, we're probably where the rates are this year. Don't expect anything. Now the markets are predicting, with about a 90% chance of certainty, that there will be at least one rate cut and maybe three this year.

Southwick: Whoa! Bill's ready to pull the trigger on saying something.

Brokamp: How much is that going to help, Bill?

Mann: I'm a very simple bear and maybe I'm not creative enough to think about this; but, ultimately markets are dropping and the 10-year, which is a great fear gauge -- maybe even better than the VIX -- is skyrocketing. What good is a rate cut going to do when you're talking about a health scare? Is it going to make people less afraid? This isn't a financial crisis.

Brokamp: Right, and I don't have the answer to that. Part of it is psychological. When you read the articles of people saying the Fed shouldn't even wait until the March meeting -- they should cut now -- it's just to reassure folks that they're on top of it.

Southwick: Whatever "on top" that means.

Brokamp: Whatever it means.

Mann: Does a quarter point rate cut come with a mask?

Southwick: We're doing things, OK? We're doing stuff. Get off our back. We're very busy.

Mann: Actions are happening.

Southwick: They're just running around waving their arms.

Brokamp: Practically speaking, what this means is to the extent that you can earn anything under cash, which is not very much, it's going to go down. What you can do now -- and I think it's probably worth considering -- is buy a one or two-year CD to lock in today's low rates before they go lower. That's what's going to happen. That's the one thing that occurs to me -- is that those are going to go down. Also other types of loans will be cheaper. Maybe it's a better time to buy a car. It might mean that you...

Mann: But you can't talk to people.

Brokamp: That's true. Just stay in the car. Don't get out of it, ever.

Mann: Just beep your horn until someone brings you another car.

Brokamp: Hopefully credit card rates will go down. We talked last week about how much the level of credit card debt is at an all-time high. The average rate, now, is between 17-21%. Maybe that will go down and be helpful. But for the most part I agree with you. There's only so much that the Fed can do at this point.

And that, by the way, is what's up.

[...]

Southwick: So it's been a rough week [on Wall Street and around the world], to put it lightly, and so we thought we would have Bill Mann come in. He's an analyst at The Motley Fool. He's been an analyst with The Motley Fool for a while, now.

Mann: 633 years.

Southwick: 633 years.

Brokamp: Which must be the same because Bill and I started on the exact same day.

Southwick: Oh, no way!

Brokamp: Yes.

Southwick: I didn't know that.

Mann: Yeah.

Brokamp: We have the exact same Fooliversary.

Southwick: Oh, that is fun.

Mann: That was either one of the greatest days in Fool history or the worst.

Southwick: Did anyone else start with you guys?

Brokamp: Rich McCaffrey, who's no longer here.

Mann: Yes, who was a great guy and a great analyst. I miss him terribly.

Brokamp: He moved to Morningstar and then Legg Mason. Is he still alive? Hey, Rich, how are you doing?

Mann: That's terrible. He's doing great.

Southwick: I think it's obvious we want to talk about anything other than the stock market this week, so let's talk more about Rich. What's his favorite color?

Brokamp: Great guy. Lovely wife.

Southwick: So woof, it was a rough week for Wall Street and the global markets. As of today I believe the Dow has dropped for seven straight days, but who's counting? There's been a lot of crazy headlines out there, so Bill's [here] to help us dissect the headlines and hopefully feel better about ourselves. Today is Friday. For our listeners it's [next] Tuesday.

Mann: Yes, so the market can't drop tomorrow.

Southwick: Not for us, but for our listeners it can.

Brokamp: Yes.

Southwick: Who even knows what's going on in the world when they're listening to this? I don't know. Maybe they're living off of tin can food and stockpiling guns. I don't know what's going on this coming Tuesday. It's gonna be chaos, maybe. No, it's not. It's all going to be fine.

Bill, thank you for joining us today. Should we open up the newspapers and see...?

Mann: You actually should. I think this is one of those situations... There's something that I always find so interesting [with] our leaders. With journalists. To be responsible [with] most crises they don't want to make people panic. But at some point you don't want people to underestimate what's happening, either, and there's this interesting inflection.

I think that's what happened this week. We went from it's the flu. It's not as bad as any of the other things that turned out not to matter that you had to remind yourself [about]. This actually is worse.

Southwick: Let's look at the top of The Wall Street Journal this morning, this morning being Friday in our world. The big headline was, Stocks on Track for Biggest Weekly Losses Since 2008. Oh, 2008 was the worst.

Mann: That was the worst.

Southwick: Bill, take us back.

Mann: It's been the quickest that we have moved from a top into a correction in history.

Southwick: Which is a 10% drop, right?

Mann: A 10% drop. I think these sort of demarcations are silly, but they exist so let's use one. To me, we talk about coronavirus as it is an epidemic or pandemic, but we also have to think of it as being an economic incidence, and the economic incidence, in this case, is going to be worse than the actual disease will turn out to be. I think for most situations you want to just shrug and say I don't know what's going to happen, but what is going to happen is that fairly heroic measures are going to have to be taken to stop the spread of the disease and that's going to hit supply chains everywhere.

Southwick: It's like the effort to keep it from spreading is what's hurting the economy. It's not the actual impact of so many people being sick. It's us trying to keep it contained that's what's doing it. I think you said it on one of the other shows -- or maybe you just said it aloud...

Mann: Hey, there are no other shows out there. This is the show.

Brokamp: The lesser shows.

Southwick: The lesser shows. I think you commented that you were kind of surprised that it took so long for the stock market to react. Why is that?

Mann: I think it goes back to how people are primed to not panic. And I think that's really the case in the midst of a bull market. I mean good news tends to be overemphasized and bad news tends to be hand waved away, a little bit, until it becomes self-evident that it really is bad and impactful.

China was already locked down in the middle of February. Factories were closed and the market was still hitting all-time highs. I just had to ask myself what's going on here because, in other times, really small events have made the markets react very sharply, but in this case the country that is literally the center of global manufacturing was closed for business and we're like, "Well, it seems OK."

Southwick: It's a whole town. Not even a town. It's a city of millions of people being told, "You can't leave your house."

Mann: It's essentially the country. We get reports from Beijing and from Shanghai where traffic, right now, is 3% of what it usually is. These are word-of-mouth reports, but the eyes on the streets are saying that the country is ground to a halt. And just to highlight how impactful this can be, Dun & Bradstreet did a study and showed that of the Fortune 1000 companies worldwide, about 163 have a Tier 1 relationship with Chinese suppliers, which means that Chinese suppliers directly supply things to them. But nearly all of them, 938 have a second-level relationship with a supplier in China. So any type of interruption of the supply chain will really impact companies that we would think about.

Southwick: Let's start by talking about the sectors that are going to be the hardest hit. We can head over to CNN who's saying that, "The global travel industry may not recover for years."

Initially we saw a cruise ship quarantined in Japan. We see the people waving from their balconies. And the initial headlines were like the cruise industry is really going to take a hit. As if, "Oh, no. My portfolio. The cruise industry. I'm so overexposed there. This is going to be bad." Then people were like, "Oh, wait a second. l travel. Maybe I shouldn't even go on a plane. I shouldn't go on a vacation." Now companies are telling their employees to cancel all their business trips. You're not flying anywhere.

Mann: Yes. Apple just cancelled a conference. Microsoft just cancelled a conference. And these were conferences that were happening in April and in May. So it is deeply impacting the travel industry.

To go back to China -- and I understand that by Tuesday these points are completely meaningless because it's already in 56 countries -- Chinese travelers made 150 million overseas trips in 2019 and right now it's functionally zero. And when most things go from 150 million to zero, that seems bad. So the travel industry is being impacted in really harsh ways. Take Apple, for example. If you can't get an iPhone, right now, because of a supply issue, you're going to get it when the supply becomes available. But a trip -- that's not something that's going to get consumed again later. It's just simply not happening. So any company that has a lot of debt and a lot of leverage -- in many different ways -- is in a lot of risk right now and travel is probably at the top of the heap.

Southwick: Are there any other sectors that you [think] are going to be in trouble?

Brokamp: The price of oil has plummeted. Absolutely plummeted.

Mann: Yes, the oil manufacturers. The luxury industry simply because of where they count on most of their growth coming from. From China. From the Middle East. Those types of companies are going to feel the pinch.

But [take] the pharmaceutical industry, all of the basic ingredients for pharmaceuticals tend to be made in China and in Asia, now. Just the basic materials. And if those are unavailable, that's a big problem.

Southwick: Let's talk about some individual companies. CNBC today had the headline, Apple is now down more than 20% from its record, making it among the hardest hit Dow stocks. And so Apple and Microsoft are among the most prominent businesses that have warned that supply chain disruptions could slow sales. What's funny, though, is if you actually look at Apple's chart, it's $270.

Mann: Thank you.

Southwick: That's where we were in December.

Mann: Exactly. First of all, everyone just take a deep breath. It's so easy to get wound up. I feel like what we were just doing is getting people wound up. Just keep in mind that Apple, Microsoft, and companies like that are coming down a lot because they have had unbelievable runs in their share prices. Apple has essentially doubled over the last year -- and that's hard to do when you started as a $600 billion company -- so any type of disruption for Apple had no bad news priced in.

Yes, it's a fact that Apple has dropped 20% but this is not a crisis. You're back to where you were in December, so thank you for putting it that way.

Southwick: You're welcome, although I am a little bummed to see Disney is also down 20%, but I guess people aren't going to go into the parks except for the Southwicks. We're going to Disney World in three weeks.

Mann: The Manns are on our way, too, in April.

Southwick: Are you really?

Mann: Yes, so what I'm saying is...

Brokamp: Shorter lines is what you have, too.

Mann: Yes, that's good. That's also good, but the way we tend to go there is just buy Disney now because we're leaving all of our money.

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Investing in the Time of Coronavirus - Motley Fool

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March 20th, 2020 at 3:44 am

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