You Better 'Sit' Down for This: Recalling Charlie Munger's Advice for Tough Markets
The most common mistake is to constantly try to catch the bottom.
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Tariff and economic uncertainty are weighing on the market on Wednesday morning, once again. The trade war with China is intensifying, and there have been no signs of any negotiation so far. There is hope for trade deals with Japan, South Korea, and others, but the issues are complex, and it will take time to hammer out agreements.
The Magnificent Seven MAGS names are leading to the downside with a loss of 2.4%, while the Russell 2000 small cap index IWM is exhibiting relative strength again with a smaller drop of 0.5%.
Fed Chair Jerome Powell will speak later, and the market will be watching closely for any comments about inflation, rate cuts, slowing growth, and the impact of tariffs.
This is a very difficult trading environment due to the elevated volatility and uncertainty, which makes it a good time to contemplate the advice of the late vice chairman of Berkshire Hathaway BRKA, BRKB, Charlie Munger.
Munger and his long-time partner Warren Buffett are now known for their great patience, but Munger stressed that "sitting on your ass" didn’t mean doing nothing. Munger embraced the concept of active patience. He was always evaluating his holdings and looking for opportunities and potential investments. There was never a rush to buy or sell, but when the time was right, he acted with great conviction. Market environments like we have now are when you should be doing little while actively preparing for what you will do in the future.
This is the best model of action for the current market. This poor price action is creating great opportunities, but it is going to take time for the market to deal with all the negative and uncertain issues. Stocks are very likely to continue to struggle for a while. There is no need to rush in and buy them right now. The job is to actively watch them and understand why they have potential for superior returns in the future. Keep studying the fundamentals and understand the macro environment and how it will impact the stocks you may want to buy.
The most common mistake in a market like this is to constantly try to catch the bottom. That almost guarantees that you will buy at the wrong time, but it is a very hard game to resist. The best time to buy is after there is some stabilization and signs of a shift in market character.
This market stinks right now, but I’m very optimistic about the opportunities that lie ahead. I know if I am patient, I will have a good shot at substantial returns.
One interesting stock I’m watching this morning is Hertz Global Holdings HTZ. Bill Ackman’s Pershing Square filed notice of holdings of 12.7 million shares. Given the impact of tariffs on automobile prices, it might just be an indirect way to buy millions of used cars. The stock has a very large short position and plenty of profits, but may be an interesting short-term trader.
At the time of publication, DePorre long HTZ.
