Nobody Knows II [PDF] (Oaktree Capital Management)









These days, people have been asking me whether this is the time to buy. My answer is more nuanced: it’s probably a time to buy. There can be no unique time to buy that we can identify. The only thing we can be sure of today is that stock prices, for example, are a lot lower in the absolute than they were two weeks ago.

Will stocks decline in the coming days, weeks and months? This is the wrong question to ask . . . primarily because it is entirely unanswerable. Since we don’t have answers to the questions about the virus listed on page two, there’s no way to decide intelligently what the markets will do. We know the market declined by 13% in seven trading days. There can be absolutely no basis on which to conclude that they’ll lose another 13% in the weeks ahead – or that they’ll rise by a like amount – since the answer will be determined largely by changes in investor psychology. (I say “largely” because it will also be influenced by developments regarding the virus . . . but likewise we have no basis on which to judge how actual developments will compare against the expectations investors already have factored into asset prices.)

Instead, intelligent investing has to be based – as always – on the relationship between price and value. In other words, not “will the collapse go further?” But rather “has the collapse to date caused securities to be priced right; or are they overpriced given the fundamentals; or have they become cheap?” I have no doubt that assessing price relative to value remains the most reliable way to invest for the long term. (It is the thrust of the whole discussion just above that there’s nothing that provides reliable help in the short term.)


So, especially after we’ve learned more about the coronavirus and developed a vaccine, it seems to me that it is unlikely to fundamentally and permanently change life as we know it, make the world of the future unrecognizable, and decimate business or make valuing it impossible. (Yes, this is a guess: we have to make some of them.)


Buy, sell or hold? I think it’s okay to do some buying, because things are cheaper. But there’s no logical argument for spending all your cash, given that we have no idea how negative future events will be. What I would do is figure out how much you’ll want to have invested by the time the bottom is reached – whenever that is – and spend part of it today. Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left (and hopefully the nerve) to buy more. That’s life for people who accept that they don’t know what the future holds.

But no one can tell you this is the time to buy. Nobody knows.


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