Larry Berman's Top Picks
When the markets are expensive, as value investors we simply need to take less risk. I’ve been saying this for a while — maybe for too long.
I never in a million years could have forecast the COVID-19 black swan. The initial response from Wall Street was mind-numbingly stunning. It wasn’t an issue, according to the U.S. president. So many people told us that more people die from the seasonal flu and that we should go about our ways. To those people, I have words I can’t print.
Maybe it was my conservative nature. I look at the risks before I consider the returns, subscribing to the financial fiduciary Hippocratic Oath of "first, do no harm."
Looking at past periods of extreme market risk, the 2008 post-Lehman bankruptcy period can teach us a lot. Volatility is expected to stay elevated for a few more months if the 2008-2009 playbook is a guide. The VIX measures what options writers expect in terms of daily swings. A normal long-term volatility reading is a VIX level around 15 per cent annualized, implying a day-to-day move of less than 1 per cent ("sleep-at-night" levels). Currently the VIX is about 80, an implied day-to-day swing of 5 per cent. In past crises, the VIX has stayed elevated (above 40) for several months. We’ll know the worst is behind us when it drops below 40 and not until then.
My best recommendation for BNN Bloomberg viewers is that they should spend the next few weeks researching some of the things they want to own for the next 10 or 20 years. For me that means focusing on tech, as my top picks show.
These are all names I will add to portfolios as value develops. At recent highs, they all cost and arm and a leg. Today, they are an elbow and a knee, which is a bit better, but we’re not there yet. Patience trumps anxiety. Keep healthy distance and carry on.
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