Difficult, but, above all, strange. This is how we could define the situation that we are experiencing globally. We could even say that it seems so distant or surreal that we hardly believe it is happening. Or better yet, that we are going to wake up tomorrow and see that it was all a bad dream.

Most people in an entire country, several countries, have had to shut themselves away in their homes to help contain what is causing so much disruption to society and the economy: the so-called Covid-19. The infectious disease caused by the coronavirus most recently discovered with the outbreak in Wuhan, China, last December is spreading around the world.

Right now, if one thing is clear, it is that we all have a challenge ahead of us: we must be responsible and, above all, calm. Although it’s true that’s not always easy. We are faced with a great deal of information at all times, we may even feel incapable of expressing our state of mind, and we can address our fear in the face of a situation as unusual as it is unfamiliar. And all this requires a special effort to be able to cope.

As a consequence of what is happening, it was to be expected that we would see the stock markets react negatively, suffering heavy falls, making the situation even more complicated, especially for savers who are invested in equities.

The coronavirus crash caused Wall Street to lose 14% in its worst week, the last week in February, since the 2008 crisis. In March we saw three daily falls that are already among the 15 worst since 1946, and in magnitude have only been exceeded once, in the 1987 crash.

The Ibex-35 also had its worst trading day ever on 12 March, with a 14% drop.


Various actions by politicians and central banks, sometimes insufficient and contradictory, are being taken to revive the economy and so that further panic does not spread in the stock markets: liquidity injection, purchase of assets, increase in healthcare expenditure, compensation for lost income to families and businesses, etc.

In short, the perfect storm. 

But fear was never a good guide, especially when it is unjustified. This is not the first time that we have experienced moments of uncertainty and their consequent negative overreaction in the markets. For example, geopolitical tensions or macroeconomic situations that caused the oil crises, the financial crisis of 2008 or more recently the trade war between the US and China or Brexit. Also looking back at epidemics such as SARS in 2003, Swine Flu in 2009 or Ebola in 2014, among others. They all had a big impact.


However, we’ve seen the reaction of the market once the epidemics suffered in history have been overcome: an average recovery of the American index of 9% in six months and about 14% in one year.

Running away now would be a big mistake

Naturally, in very volatile situations, the primary biological reaction of the human being is to flee at full speed, to get away from danger. In the stock market, running away at that precise moment is a big mistake, one of the worst decisions that an investor can make when faced with a fall in the markets, as it means closing the position and consolidating losses at the worst moment.

The current fall in stock markets reflects the fear of the economic impact of the Covid-19 pandemic. There is no doubt that there will be an impact, but we are also sure that it will be temporary and that it will be an impact from which we will recover.

And, as we all know, calm always comes after the storm. After a situation like the current one with sharp falls in the markets, everything goes back to normal and then there are strong recoveries. Irrationality and unjustified falls are always an opportunity to buy at very attractive prices.

Such is the market in the short term, so capricious and manic-depressive, as our good friend Warren Buffett would say. And in the face of this, there is nothing like being prepared for the volatilities that occur within it. Today it is the coronavirus that punishes us in the short term, but nothing should make us lose sight of our goal: the long term.

At Cobas we feel fully prepared to face these unexpected ups and downs like so many others that will surely come. It gives us great peace of mind to know that around 80% of our current portfolio should not be affected by a possible recession, although stock prices may eventually suffer, which only highlights their undervaluation. Most of the companies in which we invest are very conservative due to the very nature of their business, so we have the utmost confidence.

We have acquired in-depth knowledge of our companies after these three years of investment, maintaining 86% of the weight of the top ten stocks in the international portfolio and 78% of those corresponding to the Iberian portfolio. This gives us the confidence that, regardless of market shocks, our companies are good cash flow generators and that they will continue to develop and close the valuation gap with actions that are gradually being carried out within them, such as the distribution of dividends, the repurchase of shares or the restructuring of the company for a better understanding in the investment community.

I insist, these are moments to keep calm, but above all to remain faithful to our investment philosophy and our patience, making thoughtful investment decisions. 

I encourage you to take advantage of this extra time at home to read more and to continue educating yourselves in the field of investment. On the Cobas Youtube channel you can find our value video shorts on various topics where we share our investment philosophy. Value School also makes it easy for us by offering countless articles, reading recommendations, videos and publications in order to provide any saver with investment knowledge.

In short, George Soros was already telling you: “the worse a situation becomes the less it takes to turn it around, the bigger the upside. That’s the way it is, both in life and in the investment world”.

Don’t forget that the patient investor always gets his reward. It’s the frightening concept of being different.

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