Market crashes are your friends

If you are patient, that is

Friday’s market sell-off saw the trading value of Big Tech stocks fall by an aggregate $1 trillion, more or less, according to some sources. This weekend’s collapse in the cryptocurrency space saw those foolish enough to buy into the “rat poison” of “crypto” saw another $1 trillion evaporate. Last trade I saw, Bitcoin had fallen about $5,000 a coin. For the total cryptocurrency space, the drop from the peak a couple of years ago is now over a $1 trillion bath for those (like Cathie Wood) who think cryptocurrency is the next revolution in payments.

A trillion here, a trillion there, pretty soon you are talking real money.

With global markets valued at about $109 trillion, the sell-off was pretty small potatoes, except for those traders over exposed to high-flying technology stocks and leveraged with margin loans. Barrons’ reports that aggregate wealth of Americans is about $135 trillion of a total global estimated wealth of some $178 trillion. I have no idea where those data come from or how reliable they are. Notwithstanding, it is fair to say when there is a global stock market rout it is U.S. investors who comprise the majority of those taking a bath.

I am sure it is frustrating for Senator Elizabeth Warren who wants to tax “wealth” when the amount of “wealth” is not known and quite volatile. Her idea may get her votes but it is so adminstratively complex and absurdly difficult to implement, that it won’t raise any meaningful amounts of tax revenue if ever enacted. Since total value of trading on the NYSE (for example) amounts to less than $20 billion, the tail wags the dog of “wealth” estimates.

Volatile markets and major sell-offs create pockets of opportunity. During COVID, prices of companies in the Canadian oil patch hit unbelievable lows, with companies like Peyto Exploration, Birchcliff Energy, ARC Resources, Whitecap and Cardinal Energy trading like penny stocks and even majors like Suncor, Canadian Natural Resources, Cenovus, Imperial Oil and Tourmaline Oil trading at prices that represented a tiny fraction of intrinsic value. While traders were crying the blues and notionally jumping off buildings, investors with the wisdom to know the world wouldn’t come to an end because of a pandemic bought into the sector and made enormous amounts of money as the world returned to a somewhat normal state.

If this is the start of a major downturn in world markets, keep cash, be patient, and wait until the prices are so low it is painful and start to add to your portfolio in small bites. Market sell offs are like fine wines and should be enjoyed in small sips.

But no matter how you play it, market collapses are your friend and not a cause for alarm, as long as you remain calm, buy well run companies with clean balance sheets, and keep your own balance sheet in good order. Patient money wins.