Tom Cowan, the founder of TDM Growth Partners (one of our core fund managers), wrote the below in response to a client email he received and it was too good not to share.
Thanks for the email, we too remain cautious on the overall market and like everyone, are not sure if the market will end up in GFC territory of being down approx 50%.
Having said that, as you know, when looking to deploy capital (and that is our job in a falling market despite how uncomfortable at times it can feel), we are looking at each business individually and not from an overall market perspective
I have a few charts that tell a bit of story and to keep in mind as this continues, as to why we don’t just think about the S&P 500 (or other indexes for that matter). Some businesses are getting a massive tailwinds (think Woolworths) and some will have no revenue for a number of months (think most consumer facing businesses or heavily exposed verticals like travel). Because of this dispersion in outcomes related to the current Covid induced environment, an index fails to tell the story — Woolworths is at a record high, Flight Centre was at the same price in 1999!
Not only do the indexes not give us a true picture as investors as we try to find a dislocation between value and price on a five year view, different indexes also show different things.
Read Tom's full response here.