GPM First Quarter 2020 Review

April 02, 2020
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The COVID-19 pandemic has weighed heavily on global financial markets since late February.  All asset classes except safe haven Treasuries came under swift selling pressure that intensified through March.  At the same time, a price war between producers Russia and Saudi Arabia, sent the price of crude oil down 24% in a single day on March 18 to the lowest level since 2001.  Today, as I write, the price of crude is up 24% on speculation a truce will be reached. 

Stock markets around the world tumbled hard.  The S&P 500 Stock ETF (SPY) returned -19.4% in Q1 following a gain of +31.2% in 2019.  U.S. stocks performed better than most other countries.  Investment grade corporate bonds came under extraordinary pressure before meaningfully recovering into quarter-end.  The high-yield bond market (HYB) unleash massive credit market liquidity and exceptionally broad monetary stimulus to support the economy during an expected compressed period of economic contraction.  Other central bankers followed the U.S.lead.  Oversold markets began to rebound in the final week of March, led by corporate bonds.  We expect volatility to continue.

Near-term, the number of confirmed COVID-19 U.S. patients will rise dramatically and appear to be overwhelmingly negative.  Impatient financial markets will remain volatile as investors digest the data and gauge the eventual success of suppression strategies (lockdowns, high volume quick result testing, effectiveness of therapeutics, etc.) intended to flatten the curve.  Some incrementally positive developments will almost surely emerge on the health front.  Meanwhile, massive fiscal and monetary actions should be supportive.  Without a doubt, the news will get worse, but its ability to shock us will probably diminish.  The stock market decline discounts much of the bad news to come.

Our approach to stock investing is totally focused on high quality, U.S. based growth companies that have the size and scale to compete and win worldwide - innovative businesses investing in themselves to fuel growth.  Consistent with our strategy, we plan to continue holding most/nearly all the 28 stocks we own.  Some stocks have been or are being hit harder than others, which sets up many more relative value disparities than existed weeks ago.  We plan to continue selectively increasing the size of some currently held positions while reducing others.  Additionally, many other companies in our focus universe that we do not own have become historically attractive, so we expect to execute some opportunistic swaps.  We are laser focused on our companies and opportunities.  As research partners and investors, Mark Hogan and I routinely talk with management teams of companies that GPM invests in.  We prefer businesses with strong balance sheets that provide flexibility to take care of all stakeholders during economic rough patches.  We believe strong companies will come out stronger on the other side.  We remain committed to the research-focused, long-term, low-turnover growth-oriented investment strategy that has served GPM clients well throughout my nearly 30 years of investing.

     

I have experienced numerous bear markets brought on by financial panics, wars, terrorist attacks, political developments, and other highly disruptive events.  While none were pandemic driven, the list includes interest rates of 17% in 1982the 1987 market crash2000-200internet bubble burst and 9/11/2001 terrorist attacksthe 2008-09 financial  crisis; and now COVID-19.  In this selloff, the S&P 500 declined 34% in four weeks from high to low before recovering 15% in the final seven days of March to end the first quarter down 19.5%.

Opportune times like we believe we are in today enable us to buy high quality companies at attractive prices and hold for the long term.  We believe now is such a time even if a market rebound is not yet visible. 

Investing today requires optimism about our future.

All GPM team members continue to work remotely from our homes.   We are all safe and healthy.   Our technology gives us full and secure access to all our data, research, and portfolio management and reporting platforms, enabling us to operate with a high level of productivity from nearly any remote location.   Feel free to call or email us as usual.  

Please be safe and stay healthy.  Thank you for allowing GPM to serve as your investment manager and advisor. 

Sincerely, 

Tim Griffin and the GPM Team