The agonies of stock-picking in a falling market

I SUSPECT THAT this not a common feeling, but part of me is excited about the crash in stock prices. It is the part of me with a personal-account portfolio. I have long-term financial goals. I want to hold equity risk, even as others run from it. If I can buy streams of cash flows at lower prices, I am happy. But another part of me, the professional who invests on behalf of others, is anxious. I try to fuse these two selves. It is not easy.

In my lifetime there have been three bear markets in which the value of shares in aggregate has fallen by half. Perhaps this episode will be as bad—or worse. I don’t know. I can say this, though. For a long-term investor who doesn’t have to worry about perfect timing, there should be opportunities to buy good stocks at attractive prices. As a private investor, I can wait for risky bets eventually to pay off. My clients may not be so patient.

Nobody knows how this pandemic will play out. Lots of people claim to know, of course. A few of them will be right, by luck or judgment. That’s a matter for the scientists and for economists, too. The biggest insight I have gleaned from economics is that asset prices are set at the margin. The stock price on the screen is the one at which the most desperate seller and the bravest buyer are willing to do business. When the ranks of the first group...



via The Economist: Finance and economics Business Feeds

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