Here We Go

Assuming that anyone reading this is involved, somehow, in financial markets; let me begin by stating we all deserve a weekend off.

For me, that means it’s time to write. It’s early Saturday morning, and I am really excited to try to come to terms with what is going on in the market. As I put my metaphorical pen to paper, this may be purely an exercise in catharsis, or maybe it will be more than that. I don’t know yet.

I will try as always to be objective here, but maybe some bias will be revealed in the process. I hope not, and I am sure you will let me know if I do. Given how politically charged things can be these days, I am bound to upset someone. That is not my intention. Not one bit. I am trying to help. I’m trying to help our investors. I’m trying to help my friends. I’m trying to help myself.

Now, I am certainly not a practicing macro-economist. I, however, am a practicing investor. If anything, we try our hardest at Albert Bridge to avoid investments that are mostly driven by economic factors. We instead tend to focus on specific, individual opportunities where the competition between firms is dynamic enough that it is the “bottom up” that drives winners and losers, and not the “top down”.

But over the past few market sessions, things haven’t been that firm-specific. Things have not been uncorrelated. Everything has gone one way, even across asset classes. And it hasn’t been up.

And on the stock market specifically, people, and perhaps machines, are very, very worried about the economy. Idiosyncratic risk has been temporarily thrown out the window. It’s all systematic now, or at least at the moment.

Despite my general reluctance to make “macro calls”, I’ve been trained by some of the best economists in the world. And not just the Richard Thaler variety. Bob Aliber, Nick Barberis, Robert Fogel, Owen Lamont, Bob Topel, Eugene Fama, and Merton Miller all made an impact too.

As I’ve written before, these folks disagreed vehemently amount specific issues, but were wonderfully civil in the process. Thaler and Miller, in particular, didn’t see eye-to-eye on many things at all.

They were aligned on very little. I can think of two areas of common ground. They both liked the NFL. And neither thought tariffs were a great idea.

And I don’t think they are a great idea either. I’m sure that others will write ad nauseum this weekend about either how terrible or potentially wonderful tariffs and trade wars might be. But given my training, and my fondness for financial history, the best I can do is hope that this isn’t a Smoot-Hawley redux, and that the world doesn’t spin itself into the next Great Depression.

And let me say this. It probably won’t.

And let me also say this. Some people are nervous that it will.

YTD, the S&P 500 is down over 13%, and in the last two days, the index was down over 10%.

And as a market historian, I have to admit I am nervous what happens to the community of individual investors and financial commentators when they spend the weekend ruing how bad things were over the previous few sessions. I think other market historians may be nervous too.

On Wednesday, October 14, 1987, I was holed up in the Krannert Library at Purdue University, and recording stock prices after the market’s close. I did the same thing on Thursday, October 15, and again on Friday, October 16. I wrote those prices down on a legal pad which I still have today. I didn’t have a computer. No one had computers. I was 21 years old.

And when folks opened up their newspapers on Saturday morning, they sure didn’t like seeing that the market had been down 10.5% over the past three days.

And we all know what happened on Monday, October 19, 1987.

And we all know what happened in late 2008 and early 2009.

And we all know what happened in March of 2020.

And the likelihood that April of 2025 turns out to be something similar is extremely low. It really is.

But it isn’t zero.

But let’s say it happens. Let’s say Monday is a disaster. Let’s imagine it is a disaster on the scale of October 19, 1987, or the GFC, or the COVID Crisis. Guess what those three events had in common?

The each were tremendous buying opportunities.

And one might argue that things are overdone already.

Since the market’s peak on February 19 (that was just a month and a half ago, by the way), the market is down over 17%. YTD the S&P 500 is down 13.4%. The tech-heavy NASDAQ is down 19.3%. The Mag-7 are down 24.2%.

Now, we are not arguing that we will necessarily and certainly see a strong bounce here soon. We may, but we probably won’t. Nor are we arguing that the Mag-7 are a steal. They aren’t. They aren’t at least when you compare their cash flows and growth opportunities to many less popular but still excellent businesses.

Now, Google trading at a P/E below 14x with $80 billion of net cash may admittedly be worth considering, but broadly, some prices for some of the less sexy investments out there are really incredible, and even make Google look expensive (and they don’t already command a mind-boggling market cap).

And of course we have the dramatic outperformance of the US over other global investment opportunities over the past 15 years. I won’t revisit these points, or why this happened, or how overdone it became. But I will tell you this, the regime may be changing.

Since December 31, 2009, the S&P 500 has been up 507%, while the MSCI Europe has only been up 168%. Given that there is very little difference between many of these companies (think Nike vs. Adidas, Boeing vs. Airbus, GM vs Volkswagen, or ExxonMobil vs. BP) this hasn’t made great sense, in our view.

And this year, even with the S&P down 13% and Nasdaq down 19%, the CAC-40 in France is only down 0.3%. The FTSE 100 in the UK is up 0.3%. The DAX in Germany is actually up 3.7%. The whole of the MSCI Europe is only down 0.5%.

As one who focus primarily on European opportunities, who have had this region as our primary focus over the past 25 years, we of course are biased. We want mean reversion. We want the regime to change.

Now the regime may or may not be changing, but it sure seems easier to see the path of least resistance.

But whatever you are focused on, and whichever region you choose to invest in, our best advice is to chill. Don’t panic. Don’t overreact. Don’t pretend like you know where things are immediately going. Don’t think that you need to. You don’t.

This stuff should be fun. This stuff is fun. No matter where the markets go Monday, the weeks after, or the months and years after, the benefit of hindsight and experience will naturally accrue to each of us.

These are historical times, after all. Enjoy the history.