Update & Outlook
I wish that I could reach out and have a solid ten minute conversation with each and every investor with their money entrusted to Cairn. Unable to do that effectively, you deserve a few thoughts from us directly to supplement what you’re reading or hearing in the news.
Suddenly, things seem very different with the NBA suspending the season, travel from Europe restricted, and Tom Hanks infected and quarantined. In my prior message I put forward the idea that our collective reactions to the Coronavirus could have a large impact on the economy and our investments, and we took action to sell some long held positions in preparation.
So now here we are. At this point stocks are no longer being bought and sold on fundamentals, and the prices we’re seeing are the result of massive liquidations based on fear. We’ve seen this movie before, with the current twist being that we can more clearly see what is driving the panic. While there are firms facing an existential threat, like the cruise lines and some smaller shale oil producers, a majority of the companies that we own are able to handle weeks or even months long disruptions to the free movement of people and goods, and will eventually move on from here. I do not like the prices being offered for our companies right now and I’m very reluctant to sell into this environment unless funds are needed immediately. There are some companies we are wanting to shed, but not on a day that smells of panic like today. We do also have our eye on some stocks that we may wish to buy at a newly reduced price.
Looking forward, I believe that the federal government has a huge role to play in protecting our economy and our health. That role may be to provide some kind of relief to debt laden oil producers and transportation companies, payroll stimulus, or even providing temporary liquidity to financial markets. Unlike any crisis that we’ve seen in my lifetime, this one seems to have an expiration date as the virus works through its process and modern medicine eventually puts and end to the spread within the next year. The oil price war could end soon and suddenly with a few phone calls, or our government could take steps to protect our domestic energy production to combat the actions of “State Players” overseas.
Regarding Cairn’s preparations for possible transit restrictions or a personal illness, we are able to access all of our trading and information systems remotely, and if need be can redirect our incoming calls to any phone that we wish. I hope it does not come to that, but it’s good to be prepared.
The best course today is to look after our own health and that of those we’re responsible for and let this run its course. We’ll continue to look for opportunities to adjust our holdings as it makes sense.
Regards, The Cairn Team
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