As most investors already know, financial markets tend to be irrational and more volatile than they ought to be at times. This is, in part, a reflection of the underlying human element (and herd mentality) which drives decision making at the individual investor level.
Perhaps there is no better example of this than the toilet paper rush and subsequent hoarding we all saw in March. Store shelves were emptied out much faster than store personnel could refill them.
Companies were unable to quickly fill their shelves due to supply chains which were not set up for this scenario.
I’ll use Loblaw Companies (TSX:L) as a proxy for all companies that have seen abnormal levels of activity lately (either astronomically high levels as is the case with Loblaw, to zero or near-zero for so many other businesses out there).
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The toilet paper fiasco of early 2020 may lead some investors to pile into what may be perceived as the “ultra-safe, conservative, essential” businesses that have closed their doors for the time being. Here’s why I think that’s a dangerous game.
The most obvious reason it’s not the time to deviate from a solid long-term investing strategy (which I know most readers have) right now is we’re about to see an inflection point in the coming quarters where the tables will indeed turn, and companies will undoubtedly revert back toward their longer-term means.
These short-term market convulsions, in the grand scheme of things, will ultimately turn out to be minor blips on a 20- or 30-year stock chart.
Invest wisely, my friends.