Brian Schartz on the rush by investors to buy Covid-19 winners

Like Pavlov’s dogs, investors have rushed right back to many of the same incredibly valued equities, despite a clear and convincing outlook that a severe recession is about to play out in the United States and all around the world.  Central bankers have rung the bell, and investors responded as they have been conditioned. In some cases, investors have declared certain equities as “pandemic winners” and bid the shares to new all-time highs creating valuations that cannot be justified even if their businesses are strong for the duration of this crisis.  We simply contemplate the magnitude of the current situation compared to the housing crisis and the dot-com bust.  We are convinced that the magnitude of this recession will prove to be much larger than either of those events.  As a result, we foresee a meaningful “second wave” of selling in the markets in the coming months.  Bull markets are born at moments of despair, not days of central bank induced hope.

~ Brian Schartz, Downtown Associates Q1 Investor Letter, April 24, 2020