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  • Chris Hill: Hey, thanks for watching. We're coming to you from Fool Global Headquarters

  • in Alexandria, Virginia. I'm Chris Hill, here with senior analyst, Jason Moser and Ben Ra.

  • Guys, thanks for being here. Jason Moser: Thank you.

  • Ben Ra: Thank you. Hill: We're going to be talking about what's

  • happening in the market this week, which if you're in an investor, you've already known

  • that there's a lot of red out there. We're going to be taking your questions.

  • Some of you have already asked about where to put your cash, if you've got a little cash

  • on the sidelines. Good news, we've got a free investing starter kit that comes with five

  • stock ideas from our investing team. You can find it at fool.com/start. That's fool.com/start.

  • Check that out, we'll email you the report. Jason, let me start with you, as of this live

  • YouTube, you look at the S&P 500 the Dow Jones Industrial Average, both down about 9% so

  • far this week. We are long-term investors, we think in decades, not in quarters.

  • I'm not going to lie to you, this is a painful week.

  • Moser: [laughs] Painful. I don't know. I guess that depends on perspective. I was kind of

  • happy to see this pullback. Now, I'm not happy for the reason behind the pullback, of course,

  • because I think a lot of this is based on concerns over the coronavirus and how that's

  • playing out on economies over the world. If we think about the global economy today is

  • truly a global economy, right? Technology has made the world much smaller, it’s far

  • more connected, more intricate, more connected supply and consumer chains. So, you see a

  • lot of questions regarding growth coming into play. And it's not even March yet.

  • I think we had a Goldman Sachs report out here earlier today that essentially whittled

  • down earnings growth to zero. That's zero. And that's coming from a pretty heady optimistic

  • time here, just a couple of months ago. So, this is one of those Black Swan events,

  • nothing we could have totally predicted or really foreseen. We know that these types of events

  • are going to happen, we don't know what it's going to be, when it's going to be and how

  • long it's going to last, but here we are. Hill: Ben, when you think about the impact

  • of the coronavirus, to Jason's point, the supply chain issues that it's causing,

  • whatgoes through your mind as an investor, because one thought that I've had and that I've seen

  • out there in sort of the financial media is, some businesses out there are going to have

  • an easier time of getting their supply chains and therefore their businesses up and running,

  • others are already, probably, looking at maybe the last quarter of 2020 and into 2021 before

  • it's business as usual? Ra: Yeah. Generally speaking, I think it's

  • going to be very difficult to predict, but when I look at the market, I focus on what's

  • going on in China a lot. And if you look at the supply chain disruptions there,

  • one of the risks that have been reported, but is somewhat underreported, I think is the level

  • of debt that's in China. So, there is this risk that you can have this chain-reaction,

  • where you have business disruption, you have a lot of companies that are highly indebted.

  • And China is, in general, if you look at total household, government, corporate debt is 300% of GDP.

  • A lot of it is corporate debt. So, if you've been looking at a lot of

  • Chinese companies, as I have, you would have noticed that there's a lot of short-term debt out there.

  • So, when you have this kind of disruption

  • then you have situations where companies are saying, “Well, when's the money coming in,

  • I have to pay my fixed costs?” There's debt maturities, there's interest. I would say

  • there's going to be a lot of missed interests and principal payments, and then you have

  • the possibility that the government will have to inject funds, which theyre already doing now.

  • I think it's likely there's a risk that they'll have to do more. And then you have

  • other risks,” like, what's going to happen to the currency and what's going to happen

  • to the offshore debt? So, there's all of these different chain-reactions

  • that can take place from the coronavirus. Hill: Jason, you think about what we've seen

  • in the United States in terms of the IPO market over the last -- call it -- six- to ten months,

  • where for a couple of years, Wall Street and everyday investors like us were willing to

  • jump in on companies that weren't profitable, that maybe didn't have the greatest sketched

  • out business plan. And that kind of came to a stop, sort of the midpoint of 2019,

  • the patience ran out. To Ben's point about debt, how concerned are

  • you about monetary policy, which is something we don't really focus on in terms of being

  • business-focused investors? But to Ben’s point, there are a lot of companies out there

  • that are not profitable, that maybe we were willing to give a greater amount of leash to,

  • that maybe as investors we should scale that back a little bit?

  • Moser: Yeah, I absolutely think that it's a good time to take a look at your portfolio,

  • look at the businesses in there and determine which ones are profitable versus which ones are not.

  • And that may sound a little funny, but the fact of the matter is, like you said,

  • a lot of these businesses out here today these high-flying businesses that have been doing

  • so well, they are doing very well based on the promise of a very great future, they are

  • not bringing in that profitability today. And we've had a very accommodative Fed to

  • this point, right. It seems like whenever there's even a hint of headwind or challenging

  • times on the horizon, the Fed is very quick to get in there and ease that monetary policy.

  • It does feel like I've heard more about the Fed responding to the coronavirus as opposed

  • to perhaps the companies that are out there developing a potential vaccine.

  • So, for me, definitely, I was looking through my portfolio just yesterday and doing a little

  • bit of an inventory and looking at some of these businesses and saying, you know what,

  • this business is profitable, this one isn't, how long do I think this company is going

  • to take to get to a clear and sustainable path of profitability? And if it's one where

  • you can't really paint that picture so clearly, you need to keep that in mind, because this

  • could last for a little while. I mean, I don't think this is one of those situations that's

  • going to last indefinitely. I mean it's a temporary situation, but it is difficult to

  • actually figure out how long it may take. One of the data points, I noticed here earlier,

  • in regard to market corrections; which I think, technically, we're now in a market correction.

  • There have been 26 market corrections, not including this one, since World War II.

  • These corrections last around four months on average. So, depending on the situation, it could take

  • a little bit longer, this could end a little bit sooner, we don't know yet, but it's worth

  • knowing what you own. Hill: And, Ben, to the point you made earlier,

  • I mean this is one of those situations, it's going to be incredibly hard to predict.

  • And I'm not trying to downplay what's happening with the coronavirus, it's a very serious

  • health situation. That said, I think, as investors, it's worth taking a step back and realizing

  • what we're seeing in the market, even just the amount of red that we're seeing this week,

  • this comes against the backdrop of a ten-year bull market. So, at least some of what we're

  • seeing is investors -- whether it's institutional investors on Wall Street or everyday investors

  • like you and me -- saying, “You know what, I've done well to this point, if you've been

  • investing over the last five-, ten years. I'm taking a little money off the table,” so to speak.

  • But to go to Jason's point, how are you personally

  • going through your stocks, what are you looking at to sort of determine, okay, maybe it's

  • not from the standpoint of transacting, like, “I'm selling a bunch of stocks that I've

  • done well in,” but maybe it is from the standpoint of, “I've got a watchlist and

  • some of the stocks that were on my watchlist, I'm now removing them from my watchlist.”

  • What are the couple of things that you're looking at?

  • Ra: Well, so, if you focus on the American stock market, the U.S. stock market,

  • it's a bit unique, I would say, because over the last ten years, it's been a great ten years

  • for stock investors here in the U.S. And the U.S. market really has outperformed versus

  • the global indexes. So, I think the unique thing about the U.S. stock market is how top-heavy it is.

  • So, you have these four trillion-dollar companies. So, you're talking about a total

  • market cap of $4 trillion, 20% of GDP, that's really -- if you go back to 2000, the top

  • four companies in the S&P 500 were like 14% of GDP. If you go back 120 years, it was less

  • than probably 1%. So, the big position that these kinds of companies have.

  • If you say, “Well, I'm going to own Apple, Amazon, Microsoft, Alphabet.”

  • The big four trillion-dollar companies. You say, “Well, I'm hoping for a 15% return over

  • the next four years,” which is pretty reasonable I think for tech companies. That wouldn't

  • mean that their market caps will double over the next four years, so theyll be a total

  • market cap of $8 trillion or about 35% of GDP. So, is that likely to happen? I would

  • take the under on that. So, I would say diversification is important,

  • so make sure you don't have all your funds into these big FANG trillion-dollar companies.

  • There's a lot of great companies out there. And I would definitely say, a significant

  • amount of diversification as well as cash balance. If you're planning on, you know,

  • buying a depreciating asset like a car, it’s probably not the best time, because there

  • may be better opportunities for your funds in the future.

  • Hill: Jason, you talked about, looking at your own portfolio, sort of, doing an inventory.

  • Probably a good time for every investor to do an inventory of their temperament,

  • because this is one of those times where, as we are reminded, investing in the stock market,

  • we love doing it, we think it's the best way to grow your wealth over time, because that's

  • what the math has demonstrated for the past 100 years, but it's not for everybody.

  • Moser: No. And it's very easy to talk about what you would love to do in the midst of

  • a market sell-off. We talk about how we'd love to see the market pullback, because then

  • it's a fire sale and we go buy whatever we want and however much of it we want.

  • But then you find yourself in the throes of it, it's a little bit more difficult to act. You find

  • yourself second-guessing your investment strategy, the companies that you've been looking at,

  • you find yourself wondering, “Do I reallycould perhaps the market go lower?”

  • Of course, it could go lower. I live by the lesson my father taught me years ago,

  • you'll never buy at the bottom, you'll never sell at the top. So, you get used to that and move on.

  • It really does boil down to just finding good businesses.

  • And I think that really is one point of emphasis in times like these. And you and I were talking

  • about this on an episode of MarketFoolery recently. One of the simple checkpoints

  • I have as an investor is to look at these companies that I'm interested in buying or owning and

  • just asking myself the very basic, obvious question, “Is this a good business?”

  • And that can really dictate a lot of what you do from that point forward. Because if the

  • answer is, “Yes, it's a good business.” Well, then you can start taking that question

  • to the next level, but if your answer is, “No,” then that's basically it, done,

  • move on, right. And that, of course, can be a little bit subjective. But I do think there

  • are some pretty objective answers when it comes to figuring out what is a good business

  • and what is not a good business. And just answering that one simple question alone,

  • I think, can help put people's minds at ease. Hill: Alright. We're going to get to your

  • questions in just a couple of minutes. The guys have a couple of stock ideas,

  • if you're looking to build a watchlist. In terms of categories though, Ben, I saw

  • one thing on Twitter today, one analyst firm came out with essentially a basket of stocks

  • that they're calling a “stay at homebasket. Not the worst idea in the world,

  • if you think that the impact of the coronavirus in China, around the world, here in the U.S.,

  • is going to mean more people are staying home. And so, it's got some names like, you would

  • probably expect in terms of entertainment, Netflix, video games Activision Blizzard,

  • Tencent, Zynga, Facebook, that sort of thing, food delivery companies. Is that an area,

  • at least, investors should be looking? And follow-up question, before you've even

  • had the chance to answer that one. Are there areas that you're looking at, where you're like,

  • This is not the time to look at this?” Ra: So, I read something very similar about

  • how if you had invested in these stay-at-home companies and shorted something, like,

  • say you know the cruise ship companies, you would have made, like, 60% just this year, which

  • is very possible and it's a great return, of course, for just one year. So, I mean it's

  • definitely a possibility. A lot of those names actually are stocks that we have looked at,