Markets are hopelessly complex, yet many try to make them black and white. “The stock market is a house of cards.” “You can’t time the market.” These become excuses to either put all your eggs in the macro basket or none at all.
What is more important, market timing, a sound economic framework, or getting the business right? The success of Warren Buffett shows the value of the last. Here is an example: Sanderson Farms, a poultry producer from Mississippi. What does the chicken business have to do with business, credit, and market cycles? Some, but not as much as, say, Goldman Sachs. People eat chicken in good times and bad. There are plenty of other factors that influence their business such as grain prices, bird flu epidemics, and export markets (the industry tends to take the brunt of trade tensions). Since 12/31/97 SAFM has plodded along, growing revenue from $500 million to $2.9 billion today (10.4% CAGR). Over that time, total return to investors was 13.8%/year. Had an investor timed the market perfectly, selling at the top of the tech bubble in 2000, buying at the low in 2002, selling at the credit bubble high in 2007, and buying again at the low in 2009, his total return would have been reduced to 10.5%/year.
Timing is not everything… market timing, that is.
That said, the macro environment is as dangerous as any we’ve experienced. But some companies will be fragile (banks, for example) while others will be robust, such as the poultry business.