VALUING THIS MARKET

I can’t remember a time in my life when I didn’t run a business, and every business taught me valuable lessons. Like many others my age, my first business was a lemonade stand at the age of six, which I shared with two of my siblings. I learned a lot in that short-term business, most notably that I didn’t want to deal with any more partners.
 
When I was studying at the university, I took a night shift job driving a snowplow for a janitorial firm. I saw so much potential that I bought a truck and started my own plowing service. Snow plowing is a very unique business. You only work about 20 days a year, yet for the other 345 days you still have maintenance, truck payments and the other operating costs that go into running a business. When it snowed, business was booming. I used to call those snowflakes “white gold” because when they were falling, businesses were desperate to find someone to clear them away, and happy to pay the cost.
 
If you were to evaluate the value of a snowplow business, the only way was to look at multi-year revenue reports. Weather is fickle and the business revenue was 100% dependent upon it. If you tried to value the business from May through October it would have no value, since there would be no revenue. If you valued it during a heavy three-day storm when the trucks were running 24 hours a day and customers were desperate for your services, it would appear to be extremely valuable. But neither approach would give an accurate view.
 
Today the investing world is obsessed with the possible effects of the corona virus, and rightly they should be. The virus is shutting down production facilities, limiting travel and restricting trade. Most businesses will suffer greatly reduced revenues while this situation plays itself out. Since stock prices are tied to revenue, the markets are understandably volatile, and it is normal that prices are going down in a time of much uncertainty.
 
As investors it is our job to calculate the value of the companies in which we invest. But in times like these we need to be careful we are not valuing a snowplow company based on the summer months. It would be even more foolish to value the same company during the 20 days of snow. Neither period accurately reflects the company’s true revenue stream.
 
The present question for investors is whether the corona virus crisis will affect a companys’ long-term prospects. Will it materially affect their 3-10 year revenue projections? Because it is along those timelines that most investments should be made. If you believe as I do that this is a temporary issue which will likely rapidly rebound when the fear begins to subside, then now may be a good time to consider accumulating a few shares, while fearful investors are dumping them. It may be a hot summer, but my own business experience teaches me that the snow will come again.