A quick word: in rocky markets, follow your investment strategy and not your gut

It was a nasty week for the market. The major averages remained under pressure on fears Russia will soon invade Ukraine and the geopolitical conflicts that result. 

In times like this it can be tempting to trade the headlines: trying to sell when you think the war is coming, or trying to buy when you think the war has been avoided, only to try to chase the market up and found yourself on the other side of a dead-cat bounce. To be honest, we are only small fish in a big pond where billionaires, oligarchs and politicians are in control. Who knows what's the ultimate motive behind Putin's escalation of the Russia - Ukraine situation. We argue that as long-term investors with no leverage, we have the luxury of sitting back, letting these events play out while focusing purely on the fundamentals of our investment. Let the professional traders manipulate the stock price of your favorite company to the downside in the short term, so that you can enjoy the upside in the long term.

Unless the headlines of the day impacts the long-term growth potential of our investment, we should not be altering our investing strategy and going against our discipline. In our case, that means to buy weakness in the stocks of great companies that are sold off on unrelated, external dynamics. These declines should be viewed more as opportunity than risk.

That’s not to say some hedging, or a cash raise, is not recommended from time to time — that’s just good portfolio management. We always keep some cash position, sometimes purchasing put protections as means of hedging downside risks. 

Summary: a tough week for most sectors 

Under the hood this week, consumer staples was the only sector to eke out a small gain while energy and the financials led to the downside. Here’s a quick look at some of the broader market measures we monitor: The U.S. dollar index stands at around the 96 level. Gold advanced to the ~$1,900s region. WTI crude prices have leveled off at around the $90s per barrel level. The yield on the 10-year Treasury pulled back to around the 1.93% level. 

Earnings and the economy

Within the portfolio, we got earnings this week from Cisco Systems (CSCO).

On the macroeconomic front, we received several key reports that provide glimpses into input costs and the status of the consumer.

Tuesday

• Producer Price Index (PPI) YoY: +9.7% vs. +9.1% expected

• Core PPI YoY: +6.9% vs. +6.3% expected

Wednesday

• Retail Sales MoM: +3.8% YoY vs. +2.1% expected

• Industrial Production MoM: +1.4% vs. +0.5% expected

• Capacity Utilization: 77.6% vs. 76.8% expected  

Thursday

• Weekly initial jobless claims: 248,000 vs. 219,000 estimate; four-week moving average for claims: 243,250 (-10,500 vs. prior week)

Reminder: U.S. financial markets will be closed on Monday in observance of Presidents Day.