In this episode of Industry Focus: Energy, The Motley Fool's Nick Sciple speaks with contributor Jason Hall about oil prices. We look at how the dive impacts E&P companies, how they are adjusting to the situation, and how investors can navigate the current situation. And we answer listeners' questions.

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This video was recorded on March 12, 2020.

This video was recorded on March 12, 2020.

Nick Sciple: Welcome to Industry Focus, I'm Nick Sciple, coming to you from my apartment; we're all recording remotely now due to the coronavirus. I'm sure many of you all are working from home now as well. We got a great show for you today. We'll be diving into what's all the craziness that's going on in the oil market over the past week. Joining me today to break it all down is Industry Focus contributor Jason Hall. Jason, how's it going?

Jason Hall: Nick, the world is on fire.

Sciple: Yeah, there's really no getting around it. The stock market is down over 6% today. I looked, just a second ago, over the past month down almost 25%.

Hall: And I'm looking at it right now. And as of this minute, a little after one o'clock in the afternoon today, the S&P 500 is down 25.5% and the Dow is down 27.2% from the peak earlier this year. So, that's what we've seen.

Sciple: Yeah, from record highs in the stock market too. You know, now we're officially in a bear market. Jason, I'm 27. So, as an investor, this would be my first bear market to witness. How should we be thinking about this as investors; I know you've been through a couple of these?

Hall: Yeah. So, first of all, I think this is a reminder, you have to have a plan, No. 1. You have to have a plan for a couple of reasons. No. 1, you build a plan based around your financial objectives, whatever your goals are. So, then you invest appropriately based on that. So, you're 27, I'm 43, we both, for most of our financial goals, have years and years to play out. So, decades, really. Which makes stocks the appropriate investment, because times like now, we don't really have to be freaking out and selling to try to avoid some low point, because it's not a material thing that's going to hurt our ability to pay the bills, because we're not retiring next year or something like that.

So, somebody that's closer to retirement within a couple of years, that is full in equities right now, their retirement just got delayed or hurt, because they've remained in an equity that's exposed to this volatility. So, you have a plan, so you build that plan. And the plan, No. 1, helps you avoid those unforced errors, but also it gives you something to focus on. And I think that's a big thing right now, because there are so many people that all they're doing is they're checking a couple of emails from work and then they're freaking out and they flip over to Yahoo! Finance or fool.com main page or something like that, and they see the market is way down. And then they open up their 401(k) or their brokerage account and they see that it's down. And they don't know what to do.

I've been thinking about it this morning and it's like, you know, I think I'm pretty level-headed. I have a plan and I follow the markets daily and I write about it, but I still feel. It's almost like, you've been to the beach, and you go out and you stand in the water. And then the tide starts going out, like you feel, it physically pulling your body. I could almost feel a physical tug to act, because, I mean, it's human nature. So, it's really tough.

But, I think, your having a plan gives you something to do and helps to distract yourself. And if you're young and you don't really have a plan, the best thing to do is just to avoid it. Don't log into your accounts, because the worst thing you can do is act right now by selling and lock-in the losses. You know, it feels like this could last for a long time and it could, but we really don't know. I mean, if you think about the average recovery time when we have these kinds of sell-offs and these kind of panics is, you know the market tends to recover not very much longer than it takes to fall. And then next thing you know, you look at your account and you sold out and the market is above where you sold and you didn't even realize it.

So, I think that's a really important reminder. Thinking about things historically, you want to avoid acting just on your impulse because your better nature is telling you, "I gotta get out of this before it gets worse." Yeah, we don't know.

I mean, today, for example, I can't say specific names, but there are stocks that I've seen fall close to 20% in the past couple of days, they provide services that are, I mean, they're bulletproof, they're recession-resistant and they're necessary no matter what happens with the economy, no matter how bad the health scare from coronaviruses, that are just down insane levels. So, people are selling the exact kind of business you want to own right now just out of sheer panic and fear.

So, you have to have a plan, you have to work your plan. And if you don't have a plan and you have time on your side, your plan needs to be to do nothing right now and avoid making mistakes like selling, just because it seems like the world is on fire.

Sciple: Yeah, I'll tell you, personally how I'm trying to approach things in my portfolio is really to go back to those first principles. So, stocks are down really significantly, but what you hold, what you actually own has not changed. You own a little piece of all these businesses that you invested in. And some of these businesses are going to be really hurt in a significant way and some aren't, but five years down the line, where do we think these businesses are going to go, do they still have good prospects? And that's why it's really important to have that mindset of, "I'm a business owner," versus paying attention to the fluctuations of the stock market over the short-term.

I know it's really scary. As a younger person, when I see these numbers move, maybe it's moving four figures in my portfolio. If you're older than me, you might be seeing it move six figures. And seeing that number is really scary, but it's important to remember what you hold hasn't really changed, it's just the quoted price of what you hold has changed.

Hall: Exactly. No, that's exactly it. I think if you can be as pragmatic as possible, look at the names of the companies that you own and not the numbers that have changed. To your point, and think about that business when you bought it last year or five years ago or six months ago or two weeks ago, and then think about a year from now, two years from now and five years from now. Think about where you think that business is going to be at that point, and not focus on the price. I guess that's kind of what you're saying, is that -- and that can definitely make it much easier.

Sciple: Yeah. Jason, do you have anything that you go to in times like this, to maybe keep yourself from staring at your portfolio, to distract yourself, keep you in that positive mindset?

Hall: Yeah. I think, my specific example, obviously, as a writer and contributor to The Motley Fool, I feel I have a certain duty to talk about the market in broad terms and also specifics, and share my experiences. So, that's an easy way for me to distract myself, because I focus on my work, because my work is, I think, doubly important in times like this. And I think that that's an important thing for most other people to do too is, focus on other things, focus on the things that matter.

So, for example, right now, obviously, a very real concern is that the coronavirus outbreak could very well cause global recession. So, I think people should focus on other things that they can do proactively to help their financial situation, focusing on things to help you ride-out a potential recession. So, things like making sure you're dedicating a part of your earnings into a cash safety net. So, I mean there's lots of little things like that that you can do. You got some time off, go fishing. [laughs] Mow the lawn. It's really, think about your day-to-day life and continue to focus on those habits that you have and not diverge too much. So, it's really an extension of, kind of, the way you should manage your investments, is you still stick to your regular plan of the way you go through life, and don't get too distracted just because it seems like everything is coming apart.

Sciple: Yeah, I totally agree with that. I'll tell you, for myself, I've been listening to a lot of Jimmy Cliff this week, a lot of reggae stuff, maybe gets me in a better mood when everything is, kind of, collapsing around me. So, maybe try that out folks.

So, let's get into this oil news. Obviously, really crazy moves this week on Monday. Oil plunged 24%, its worst day since 1991. So, literally we have not had a day that significant since before I was born. And this comes after disputes over the weekend between Russia and Saudi Arabia over production cuts. Jason, why was now the time where this system of production cuts really collapsed between these OPEC+ members?

Hall: So, I think it's a convergence of a lot of things. And we need to go back a little bit further. Over the past few years, Saudi Arabia has really acted as a stabilizing force in global oil. As U.S. shale production has steadily grown over the past five or six years, Saudi Arabia has really got its OPEC members, along with Russia, to agree to multiple production cuts to prop crude oil prices up. And mid-week last week, so a little over a week ago now, it looked like we were going to see the same thing happen. OPEC was set to take about 1 million barrels in daily production off the market, and OPEC members had agreed to it.

On Friday, word came out that the proposal had been cranked up and included OPEC+, which includes Russia and a few other nations that have state-controlled oil production. They raised the target to 1.5 million. So, OPEC was going to take 1 million, and that other 0.5 million was almost all Russia; a lot of it was going to be Russia.

[laughs] Apparently, Russia just decided to just, kind of -- I don't know, if you could say they played chicken with the Saudis or they just walked away from the table, but they really bought. And the word is, a lot of it was they were tired of taking cuts to prop-up the market so that U.S. shale producers could continue to take market share.

Very, very quickly, Saudi Arabia did a 180. So, this went from Friday to over the weekend, Saudi went from trying to stabilize the market to about as close to scorched earth approach as you could say, they slashed their prices by 20%, contacted a bunch of their largest customers -- so, think about China, South Korea, Japan buy a lot of Saudi oil. So, they went from, "Let's hold prices up," to "We're going to ramp-up." "We're going to produce 12 million barrels in April; that's our goal." "When all these current agreements we have for production expire, we're going to ramp up to 12 million barrels per oil in April." The Saudi government officially informed Saudi Aramco, that it needed to get to that 12 million then Monday happened. And that's the worst day in almost three decades for crude prices. I mean the thing this is underpinned by a couple of things.

It's not just how much more oil they're producing in a relatively full market, but it's happening at the same time that global oil demand is almost certainly going to fall in the first quarter of the year. Back in early February, we were hearing from a couple of the big groups that cover the market that they were lowering their expectations for Q1 to see oil demand decline. Primarily, just because of what was happening in the Wuhan area in China that was going to affect Chinese oil consumption. Things have only gotten worse since then.

Sciple: Right. It's really been a one-two punch of, you have this massive supply shock of Saudi Arabia and Russia announcing they're going to increase production. United Arab Emirates have also announced that they're going to increase production by about 33%. And just to point out how scorched earth this is, you mentioned the 12 million barrels per day. I've seen this in the past couple of days, announcements that the Saudis want to bump their production up to 13 million barrels per day. Which, if you look at their capacity, it's only for 12 million, so they're going to start pulling oil out of storage in order to really lean on the market. And this comes at a time when we've got this massive demand shock at the same time from coronavirus, we talked about maybe a month ago, when Tracy Shuchart was on the show, when they were starting to cancel flights between the U.S. and China. That's about 600 barrels of oil each way across the Pacific.

Well, last night President Trump announced that they're going to cancel all flights to Europe. So, that's a significant amount of oil coming off the market as well. Again, while all this supply is coming down. It's just a really tough position --

Hall: Nick, I've heard that cruise ships use a lot of oil too, is that true?

Sciple: That is accurate. They emit a lot of emissions as well. So, lots of industries that use massive amounts of oil are either not in operation or have significantly cut back. And so, lots of demand coming off the market while we're flooding just incredible amounts of supply. It's just really a tough situation. I mean, when you look at these oil companies, that many of these shale companies have breakeven in the $50s. And we've had just in the past month or so, oil prices fall from where these shale companies are probably barely profitable to $31 oil. These folks are just burning cash in a really significant way. So, you can have CapEx cuts, dividend cuts, what should we be looking for there, Jason?

Hall: So, first of all. I just want to clarify, you said barely profitable at $50. No, no, let's be honest. Most of these independent shale producers, they're not profitable even at $50. There's so much debt, the capital investment that they constantly put back into the business just to maintain production, plus so many of them have tried to grow, these companies have burned billions and billions of dollars in cash. Even when oil prices were essentially double where they are. So, a quick update for you West Texas crude, just fell below $32, it's at $31.89; it's down 3% today. And Brent, which is the big global benchmark is down another 4%. It's $34-and-change right now. That's where we are.

And the reality is that there are a bare handful of U.S. independent oil producers that can make breakeven cashflows at current prices. I mean, just a bare handful. So, it's really, it is an ugly time to be in that industry. And there are very few that can survive a sustained period of prices at this level.

Sciple: Right. I mean, I was looking at some data from Goldman Sachs as well. If you average out the big oils in the U.S. and you take into account CapEx, dividend, that sort of thing, you're still looking at breakeven at the high $40s, low $50s. So, I think no matter who the players are you're looking at in the extraction part of the market, whether it's big oil or not, you're going to see significant CapEx cuts, you're going to see dividend cuts, we've already seen that with Occidental Petroleum. We've seen several companies, reports of, in the middle of the day, shutting down production, pulling folks off the well. I mean, if you're an executive of an oil company right now, what would you be doing right now, Jason?

Hall: Probably finding my religion, [laughs] I think, is a probably a good place to start. No, seriously, I think the reality is that these guys. I mean, they have to circle the wagons as quickly as they can. And the ones that are going to survive are the ones that entered into this with some ability, some amount of liquidity and without a lot of current debt. In other words, debt maturities that are happening in the next 12 months. So, those are the ones that are going to be able to get through it. But I think the things that have to happen immediately is you have to cut operating costs as fast as you can, so that means their internal employees are the ones where you're probably going to see the first cuts.

Diamondback Energy, for example, announced a couple days ago that they were cutting completion crews, so the crews that went out to actually bring the wells online, they cut that by a third, and they're working as quickly as they can to idol at least three of their drilling rigs.

Here's the thing. The way that this industry works is a substantial amount of the work is contracted and done by third parties and those contracts stipulate a lot about when things end. So, it's not really easy for a lot of these companies to turn on a dime, because they've hired and contracted a company to do a certain amount of work. So, those contracts have to play out before they can even start cutting costs.

So, I think the other thing that you're going to see is companies are going to start relying on their internal inventories for certain things. You think about up drill pipe, you start thinking about parts for drilling rigs, frac sand, fracking fluid. They're going to immediately stop ordering additional inventories of those things, and they're going to focus on working through what they have, what they've already acquired or what they already possess. So, you're going to see that all those third-party service providers that sell stuff, that they're going to immediately see their cashflows come to a halt, because their producers are going to try to preserve cash by living within the things that they already own. I would tell you, it stinks for anybody that works in the oilfield right now. There's a lot of people that are going to lose jobs over the next six months.

Sciple: Yeah, and this is. It comes under conditions, as you mentioned where a lot of these shale companies, anyway, were struggling to make money. And as we mentioned, again, that show we did with Tracy Shuchart, maybe a month ago, there's a wall of debt maturities coming for a lot of these folks. So, I think that we can expect some bankruptcies, I think, without a doubt. And when that sort of thing happens, Jason, how should we think about the midstream. These folks that, their customers are the E&Ps, how should we think about that down the line?

Hall: Yeah, that's something you and I talked about the other day, you think about the energy industry and you think about trying to find places where it's safe to invest. And midstream companies are generally thought of as, "Hey, these are the safe places." They don't have the exposure to energy prices. Their cashflows are locked in by these long-term contracts. But to your point, if you're a midstream operator and you focus on gathering, and your biggest customers are smaller, independent producers that have a lot of debt, those rock-solid contracts don't help you much when that producer is insolvent and they go [bankrupt]. You get some recovery, but even those are exposed.

So, I think the biggest thing right now we have to remind investors is that, there's going to be opportunities, there's no doubt. We're going to look back, six months maybe, probably more like a year, two, three, four years down the road, we're going to look back and we're going to say, "Wow! if I had bought Joe's Drilling, I could have made a ton of money." But there's so much uncertainty right now that I think the best thing. And things are not going to recover quickly. Saudi Arabia is playing a long game here to reestablish what a marginal barrel of oil looks like and push as much marginal oil off out of production as it can.

So, I think investors need to realize, we're going to have time to really evaluate the market, find the strong companies and then invest and still get a great price that pays off as the market recovers. But right now, it's just a good time to be kind of just watching and learning.

Sciple: Yeah, I think it's an important thing to remember, you see a lot of these companies fall, 50%, 60% even more percent in the past couple of weeks. And you say, "Man, these companies are looking cheap." It's important to remember, especially if you're somebody who likes to look at price-to-earnings that we really can't write in that earnings number with any type of certainty right now, given the way the market is shaking out. So, it's really tough to identify value. I think when you're looking at companies now -- you kind of teased this earlier, Jason, it's really about looking at the balance sheet, who are the companies that are going to be able to survive this period of uncertainty; we don't know how long it's going to last. When you think about that are there any companies that you think, "Hey, I think they have the balance sheet that they might be able to ride out this storm?"

Hall: Yeah, there are a couple that have things in their favor. Diamondback Energy is an example. I mean, you look at, it does carry a lot, it has over $5 billion in debt, but it only had a small amount that was maturing this year and it refinanced that, I think, maybe in January or early February. So, it's not at the immediate risk as many of its peers, you know, that debt wall you're talking about. It just doesn't have that risk. It has also acted quickly to bring operating cost down. We talked about the completion crews that it's already taken out of the field. Its plans to idle drilling rigs quickly. So, it's taken steps to lower its capital spending.

It also has some reasonably low-cost production; it built a baseline for funding about $3 billion in CapEx this year with oil prices at $45. Most of the folks out there weren't even talking about anything below $50. So, yeah, we're nowhere near $45 right now. West Texas crude, wow! it's down almost 5% now just in the past few minutes. So, it's pushing $31-and-change now. But the point is that they do have some lower cost production. And it has the balance sheet strength that should help it. And it has a management team that's done a really good job of, kind of, focusing on strengthening the balance sheet and acting opportunistically.

Another one, that I think is worth putting on your list is Pioneer Natural Resources, has a stronger balance sheet than many of its peers, it has more cash on its balance sheet than it has debt maturing, than it has current debt. And it has a manageable long-term debt profile. Has good liquidity. In the past two years, management has really focused, while so many of the other guys out there have used "drill more wells" as their answer to everything. Pioneer Natural Resources is really focused on improving its cashflows and not spending to just grow production. And I think that's going to pay off and it's going to be in one of the better positions to ride out this ongoing thing.

Beyond that, I think you start looking at the oil majors. BP, Total and Shell, from what I've seen, look like they have some of the better strength in terms of their production costs compared to some of the other majors, especially when you start factoring in, dividend obligations and things like that. And to think about how much it costs, you know they need to realize for every barrel of oil they produce. Also, I think, you're looking at companies that are a little -- especially, Total and Shell, you're looking at little more diversification. Shell has a lot of strength in natural gas, and that kind of helps it ride-out what's going on in the oil markets.

But again, they're diversified businesses, they're integrated. So, right now you think about petrochemical manufacturing, you think about refining, those businesses tend to be a little more immune to these price shocks. And sometimes refining margins can actually improve when oil prices fall. So, there are things there that are kind of good. And again, I think these are the kind of companies, also that have the financial strength, they tend to carry billions and billions of dollars in cash on their balance sheet. Often, they have the best credit you're going to find, so they don't pay the kind of interest rates that the smaller independents do. And institutional investors buy their debt, institutional investors invest in these companies. So, they're kind of a source of stability.

Last one that I'll put out that I like a lot is Phillips 66. Now, it's an integrated major oil company, but it doesn't produce oil, it's a refiner, a petrochemicals manufacturer, fuel marketer. And some of those businesses are going to suffer. It sells a ton of jet fuel and right now isn't the best time to be in the jet fuel business. It's also a midstream operator. It actually has a pretty strong midstream operation. Some of its subsidiaries do a lot of gathering; so, there's some weakness there. But again, it has an incredibly strong balance sheet. And I think that it's one that, is probably of all the majors, it may be at the top of my list over some of the producers.

Sciple: Yeah, all those, I think, good names. In the near-term, it's really hard to see who benefits of these companies that can survive through this downturn. At least they'll still be in the game on the backend. The only thing I can think of right now that's really going to meaningfully benefit -- you know, you can maybe say refiners, but storage folks. I mean, there's going to be a boatload of oil on the market with all the Saudis and Emirates and Russia, so folks who provide storage are in, kind of, a good position near-term but I don't know if I would invest in that as my thesis. Now, Jason, as we look out further, we've talked a lot on this show and privately about a lot of this shale production that doesn't make money, sooner or later is going to have to get off the market. So, it creates conditions where other companies maybe can thrive and that sort of thing.

As you look out three, five years from now. Do you see this downturn, as kind of creating those conditions where we clear out some of this low-price oil? And if so, who would be positioned to benefit on the backend?

Hall: So, the independent E&Ps, just continue to disappoint me. I mean, we go back to the prior crash. In 2014, oil was still at just over $100 a barrel. And it fell sharply, and I think -- what was it -- 2016? February 2016? We saw $26 oil. And the industry, the reset button got hit on a lot of independents back then. And a lot of us thought we were going to see this period of responsible investment.

And the reality is, the memories of the industry tend to be very, very short. I think that the reality is, if we really -- I don't think this is going to be a disruptive opportunity. I just think it's going to be a reminder that the tried and true things that always work are going to work this time too. It's the strong balance sheet, the good operational excellence of the companies that run lean and focus on keeping operational costs low, but also have flexibility to lever their operations up and down to respond to the market, those are the ones that are going to do well.

But, yeah, I don't see this as a redefining moment, I just think it's just a, "here we go again," we're going to see a bunch of these little independents go bankrupt, we're going to see some of the better ones survive, and we're going to see a bunch of executives, when oil prices go back up, leverage back up into the same situation, because everybody is going to forget.

Sciple: Rights. It's survival of the fittest at this point. And then when things normalize, we'll see. One last question I want to ask you then we'll move on to listener questions. There's been some talk about that maybe the government should come in and help bail these folks out. What's your opinion on that?

Hall: [laughs] That's my opinion. No, seriously. So, Harold Hamm, Continental Resources, that's the Founder and CEO there, is friends with President Donald Trump. And I guess they're trying to float the idea that the government needs to view this as dumping right, as the same thing that China and other countries have done with the steel market, flooding it with these illegally subsidized steel products to drive prices artificially down.

I think that doesn't hold water because Saudi Arabia can produce oil for about $9 a barrel and change. So, they're not illegally subsidizing oil below prices that they could produce it for to drive them, they're just slashing the price. It's sad that we don't have American oil that's necessarily price competitive with some of the oil that's in the Middle East and other parts of the world. We've already pumped all of ours out, we've used it over the past 80 years, and now the shale cost more to produce. So, I don't put any -- yeah, I don't buy that at all.

The other thing too is that, if you look at how this industry has operated over the past few years, the shale has been negative even when oil prices were double. If you look at the amount of money that was given to executives in compensation, the amount of debt that's been taken on. You're just adding in all the real costs and shale hasn't made money, it did make money when prices were double where they are, because the industry as a whole doesn't really practice very good capital responsibility.

So, no, I don't want to see taxpayers bail these guys out. This isn't like banks where it's a service that the entire economy relies on to keep this industry stable. I'm sorry it's just oil just got cheaper. And if a bunch of these guys go out of business because they can't manage their business, I don't feel responsible to bail that out.

Sciple: Yeah, I couldn't agree more with you. When you talk about this industry that has really never produced significant profits and free cashflow at any point in time, and you look at the executive compensation structure at a lot of these folks. Well, these guys are getting massive bonuses when they're not even producing sustainable free cashflow, juicing production when their next marginal barrel of oil they bring on isn't profitable. I just think there has been massive rent-seeking in this industry by a lot of executives. And I think to bail these folks out would just be another rent-seeking behavior that's just undeserved and just a waste of capital in my opinion. And I, as a taxpayer, would be very upset to bail those folks out.

Hall: Yeah, absolutely. I think a much smarter use of that capital, if you really want to help the American taxpayer, if you want to -- because I get the idea, let's be honest, I'm going to make a bold prediction that over the next six months the oil industry is going to lose a 100,000 jobs in the U.S. Who knows, maybe it could be a lot more than that, maybe I'm wildly overestimating it, but I don't think I am. And that sucks. I mean, I can't stress that enough, I hate that. You know, people are going to lose their jobs. My brother lives near San Antonio, he has friends that work in the industry that drive frac sand trucks, that work on rigs. It's going to really be terrible, because a lot of people are going to lose out.

And I get so angry, because executives in some of these companies that are going to go out of business and their employees are going to get hammered, these guys are still going to walk away with seven figures and more in their bank accounts, and that really, really frustrates me. But my point is, instead of throwing more money at these capital destroyers, why don't we just retrain [laughs] all of these people into renewable energy jobs. There you go. That's a better return on my taxpayer money, if we do that.

Am I getting a little spun-up, Nick, what do you think, am I?

Sciple: You and me both, man, you and me both. I was spun-up on this industry before any of this happened. But, yes, let's move on to our listener question. Ron wrote in, he said, "Hey, guys and gals, I had a question. And I'm sure, I'm not the only Fool with that question. I also thought, since not everyone listens to all the podcasts," and they should, he'd ask all of us. The stock market is now falling because of all the fear and people are selling. His question is, "If somebody is selling shares, there has to be somebody else on the other end who's buying the shares." He keeps against his will, seeing the headlines and the news talking about how much selling is going on in the market and asks, if he is missing something. He's hoping he's not missing something, because he's been sitting on cash in his IRA for a while, he's waiting for a pullback, and this is Christmas in March, possibly longer.

Jason, thoughts on Ron's question?

Hall: Yeah. I think it gets back to what we were talking about, having a plan. And I'm going to talk a little bit about what my plan is and how it's helped me over this past little bit of time. So, first, let's talk about; you know, there's always a buyer for every seller, seller for every buyer. But just the mechanics of the way this works. When sellers are leading the market, in other words, there are more sell offers going in then there are buy offers, that's what drives prices down, because there's more supply than there is demand. So, that's why prices have fallen so much, because sellers are driving the prices down. So, that's just the fundamentals of the way it works.

But getting back to my plan. So, as a relatively young person who has multiple decades for things to play out, kind of the way I think about this is, you know, I wrote not too long ago about the amount of cash I keep in my portfolio. And I think, at the time, it was around 5%. That's my retirement account, so that's taxable. All of my investing in equities, I keep around 5% in cash. And when the stock market fell about 10%, then kept going, I deployed about half of that. And now looking back, I think I invested in around 10 different stocks with that money.

So, you got to love no trading fees, right, because it's easier to make smaller, little purchases. I just want to point that out, that's a cool thing. So, I was able to spread my money around and I bought 10 different stocks over the past week, week-and-a-half, somewhere around there. And looking back, you know they all look like stupid decisions. The market has fallen so much since then.

But here's the reality, you get 10% corrections just about every year. So, I think if you wait too long, you're going to miss out on those, just about annual opportunities to buy on a little bit of a market dip, by waiting for the big one. Because the big one happens -- it's a dozen years now, since we had the last big one. When the market, from the bottom to the top was up, like, 500% in total returns. So, if you sat on the sidelines waiting for the next big one before you bought, you know, you missed massive, massive returns. So, that's a big part of my plan, a big part of my process is when I do see a double-digit dip, I always act a little bit more aggressively. So, I have deployed about half of my cash.

Now, the market has fallen more than 25% at this point. So, I am actively, aggressively looking to deploy the other half of that cash, plus my wife and I, both, we have self-directed choices in our 401(k), which means that we're able to buy stocks. The way that my 401(k) has worked is, I generally make a couple of large contributions each year. And I'm actually getting ready to make a large contribution into my 401(k) toward 2019. It's a self-employed 401(k), I could do it up until April 15th. So, that's going to provide me regular additional capital that I'll be able to aggressively deploy. And I will probably, knowing me, I will probably deploy it relatively quickly over the next week or two, because I tend to act pretty quickly.

I could look back in a month or two months or even six months, and it looks like I was a complete idiot and I spend it all way too soon. But history tells me two things, No. 1, we get a lot more small drops and small crashes and small bear markets, then we do, you know, 2007 Great Recession, 60% drops. Those just don't happen very often. So, you don't want to wait too long to act, when you see great opportunity to buy a company that you really like, that the stock's fallen substantially in a short period of time, in one of these, kind of, the markets are going crazy and everything is falling situations, you take advantage of that opportunity, because of the second thing that you observe.

I know if I look out a few years from now, five years, ten years from now, some of the investments that I will have made will still look dumb. I will lose money on some of them, it's just the reality of investing. This isn't about precision, so I'm going to make some bad investments and some companies that just don't pan out, they don't do well. A few of them are probably going to do about what the market does, which is probably going to be very good from today -- even if we fall another 20% or 30% or more from today -- five to ten years from now. That's the way the market tends to work.

And then there's probably going to be a handful that are going to absolutely crush it. That are going to go up 500% or 1,000% or they're just -- they're going to create massive amounts of wealth. You know, the ones that I lose money on or just don't do well, they won't even matter, because the ones that do very well will make up for that and then much, much, much more.

So, I think to answer Ron's, kind of, bigger question. You know, he's a little fortunate in his timing. I think you have to attribute a little bit of luck, because you go back to the end of the year, nobody really had any idea this was going to happen. Yeah, there was a little bit about coronavirus and things were happening, but there's nobody that can say with any certainty, especially any lay person, that we really had any idea this was going to happen. So, you have to acknowledge that luck has played a big role. And having, if it's a substantial amount of money that's still there, it's still there.

So, my suggestion would be, for Ron to -- and not Ron directly, but Ron as a prototypical person in that situation -- now is a good time to start deploying your capital into companies that you like, that if you look out a year from now or you look out five years from now, if they are what you think the future is going to look like, now is certainly the time to go ahead and start deploying some of that capital. You might regret it in a month. You might look at your portfolio and think, "I'm stupid, why did I buy this stock." It's fallen another 10% or 20% or 30% or whatever, who knows, you know, I don't know what the market is going to do any more than anybody else.

But again, I think if you look at the appropriate time-period for owning stocks, which is multiples of years and decades when you can, buying in times like this is when you really create substantial wealth that changes your life and helps you reach your financial goals.

Sciple: Yeah, I couldn't agree more, Jason. It's kind of what we set off the top, times like this is when it's really important to go back to first principles, understand that you're a long-term investor where we're not worried about what happens this year or this month, we're worried about what happens five years down the line. It's important to have a list of companies that if something like this happens and all of the sudden, the stock is down 20%. Maybe go buy some. That doesn't mean, deploy all your cash on day one. I know, over the past several years, everybody has gotten to this, buy the dip, if you buy the dip, it's going to be up back. You'll be making money in no time. I wouldn't expect that under these conditions.

But I think it's a good time to start methodically deploying your cash in those companies that you really are confident about. You know, I'll tell you I've been watching Match Group and Pinterest for a while in the past couple of weeks as those shares have fallen. I've picked up a few shares of that, and I've, by no means, bought my full position, I've just kind of dipped my toe in the water and we're going to continue doing that as things play out.

And if the stock price pops up, I still like the stock. You know, they're not going to ring a bell for you at the bottom. And another thing important to remember is, when it's obvious to everyone that there are no more concerns, then you're not going to get a good price anymore. It's important to act before things are clear, because once things are clear, you know, the value is gone.

Hall: Yeah, again, I'm going to just hit on it again. I think, the best way to think about it is, don't try to be too precise. That's when you make mistakes, because it means you don't buy something because you expect that it's going to continue to fall, and that's a mistake. I think you just build in a reasonable margin of error, suck it up that you don't know what's going to happen in the short-term and buy the great business -- to your point -- with the idea that time is going to be your best friend.

Hey, you know what, I think we might have already fixed the market, the S&P 500 is now only down about 24% versus 25.5%, so.

Sciple: Hey, if we keep talking the rest of the afternoon, Jason, maybe it'll get back to even. We've already ran pretty long for our listeners. So, we hope you bear with us and hope you can stay the course, stick to first principles, think five years down the line. Next month or the next year is not going to be the end-all be-all of the success or failure of your portfolio, keep your mindset right and things will work out.

Jason, thanks for coming on the show, as always.

Hall: Thanks.

Sciple: As always, people on the program may own stocks discussed, and The Motley Fool may have formal recommendations for or against the stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Austin Morgan for his work behind the glass, for Jason Hall, I'm Nick Sciple, thanks for listening and Fool on!