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Tips for surviving a correction
#41
I am surprised to learn this past week that most of this forum has a significant cash position, except for some on the youngin's.  I hope we don't discourage any of them with my our chatter.  This is a DGI forum, and the correct answer for somebody young with a $10K port is full steam ahead.  Just buy quality all your way through this.  Try to time the bottom for 40 years, and you'll miss the bus, and probably submit to the FOMO and buy high at some point.  

That said, some cash seems prudent.  This seems to be a market looking for a reason to be volatile.  The virus could very well be legit.  The political excuses I hear from the talking heads are laughable.  The market is scared because Bernie had momentum, the market is happy because he won't be Trump.   Today it may run because Biden has momentum.  If he gets too much momentum they'll get scared Trump won't beat him.  The political winds aren't investable, and maybe not even tradeable other than providing an excuse for volatility.  It's just a casino right now.  

I'm not saying growth stocks won't remain popular, but the market will get back around to higher dividend stocks IMO.  Maybe not so much oil, tobacco and other high headwinds stocks like some of the REITs.  There are now lots of quality boring stocks paying 3-4% after the 20% pullback many of them have seen, and quite a few of them are aristocrats.  We should be able to come out of the back end with higher yielding ports.  I don't think we will see 15 PEs for most of them though.  That would require a 50% correction in SP if their earnings pullback.  In effect, you are predicting a harsher than average recession.  Of course it could happen, but it's not my prediction with all this liquidity, and a President who will no doubt cut taxes if he gets concerned at all about the polls.  I think a correction like that is off in the future, but that's what makes a market.  2020 is going to be a ride.  That seems like the easiest prediction ever.  

Now I need to hear some more sky is falling price targets from Divemenow the stock Swami.  Smile
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#42
(03-04-2020, 05:49 AM)fenders53 Wrote: I am surprised to learn this past week that most of this forum has a significant cash position, except for some on the youngin's.  I hope we don't discourage any of them with my our chatter.  This is a DGI forum, and the correct answer for somebody young with a $10K port is full steam ahead.  Just buy quality all your way through this.  Try to time the bottom for 40 years, and you'll miss the bus, and probably submit to the FOMO and buy high at some point.  

That said, some cash seems prudent.  This seems to be a market looking for a reason to be volatile.  The virus could very well be legit.  The political excuses I hear from the talking heads are laughable.  The market is scared because Bernie had momentum, the market is happy because he won't be Trump.   Today it may run because Biden has momentum.  If he gets too much momentum they'll get scared Trump won't beat him.  The political winds aren't investable, and maybe not even tradeable other than providing an excuse for volatility.  It's just a casino right now.  

I'm not saying growth stocks won't remain popular, but the market will get back around to higher dividend stocks IMO.  Maybe not so much oil, tobacco and other high headwinds stocks like some of the REITs.  There are now lots of quality boring stocks paying 3-4% after the 20% pullback many of them have seen, and quite a few of them are aristocrats.  We should be able to come out of the back end with higher yielding ports.  I don't think we will see 15 PEs for most of them though.  That would require a 50% correction in SP if their earnings pullback.  In effect, you are predicting a harsher than average recession.  Of course it could happen, but it's not my prediction with all this liquidity, and a President who will no doubt cut taxes if he gets concerned at all about the polls.  I think a correction like that is off in the future, but that's what makes a market.  2020 is going to be a ride.  That seems like the easiest prediction ever.  

Now I need to hear some more sky is falling price targets from Divemenow the stock Swami.  Smile

Here's your chance to sell at the open while were up 700 points... sell,sell,sell,  Big Grin

In all seriousness if you a young investor you have nothing to worry about. Don't think 1, 10, 0r 12 weeks out. Think 5, 10, 15, 20 years out. If you have a long term outlook this is not a bad time to buy some quality companies. Some great stocks are 20-25% off there highs. Get a list ready and buy the ones you think will be a around for many years to come and have a strong balance sheet.
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#43
(03-04-2020, 05:49 AM)fenders53 Wrote: I am surprised to learn this past week that most of this forum has a significant cash position, except for some on the youngin's.  I hope we don't discourage any of them with my our chatter.  This is a DGI forum, and the correct answer for somebody young with a $10K port is full steam ahead.  Just buy quality all your way through this.  Try to time the bottom for 40 years, and you'll miss the bus, and probably submit to the FOMO and buy high at some point.  

That said, some cash seems prudent.  This seems to be a market looking for a reason to be volatile.  The virus could very well be legit.  The political excuses I hear from the talking heads are laughable.  The market is scared because Bernie had momentum, the market is happy because he won't be Trump.   Today it may run because Biden has momentum.  If he gets too much momentum they'll get scared Trump won't beat him.  The political winds aren't investable, and maybe not even tradeable other than providing an excuse for volatility.  It's just a casino right now.  

I'm not saying growth stocks won't remain popular, but the market will get back around to higher dividend stocks IMO.  Maybe not so much oil, tobacco and other high headwinds stocks like some of the REITs.  There are now lots of quality boring stocks paying 3-4% after the 20% pullback many of them have seen, and quite a few of them are aristocrats.  We should be able to come out of the back end with higher yielding ports.  I don't think we will see 15 PEs for most of them though.  That would require a 50% correction in SP if their earnings pullback.  In effect, you are predicting a harsher than average recession.  Of course it could happen, but it's not my prediction with all this liquidity, and a President who will no doubt cut taxes if he gets concerned at all about the polls.  I think a correction like that is off in the future, but that's what makes a market.  2020 is going to be a ride.  That seems like the easiest prediction ever.  

Now I need to hear some more sky is falling price targets from Divemenow the stock Swami.  Smile

Agreed. If you are young, have a small portfolio, and are at the beginning of the compounding curve, even a 2008/9 drawdown is a non-event for your portfolio. If you are 40 and planning for early retirement, the calculus is a bit different, and using put options to multiply your market downturn cash pile you had been building so you can buy more yield at the bottom isn't a bad idea. That said, the time to be buying puts was early February, when the markets were at all time highs. They cost a lot more now, as the market has a different assessment of risk.
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#44
This is going to get ugly.

Foxcon cut revenue projections by 15%. Fedex EPS q3 guidance lowered to $1.22 from $1.72 by suisse. GE cuts cashflow guidance by $500M.
Amazon employee in seattle and broadcom in san jose tested positive.
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#45
I'm pretty sure I'll hedge a little more in the future.  It's as tricky as any part of investing though.  You can spend a lot of money for insurance over time waiting to be right.  The whole thesis for my covered put selling income strategy is taking premiums from those buying "insurance".  I agree that the risk was most obvious last month Otter.  I used my cash position as a hedge of sorts this time, since I've felt equities have been overpriced for most of the past few years.  If I could have used the typical 60/40 model, I would do that and call it a day.  That just doesn't seem prudent with these bond yields.  I don't see the opportunity to buy many longer term bonds for years to come, but things change so who knows?  I think the house of cards will have to tumble before anything will change.        

Some of my recent investments will probably be early in hindsight.  I usually am.  I'll have to treat those with patience.  That is why I am trying to be disciplined and only buy quality now.  Patience is MUCH easier for me, if I believe in what you own.  I'm finally not forced to buy distressed stocks like MO, oil and very few others just because they are the only thing that looks reasonably priced.  I look at a stock like F and think, "well this surely looks like the end you dummy".  Smile  I know better than to go crazy doubling and tripling down.  Some of them end up being a sucker bet and you nullify the ones you got right.
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#46
(03-04-2020, 10:37 AM)fenders53 Wrote: I'm pretty sure I'll hedge a little more in the future.  It's as tricky as any part of investing though.  You can spend a lot of money for insurance over time waiting to be right.  The whole thesis for my covered put selling income strategy is taking premiums from those buying "insurance".  I agree that the risk was most obvious last month Otter. 

We have mostly been at all time highs since May 2013.
The risk was no greater in february 2020 than it was when SPX was at 2100, 2400, 2700, 2900 or 3,000. I do not fight the tape.
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#47
(03-04-2020, 04:54 PM)NilesMike Wrote:
(03-04-2020, 10:37 AM)fenders53 Wrote: I'm pretty sure I'll hedge a little more in the future.  It's as tricky as any part of investing though.  You can spend a lot of money for insurance over time waiting to be right.  The whole thesis for my covered put selling income strategy is taking premiums from those buying "insurance".  I agree that the risk was most obvious last month Otter. 

We have mostly been at all time highs since May 2013.
The risk was no greater in february 2020 than it was when SPX was at 2100, 2400, 2700, 2900 or 3,000. I do not fight the tape.
ATHs don't alarm me so much.  The market is generally up and to the right over time.  Continuous ATHs + no earnings growth does cause me to be more conservative.  Some multiple multiple expansion is OK.  To my knowledge we have never seen rates this low with a generally strong economy.   There is some limit to how much expansion I am comfortable with.  At some point we revert to the historical mean, or at least head in that direction.  I was pretty sure we were due for some correction soon enough, in spite of the tape.  

I do intend to hedge some when the time seems right.  l will never go all in on that idea though because you are fighting the tape.  Buying options is always gambling and you are not the house.  I'll get it wrong more often than I will get it right after premium decay is factored in.
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#48
Market never goes down in straight line. I feel there will be ralllys like this but if the crona spread continues for another month or so, we will see large impacts on economy.

I am not sure how much rate cuts will help, fed can go on to cut rates further and then what? They are pumping in money to keep the markets up.
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#49
(03-04-2020, 04:54 PM)NilesMike Wrote:
(03-04-2020, 10:37 AM)fenders53 Wrote: I'm pretty sure I'll hedge a little more in the future.  It's as tricky as any part of investing though.  You can spend a lot of money for insurance over time waiting to be right.  The whole thesis for my covered put selling income strategy is taking premiums from those buying "insurance".  I agree that the risk was most obvious last month Otter. 

We have mostly been at all time highs since May 2013.
The risk was no greater in february 2020 than it was when SPX was at 2100, 2400, 2700, 2900 or 3,000. I do not fight the tape.

Unless last week's volume and volatility spike, coupled with an initial large drop are indicators of a phase transition in the stock market. Bear markets aren't a straight line down. There is usually a fair amount of choppiness.

Below is a link to a recent academic paper investigating phase transitions during market crashes and corrections:

https://papers.ssrn.com/sol3/papers.cfm?...id=3512362

Full PDF of the paper is available at that abstract page. TL;DR The underlying cause of the transition is often revealed in an initial volume/volatility spike, and ultimate consequences correlated with that initial information input to the market lags somewhat during a chaotic period (or, even shorter TL;DR "volatile price discovery"). 

I haven't seen anything that changes the epidemiological outlook for SARS-CoV-2. Pretty much any credible epidemiologist has pointed out that this is now a pandemic (Germany's health minister conceded this point yesterday, as well). Absent some completely unforeseen White Swan event (hope springs eternal), the situation on the ground in Seattle is going to look like Wuhan did in late January by the end of this month. That's where they are in the timeline, which has begun playing out in more than one location outside of China. Based on detected/reported cases, South Korea and Italy are about a week ahead of us, and Spain is a bit out in front of our numbers. There are already shortages of hospital beds in South Korea. Italy is close to having a shortage in the most heavily affected regions. Markets will catch up to the information.
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#50
First of all I appreciate how this thread is proceeding. Some obvious differences of opinion, and it's been nothing but respectful. Folks would be telling others how stupid they are on a lot of forums.

I'm pretty open minded, and I know there is 100+ years of market experience conversing on this thread. We should have seen it all by now lol, but the reality is we haven't. If I was certain my views are right, you'd be reading about the 1000 shares of stock and all the calls I bought this week. Instead, I'm buying 5 or 25 shares since this got rough, and spreading it out among beaten down stocks with good divs. Trying to make a little income here and there, and peeling a few extra shares off the top and bottom of whatever I think might be the trading range for now. I have an end game though. The market is not going to force me to panic or get FOMO.

This market might drop 40% or make a new ATH next week, or more likely trade sideways and choppy for a while. I've seen a lot of scared markets, and I've seen a lot of greedy markets. It seems to me we have both going on here right now. The flu thesis says we are almost surely going to see something catastrophic, and the other side of the trade seems to be scared they'll miss out on the next run higher. My opinion evolves some with the daily news. The market knows half the companies are going to pre-announce an earnings miss. I'm left wondering if that will even matter because the market will look ahead a couple quarters to the better times with renewed earnings growth and the flu receding. The market moves aren't about politics IMO. I'll continue to trade around this some, and stay a little cautious, but mostly invested for the long-term.
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