Just a general discussion here. I'm no expert but here's where the Q originated:
Investment advice from Warren Buffet is to be greedy when others are fearful. I was watching an interview with Howard Marks who effectively said, following that advice blindly can be dangerous. Following this advice can sometimes make you a contrarian for the sake of it and what's really important is to ask yourself 'why do you believe the consensus is wrong?' i.e. if others are fearful, understand WHY, AND why they're wrong, before being greedy. He used a humorous example:
3 people move out of the way of an oncoming truck. You jumping in front of that truck doesn't make you a contrarian genius, it makes you an idiot.
He concludes that he doesn't believe in forecasts and he thinks its much more important to understand where we are now as opposed to predicting what is to come.
That led me to ask, WHERE ARE WE NOW!?
S&P 500 has fallen c30% YTD, the fastest bear market ever. One could say the market is being 'fearful', but does that warrant being greedy now?
I've read a bunch of articles claiming equities are cheap. Mark Howard is buying, Bill Ackman is buying (I'm not saying they're right but hey they are more knowledgeable than me!).
What metrics are you looking at to evaluate whether the market is oversold? valuation multiples, earnings revisions, rate of change in new COVID cases, rate of change in deaths, unemployment etc. Or is this all speculation and not a question worth asking at all?
Interested to know in what people think!
I’d want to see the VIX fall drastically for starters. But just from looking at levels of debt and seeing this is just starting to spread in America I would doubt we have bottomed yet completely , but I have started buying . For instance I got a lot of Wendy’s as well as a few other oversold ones
Interesting point on the VIX - just seen it's hit 12 year highs.
When you say Wendy's was oversold, what brings you to that conclusion? (I don't know how they've performed/the investment case)
By the time the VIX falls drastically, it might be too late to take advantage of this environment.
Erik Townsend, while albeit bringing a HF perspective, believes we will continue to see an environment where bonds & stocks fall.
I get that there is going to be a time to aggressively/incrementally buy, but we aren't even feeling the impacts of this whole situation yet. Hell, most people haven't even gotten to the point where their paycheck has been missed.
I think the the bottom is in May or June, not March. Maybe Oil doesn't rebound until shale is utterly wiped off the map. Sure, something like a Charter or a verizon isnt going to go bust because of subscriptions/necessity to consumers, but you could spend 10k hours in Y-charts and not make the right choice in this market still.
Totally agreed on the fact we haven't felt the full impacts of the situation! Also I appreciate the fact trying to call the exact bottom is a pointless exercise but more interested in how I should frame thinking about where the market is right now.
We all know markets extrapolate what the believe is going to happen i.e. it bakes in expectations. So while we haven't felt the full effects of COVID, what gives you confidence that the market hasn't discounted the worst of the virus already?
In terms of your May/June prediction - is this based on a belief that the full impacts will be felt by this time period? or something else
While I can't predict the future I feel confident saying it will get worse. We haven't even seen our first bankruptcy, first unemployment print, containment of virus etc.
When you're confident it can't get any worse, or that placing a purchase order makes you want to throw up into a bucket, that's likely close to a bottom.
That being said, if you're young and start DCA into this you'll do just fine.
Similar response to what I said above - We all know markets extrapolate what the believe is going to happen i.e. it bakes in expectations. So while we haven't felt the full effects of COVID, what gives you confidence that the market hasn't discounted the worst of the virus already?
It's a fair question. Here are several items aside from what I listed in original post. 1) Most large bear markets (GFC, tech bubble, etc) witness a draw down closer to 50% and a 3-6 month duration before reaching bottom. 2) All three major US indices just closed beneath their 2018 lows (big support lines) 3) Liquidity in credit markets isn't there and we're going into quarter end which will likely exacerbate the situation as redemption are made and leveraged funds/ETFs are further unwound 4) More stock are making new lows vs new highs (downward trend) 5) We are about to see massive spikes in viruses/deaths reported and until those start to level out the market will wonder how bad it can get 6) I don't yet want to throw up into a bucket
While I agree with you, the markets factors in the bad news, sometimes well ahead of it happening.
You are right. Curious, what stocks are you looking to add during this? I feel a lot of good companies have already been cut and half and some great opportunities coming. I’m looking at TWLO, AYX, TTD, SQ, CYBR, SHOP and other FANGs.
I think we’ve still got a ways to go. Some are forecasting that we’ll see a period like the 1930s. Idk. There’s never been a period where a large group of the work force across a few industries is fired nearly immediately. Rises in unemployment typically happens over a long period of time and trickles through the economy creeping into other sectors. Consumer confidence falls.
This happened very quickly. This will be interesting to see where we go from here.
So would you say the market has discounted earnings revisions but not fully factored in the effects from the incoming unemployment?
I'd say that's a fair statement.
No idea how long it will fall, but I will be buying all the way down and back up again :)
Like others here, I do not have a crystal ball but it just seems like there is the potential for a more significant recession than we have seen in the past few decades. In 2001ish, (9/11) the primary industries that suffered were the airlines, financial services and any business tied to NY. In 2008/2009, financial services and real estate were hurt the most. Today, I would have to think the number of industries impacted by this virus would be much greater that the two periods I referenced above.
At the moment, I am not a buyer.
Agreed on your points that this will have a more widespread effect than previous periods.
Out of curiosity, what would have to happen for you to be a buyer? market falling further, fewer new cases etc?
I am not a health care guy and as a result, I would not know how to analyze and use any positive news. To consider buying , one or more of the following would need to happen:
Lots of boring takes on this post.
If we all agreed we were at a bottom, the market wouldn’t be doing this poorly. It’s too easy to sit on the sidelines due to fear of more downside. China is ramping back up. The collapse in the markets is way overblown for two terrible quarters.
What is your justification for your view that the market is overblown? How do we know markets in Feb were overstretched and the 28% fall we've seen in the S&P is simply bringing valuations down to fair value?
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