How to make money from this crash - Lessons from 2008

[jhcap]

I would like to discuss how the most money was made from the depths of the last crisis.  There are different approaches.  eg.

 

"Now is the time to buy quality names as they are on sale"

"Buy the strongest companies is beaten up sectors"

"Buy net/nets trading below cash"

 

Let's please assume that this coronavirus will end in months and that the underlying productivity and demand in the world has not fundamentally changed.  Some things will change.  I think once all this is over a lot more people will have tried food delivery and will have decided they like it (or not).  What are the second/third order effects and what is the sector to buy.  My thoughts:

 

- Sovereign debt crisis as countries are forced to borrow on a massive scale

- This leads to further bid for quality names - "if you made money in two crises you are unbreakable"

- General further shift to online/digital as people who had never previously used online became aware of ease of setting up accounts/payments etc.

- Defined benefit pension plans are further hit by lower discount rates - this could be offset by lower life expectancies and mortalities (unlikely to be material)

- Further shift away from physical entertainment as people realise they like staying in and playing playstation etc.

- Shift away from gyms as people realise they like jogging/their peloton.

 

My current thought on the sectors to buy are:

 

Highest quality airlines as soon as I am convinced they are past raising capital, hopefully in a closed end fund that is trading at a discount.  Demand for air travel will continue rising in long term.

Levered airline industry names that have to recapitalise - eg Sydney Airport, Aercap. 

Levered small cap in a fund that is trading at a discount as soon as it's clear economy is recovering.

Capital allocators like Berkshire, Markel and Exor at point of maximum dislocation and uncertainty.

 

I was very lucky and new to value investing in the GFC. I didn't start entering the market until May of 2009 which proved to be pretty close to the bottom which had occurred a few months early (pure luck). I was able to quadruple my portfolio from there by buying very cheap companies with good fundamentals as well as net-nets. I was pretty concentrated in about five stocks. I'm not a momentum or growth oriented investor and I don't claim to be able to pick a bottom, but back in 2009 net-nets were abundant in many industries. I have yet to see that in this market. I'll start buying when I can fill a portfolio with net-nets (non-biotech) from a variety of industries. I also will wait until limits aren't being tripped on a regular basis, both in regular trading hours and futures. I do remember looking at LVS in 2009 which hadn't opened Macau yet. It traded at 72 cents a share at one point. I didn't buy because of the debt and fear that no one would gamble again. I remember when it hit $72 a share four years later. Not sure if there is a lesson there.

[Uccmal]

I was just recollecting 2009, about this time of year.  I bought Leaps on HD - share price <$20.  Sbux < $10; GE< $10; and American Express (Can’t recall but it was cheap).  Hd and Sbux were unrelated to the Financial Crisis in any direct sense.  GE had already received bailouts.  AXP was affected by the GFC.  I held FFh going into March 2009 and it got cut in half after announcing huge bond and derivative gains. 

 

My main point is that things could get a whole lot cheaper from here, regardless of any stimulus measures.  The main bailouts occurred in the fall of 2008.  The market bottom was in March 2009.  Even after the virus runs its course it may take months to years to see any meaningful recovery.  We were due for this pull back for years.  Covid 19 was  just the trigger. 

[meiroy]

USA economy can reach positive GDP quite quickly by boosting local demand and protecting it from external economies.

 

Demand means money going straight to households and via large infrastructure projects.

 

The GOP proposed package is not going in this direction, but if the Dems get their way, it might just happen.

 

Demand is not going to come from the second-largest economy in the world, or all these other economies teetering on the brink of the abyss.  It has to be created at home. No other way this time around.

 

Creating local demand also means debt-forgiveness and incentives, so SMEs can actually reopen quite quickly as long as the demand exists it will support their growth.

 

This is not 2008.

 

Also, there's serious pent-up housing demand, unlike 2008.  Housing can provide a tremendous push, of course as long as all the conditions are met... people need the money to buy.

 

I would not worry about inflation for half a second.

 

 

[ukvalueinvestment]

To further summarise some ideas I've seen:

 

Thanks for starting the thread.  I’ve been watching a few other similar conversations so the below is a bit of a compilation. 

 

I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

 

Lots of them are accelerations of long term trends.

 

- The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

 

- Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

 

- The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

 

- Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

 

- Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

 

- Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

 

- Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

 

- Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

 

- As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

 

- China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

 

- Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.

 

[Uccmal]

 

 

I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

 

Lots of them are accelerations of long term trends.

 

- The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

 

- Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

 

- The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

 

- Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

 

- Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

 

- Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

 

- Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

 

- Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

 

- As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

 

- China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

 

- Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.

 

 

Some of these are likely but some are unlikely, based on observations since 2000 or so. 

 

- Digital purchasing may increase but in whole sectors it just doesn't work that well.  i.e. groceries:  delivery has always been available, for 120 years, and has never become the primary means of purchase, home supplies: people still like to kick the tires.  I can look at 20 profiles of a reno part I need and nothing compares to actually holding and looking at it.  This will play out one way or the other in real time, in the next couple of months. 

 

- for alot of people working from home sucks, and nothing really gets done.  Not everyone but many.  People are social. Maybe it  increases a bit, but so many jobs don't work that way.  More and more people fly for business every year. 

 

- many companies are never prudent with their capital.  Most CEOs in general don't think that way.  They are not value investors, and have no investing acumen.  Look at the huge number of share buybacks at market highs as an example.  Sure they will be prudent for awhile until the heat is off then its back to debt fuelled empire building.

 

- same goes with people saving.  If the aftermath of 2007-2009 has shown me anything its that human nature doesn't change. 

 

- definitely agree about the high quality companies.  But that has always been the case. 

 

- bureaucracy never goes away.  It gets cut in one area and appears elsewhere.  All big organizations have it.  That is why the investing curve exists - Peter Lynch covered this really well 30 years ago. 

 

- supply chains might diversify.  Probably due more to automation becoming cheaper than sending raw materials to Asia in return for garbage products. 

 

 

[SharperDingaan]

Just to throw some things out ...

 

Bet on break-down. Share prices of major companies decline an additional 50-70% from where they are today.

It will take time for the market denial to penetrate, but we're coming down from a decade worth of artificially high and inflated levels.

 

Bet on a FDR type 'New Deal'. Trump gone, fiscal vs monetary stimulus into mega-projects to get people working again, critical off-shored supply chains returning on-shore. The US ban on the export of N-95 masks, in a global pandemic, underlying the necessity.

 

Bet on infrastructure redevelopment, and the supply-chains feeding it. New power grid, new charging station grid for e-vehicles, new inner-city housing redevelopment, new tech and the use of that tech (blockchain, AI, WeWork type set-ups, etc.)

 

Bet on accelerated change. Trump is 78, and representative of 1-2 generations of privilege.

According to the 2015 Actuarial Life Table, he will be dead within 9.5 years. https://www.ssa.gov/oact/STATS/table4c6.html

Attitudes and influence that are rapidly waning, and at accelerated rates.

 

Point is ... bet on change, and a lot of it.

 

SD

 

 

 

 

 

 

[Cigarbutt]

To further summarise some ideas I've seen:

 

Thanks for starting the thread.  I’ve been watching a few other similar conversations so the below is a bit of a compilation. 

 

I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

 

Lots of them are accelerations of long term trends.

 

- The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

 

- Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

 

- The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

 

- Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

 

- Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

 

- Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

 

- Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

 

- Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

 

- As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

 

- China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

 

- Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.

Can you talk a bit about pricing. What's risk/reward.  What is fair value for these assumptions.

[coc]

One thing I'd like to point out is that almost all of the recommendations and predictions coming out of this thread - summarized above - are simply extrapolations of what's currently happening. More people working from home, education done virtually, stock market declining further, shares of well insulated companies staying high, more government spending, more supply chain insourcing, etc etc.

 

Don't mean to denigrate it but basically this is how all thought processes tend to happen in the middle of a panic. I'm sure some of it will undoubtedly be true.

[krazeenyc]

To further summarise some ideas I've seen:

 

Thanks for starting the thread.  I’ve been watching a few other similar conversations so the below is a bit of a compilation. 

 

I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

 

Lots of them are accelerations of long term trends.

 

- The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

 

- Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

 

- The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

 

- Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

 

- Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

 

- Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

 

- Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

 

- Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

 

- As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

 

- China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

 

- Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.

 

Assuming we mostly get out of this mess in < 6 months.

 

Employers will realize -- mass working at home ... DOES NOT WORK.

Educators will realize -- virtual education... IS TERRIBLE.

 

Companies will deleverage, and people will be hermits, save, live healthier, etc. for a while..... UNTIL.. they don't.

 

Then people will smoke, drink, travel, and live their lives. And executives in charge will be greedy again and do more stock buybacks to maximize their compensation and bonuses.

 

I think one of the few lasting changes from this tragedy will be that SOME small percentage of people learn better hygiene habits and stick to it.

[vinod1]

This reminded me of Jeremy Grantham quote: When he was asked what people would learn from the whole financial crisis of 2008-9, Jeremy Grantham said, “In the short term a lot, in the medium term a little, in the long term, nothing at all. That would be historical precedent.”

 

Vinod

[Gregmal]

I think theres a couple things to consider. This recession, is not like GFC. GFC was led entirely by the banking and financial system. Those institutions are the lifeblood of EVERYTHING. Those things freeze up, and everything else goes down.

 

Here that is not the case. Banks are healthy and well capitalized and stimulus is being pumped out through lending programs that should, in time, lead the way back. From 08 until what? maybe 2015... this aspect, lending, was removed from the market. I remember in 2012 I was a couple years removed from college and couldn't get a $400k mortgage with $160k annual income and an 800 credit score(with all those first time home buyer programs as well).

 

Businesses in certain areas will go belly up. But there will be capital(cheap capital) incentivizing those willing, to get back out there. New businesses will emerge. Perhaps the only differences is that people will be a little smarter.

 

My major concern with this setup is not the obvious corona industries. Its those PLUS all the energy jobs that will be disappearing. Those two areas are a major component, especially in some of the go-go states. Thats why an infrastructure plan could be massive for the US.

[elliott]

what would coronavirus lead to insourcing of supply chains?

I am not questioning the trend here, just wondering why do we say the trend is due to the virus.

the fact that a country needs to import something from abroad makes it dependent on the exporters, with, and without, virus

and in countries where the virus is causing damage, products that are made totally "in-house" also experience supply chain issues

 

[DooDiligence]

 

Educators will realize -- virtual education... IS TERRIBLE.

 

 

I've only been doing Zoom classes for a week but so far, so good.

 

I do miss being able to interact with other students before, during and after class,

because our discussions have played an important part in my understanding the material.

 

When the dust settles, I'd be OK with doing 1 virtual & 1 actual classroom meeting each week.

 

---

 

SD summed it up well,

 

"there will be changes..."

[wabuffo]

The lesson from 2003 (after the 2000-02 deflationary bust) and 2009 (after the 2008 GFC) is --  buy the trashiest micro-caps you can and buy a bunch.  Their share prices go up the highest.

 

In my previous post about which stocks performed the best after the deflationary bust of 2000-02, I mentioned a study I saw about 2003 stock performance by various classes of stocks.  It was from Morningstar.  I was able to find the article and am posting a link here:

https://www.morningstar.com/articles/102369/the-real-stock-market-story-of-2003

 

Some highlights:

Financial Health

Morningstar assigns Financial Health grades to all the stocks in our database (A is the best grade, and F the worst). These grades are based on interest-coverage ratios and debt levels. Here's the breakdown of 2003 stock returns by Financial Health grade:

 

Grade      Average Return

A                55.6%               

B                68.9%               

C                94.9%               

D              115.8%               

F              110.7%

Stocks with Earnings vs. No Earnings

Out of 5,999 stocks in our database, 2,496 had negative earnings last year. These 2,496 stocks gained 117%, on average. They have a trailing three-year standard deviation of 102%. (Standard deviation is a measure of volatility--the higher the standard deviation, the more volatile the stock.) By contrast, stocks with positive earnings gained 68% last year and have a standard deviation of just 44.6%. 

 

Of course, I am in no way recommending this strategy.

 

wabuffo

[WayWardCloud]

Have you guys considered investing in the death industry?

(sorry in advance if that brushes off someone's ethics the wrong way. There's other industries that I couldn't see myself investing in with a clear conscience but this is one I personally have no problem with.)

 

Way early on, back when I was still wondering whether this virus was overblown or the real deal, I decided that not knowing was OK and to open a long position in Service Corp International which is the biggest US+Canada owner of cemeteries and funeral homes.

 

My reasoning was that either the fear was overblown - in which case I'd ride that little virus-caused dip with a fine company that I'm totally OK with having in my portfolio anyway and which would most probably go trading right back up with the rest of the market - or COVID turned out to be a serious threat (now we know it is) and this investment would act as an antifragile hedge (=the worst things get, the better it does). I must admit I was all proud of my reasoning but so far I've been wrong and Amazon/Walmart/Costco would have been the better asymmetrical risk choices (as in: something that will most likely behave like the market if the economy chugs along but much better than it if things do turn into Mad Max).

 

For proportions, there's about 3M deaths each year in the US and Canada and SCI takes care of about 16% of them.

Meanwhile, even our ostrich in chief is now talking about a 100-240k death toll.

 

Thoughts?

[RichardGibbons]

For proportions, there's about 3M deaths each year in the US and Canada and SCI takes care of about 16% of them.

Meanwhile, even our ostrich in chief is now talking about a 100-240k death toll.

 

Thoughts?

 

To me, this answers your questions--the projections on the high side are still less than a 10% increase in business, and funerals are gatherings of people which are discouraged. It might a small net positive to them or even a small net negative, but it certainly doesn't seem like it can be a large net positive.

 

So, possibly good for defence, but probably not good for offense.

[SharperDingaan]

Have you guys considered investing in the death industry?

(sorry in advance if that brushes off someone's ethics the wrong way. There's other industries that I couldn't see myself investing in with a clear conscience but this is one I personally have no problem with.)

 

Way early on, back when I was still wondering whether this virus was overblown or the real deal, I decided that not knowing was OK and to open a long position in Service Corp International which is the biggest US+Canada owner of cemeteries and funeral homes.

 

My reasoning was that either the fear was overblown - in which case I'd ride that little virus-caused dip with a fine company that I'm totally OK with having in my portfolio anyway and which would most probably go trading right back up with the rest of the market - or COVID turned out to be a serious threat (now we know it is) and this investment would act as an antifragile hedge (=the worst things get, the better it does). I must admit I was all proud of my reasoning but so far I've been wrong and Amazon/Walmart/Costco would have been the better asymmetrical risk choices (as in: something that will most likely behave like the market if the economy chugs along but much better than it if things do turn into Mad Max).

 

For proportions, there's about 3M deaths each year in the US and Canada and SCI takes care of about 16% of them.

Meanwhile, even our ostrich in chief is now talking about a 100-240k death toll.

 

Thoughts?

 

Not to be macabre, but it's actually a very good idea. Not for today, but perhaps a year out.

Retirement homes are similar to subsidized housing; the rent is fixed for as long as the 'tenant' lives there, and market rate is set by demand. In today's environment, death rates will be materially higher than 'normal', and market rates lower. Hard to find a higher number of replacement tenants amid the space's developing reputation as 'death hotels'. Valuation dropping like a brick, as the rental stream melts.

 

But, retirement homes exist for very practical reasons, and their 'value-add' will become increasingly obvious as we move through Covid-19. Like it or not, there will be a 're-set', and a rush back - filling MORE space than usual and at HIGHER market rates (today's, versus that of 5-7 years ago). Valuation goes ballistic, as the rental streams rapidly double/triple.

 

How much?  Assume that you would normally be willing to pay 0.6x todays rental income of $1,000, or $600. Sh1t happens, rental income declines to $500, and you would now only pay 0.4x, or $200. Recovery happens, rental income rises to $1200, and you now have to pay .667x re competition, or $800. 

 

If you simply sat on a $600 T-Bill for a year, and THEN invested; you would have $2,400. (600/200)*800

4x your money, while staying as safe as possible (T-Bill), through a global pandemic. Obscene.

 

Points are

1) you have to be able to live with yourself afterwards, and

2) the average post-recovery 'benchmark' return is not going to be high teens, it is going to be in the 2-4 bag range.

 

SD

 

 

 

 

[Guest cherzeca]

I think theres a couple things to consider. This recession, is not like GFC. GFC was led entirely by the banking and financial system. Those institutions are the lifeblood of EVERYTHING. Those things freeze up, and everything else goes down.

 

Here that is not the case. Banks are healthy and well capitalized and stimulus is being pumped out through lending programs that should, in time, lead the way back. From 08 until what? maybe 2015... this aspect, lending, was removed from the market. I remember in 2012 I was a couple years removed from college and couldn't get a $400k mortgage with $160k annual income and an 800 credit score(with all those first time home buyer programs as well).

 

Businesses in certain areas will go belly up. But there will be capital(cheap capital) incentivizing those willing, to get back out there. New businesses will emerge. Perhaps the only differences is that people will be a little smarter.

 

My major concern with this setup is not the obvious corona industries. Its those PLUS all the energy jobs that will be disappearing. Those two areas are a major component, especially in some of the go-go states. Thats why an infrastructure plan could be massive for the US.

 

I have been thinking along these lines, that banking health will make this corona recession different, less severe.  but my concern now is that as much as lending is the life blood of commerce, so is social interaction.  we cant zoom our way out of this mess.  we will need the confidence to meet people, shake their hands, have business lunches/dinners etc.  and I dont see that happening until social confidence is restored, and if we aren't doing antibody tests to give people comfort that they are in the all clear category, and until a very effective anti-viral therapy is rolled out, and eventually a vaccine, then this will take longer than it should.  we will soon have nothing to fear but fear, and that is as bad as the virus

[Guest cherzeca]

"immunity passports" as a condition to full social reentry?  https://www.zerohedge.com/health/immunity-certificates-are-coming-covid-survivors-get-special-passports-enabling-return

[Cigarbutt]

The lesson from 2003 (after the 2000-02 deflationary bust) and 2009 (after the 2008 GFC) is --  buy the trashiest micro-caps you can and buy a bunch.  Their share prices go up the highest.

In my previous post about which stocks performed the best after the deflationary bust of 2000-02, I mentioned a study I saw about 2003 stock performance by various classes of stocks.  It was from Morningstar.  I was able to find the article and am posting a link here:

https://www.morningstar.com/articles/102369/the-real-stock-market-story-of-2003

Some highlights:

Financial Health

Morningstar assigns Financial Health grades to all the stocks in our database (A is the best grade, and F the worst). These grades are based on interest-coverage ratios and debt levels. Here's the breakdown of 2003 stock returns by Financial Health grade:

Grade      Average Return

A                55.6%               

B                68.9%               

C                94.9%               

D              115.8%               

F              110.7%

Stocks with Earnings vs. No Earnings

Out of 5,999 stocks in our database, 2,496 had negative earnings last year. These 2,496 stocks gained 117%, on average. They have a trailing three-year standard deviation of 102%. (Standard deviation is a measure of volatility--the higher the standard deviation, the more volatile the stock.) By contrast, stocks with positive earnings gained 68% last year and have a standard deviation of just 44.6%. 

Of course, I am in no way recommending this strategy.

wabuffo

Thank you for the data and the perspective.

It reminds me of Sir John Templeton who, apparently, bought a bunch of penny stocks in 1939 after the end of the world was announced.

From an unaudited and a pre-virus 12-mo trailing perspective, about 41% of non-financial Russell 2000 Index members reported negative operating profit (38% including financials) so the opportunity set is on a growth trajectory.

Quoting others does not indicate investment prowess (i think this quote is from you) but Sir Templeton evolved his thinking about maximum pessimism: "Invest at the point of maximum pessimism, in companies of high quality, where you detect future earning power is patiently being built but is not yet recognized by the market" and one has to decide when maximum pessimism has been reached.

Cash is trash or invest in the worst of trash?

[turar]

I can't seem to find an equal weighted Wilshire 4500 or extended market (ex-SP500) etf. Do you know if one exists in ETF or Mutual fund form? The results of SP500, SP600 and RAFI equal weights don't look as good.

 

It doesn't exist.  It's a theoretical portfolio that Wilshire constructs and calculates every month:

https://www.wilshire.com/indexcalculator/index.html

 

Equal weight portfolio have one big design problem in real-life.  The monthly re-balancing to get back to equal weights for 4500 stocks imposes huge frictional costs that really punishes returns.

 

I use the Wilshire 4500 to get a feel for what the average small cap stock does each month.  I call it the dart-throwing monkey portfolio.  So my example upthread is not to suggest an ETF or fund, but rather to answer the question of what type of stocks rebound most after a sharp bear market.

 

Hope it helps,

wabuffo

 

VXF?

[randomep]

 

 

For proportions, there's about 3M deaths each year in the US and Canada and SCI takes care of about 16% of them.

Meanwhile, even our ostrich in chief is now talking about a 100-240k death toll.

 

Thoughts?

 

Off the top of my head.  Death is a terrible business, it is mostly small operators. And worst of all, it is NOT a high growth business.  I remember looking up Japan, death numbers is increasing only about 1% / yr, and I don't think they can offer much more expensive services over time.

[Spekulatius]

 

 

For proportions, there's about 3M deaths each year in the US and Canada and SCI takes care of about 16% of them.

Meanwhile, even our ostrich in chief is now talking about a 100-240k death toll.

 

Thoughts?

 

Off the top of my head.  Death is a terrible business, it is mostly small operators. And worst of all, it is NOT a high growth business.  I remember looking up Japan, death numbers is increasing only about 1% / yr, and I don't think they can offer much more expensive services over time.

 

Since you can’t really meet, there is no reason to do elaborate funerals. It’s turn and burn time ( cremation). More business potentially, but far less profitable.

[WayWardCloud]

Not to be macabre, but it's actually a very good idea. Not for today, but perhaps a year out.

Retirement homes are similar to subsidized housing; the rent is fixed for as long as the 'tenant' lives there, and market rate is set by demand. In today's environment, death rates will be materially higher than 'normal', and market rates lower. Hard to find a higher number of replacement tenants amid the space's developing reputation as 'death hotels'. Valuation dropping like a brick, as the rental stream melts.

 

But, retirement homes exist for very practical reasons, and their 'value-add' will become increasingly obvious as we move through Covid-19. Like it or not, there will be a 're-set', and a rush back - filling MORE space than usual and at HIGHER market rates (today's, versus that of 5-7 years ago). Valuation goes ballistic, as the rental streams rapidly double/triple.

 

How much?  Assume that you would normally be willing to pay 0.6x todays rental income of $1,000, or $600. Sh1t happens, rental income declines to $500, and you would now only pay 0.4x, or $200. Recovery happens, rental income rises to $1200, and you now have to pay .667x re competition, or $800. 

 

If you simply sat on a $600 T-Bill for a year, and THEN invested; you would have $2,400. (600/200)*800

4x your money, while staying as safe as possible (T-Bill), through a global pandemic. Obscene.

 

Points are

1) you have to be able to live with yourself afterwards, and

2) the average post-recovery 'benchmark' return is not going to be high teens, it is going to be in the 2-4 bag range.

 

SD

 

 

Very interesting feedback, thank you for the idea.

I'm not sure I understood your math very well but I'll study the industry more tomorrow.

Any publicly traded names you're thinking of?

 

 

 

For proportions, there's about 3M deaths each year in the US and Canada and SCI takes care of about 16% of them.

Meanwhile, even our ostrich in chief is now talking about a 100-240k death toll.

 

Thoughts?

 

Off the top of my head.  Death is a terrible business, it is mostly small operators. And worst of all, it is NOT a high growth business.  I remember looking up Japan, death numbers is increasing only about 1% / yr, and I don't think they can offer much more expensive services over time.

 

Since you can’t really meet, there is no reason to do elaborate funerals. It’s turn and burn time ( cremation). More business potentially, but far less profitable.

 

Yes, definitely one of the last highly fragmented mom and pop industries.

To my knowledge, there are only two aggregators: Service Corp International SCI at around 16% of TAM and Carriage Services CSV at around 5%.

A slow growth business using adequate leverage on a very predictable (the famous "death and taxes") and regionally moaty service doesn't have to necessarily be a bad thing in my mind.

 

By the way, Japan's population was 127M in 2000 and is 126M today, meanwhile the US population went from 282M to 331M.

There is definitely an argument to be made for secular decline in price per death care event because younger people tend to favor cremations over burials and those are cheaper.

[kab60]

Total deaths in the US - And probably everywhere - is down because of the coronavirus lockdown... Apparently life kills, so when people are holed up at home they don't die as often...