Have We Hit The Top?

[Xerxes]

You guys all miss the dip on Resolute Forest, it is now 7% higher from its lows.

Lost your chance.

 

[Gregmal]

Man look at all you fundamental investors patting yourselves on the back over day trading gains! Just kidding. But important to remember sometimes volatility and investing are related and sometimes they’re not. 80% of what I saw selling off in the morning was total nonsense. End of the day it turned out to be just that. If it hadn’t, would you feel any different?

[Spekulatius]

1 hour ago, Gregmal said:

I am not sure all the underpinnings of this are entirely there. Is it possible to have a 10% correction in the stock market? What about 20%? Should shitty companies that got bid up for silly reasons get punished shortly thereafter? That’s perfectly sensible to me. Will people who don’t know how to invest sell their stocks because other people are selling? Sure. 
 

I don’t see why there always needs to be a lot more to it than that. The Fed put doesn’t need to be there, unless the bet is that the Fed destroys the economy…which…seems like a poor bet to me.

 

Much of the short trade I think is done. The decline in the stuff that deserves it have been huge. It could still continue but my take is there’s better use of time than shorting for the last couple drops in the bottle. Otherwise? What? Shorting good companies hoping they go down tomorrow or the day after? Not a game I wanna play. 
 

Can you explain where you see a bubble in real estate? Every thesis I’ve heard basically simplifies to “prices went up 20% in a year” which doesn’t really seem like a bubble to me, especially compared to where the rest of the world is with it. Or relative to where real estate prices have been for the past decade plus. 
 

Sometimes I think we try to hard to see what we want to see. The Fed raised rates and all that in 2018/19 and we were fine. +32% if I recall. However all we hear about is a 3 week correction in December. 
 

All in all this whole “the Fed controls stock market returns” narrative has been around forever and I kind of think it’s repeatedly been shown to be a mistake to fall back on assuming it’s true every time we have a few down days or weeks. 

 

https://www.fool.com/investing/general/2013/08/19/what-i-plan-to-do-when-the-market-crashes.aspx

 

I sort of doubt the frequency of 50% crashes. hard to say with outlier events. If true, we had our fill for this century.

 

 

Edited January 24, 2022 by Spekulatius

[Viking]

My biggest mistakes in investing the past 10 years have happened by not paying enough attention to what the Fed was doing  

 

I understand other investors ignore the Fed and earn very good returns. 
 

Just another example of there is no ‘right’ way to make money in financial markets. The trick for each investor is to find a ‘way’ that fits their life situation AND their intellect and how they are wired.

 

And that is why i like and get so much value out of what people post on this board. Even when they sometimes drive me a little nuts (and i say that with a smile on my face). Just like my wife drives me a little nuts some days…

Edited January 24, 2022 by Viking

[Xerxes]

I think if everyone would be patient, you get the additional Q4 data point as earning kick-in. Don't think prices is going to run away to the upside, but at least you have more data points to make a better decision, especially for companies who growth trajectories had a Covid-induced step change, so you are lapping Q4 2021, with Q4 2020 and pre-Covid Q4 2019. I own Mercadolibre and saw the lapping take hold in Q3 of last year as % growth in topline just trailed off.

 

Some of these growthier names (SQ, etc.) have crashed through their 200-day-moving-average.

 

If only Prem Watsa was shorting these names at the right time. Poor Prem. He cannot win. Xerxes will always complain.

 

[Xerxes]

6 minutes ago, Spekulatius said:

 

https://www.fool.com/investing/general/2013/08/19/what-i-plan-to-do-when-the-market-crashes.aspx

 

I sort of doubt the frequency of 50% crashed. hard to say with outlier events. If true, we had our fill for this century.

 

 

 

Most people run out of dry powder by the time it gets to 40%, depending how fast is descent.

 

A rapid flash crash of 45% (March 2020) can be timed to a certain degree and deploy capital efficiently.

 

A grueling 45% descent over 2 years with multiple bear traps will sap the investor's spirit dry. Someone with a $1 million portfolio may not have $200,000 cash on standby to deploy, and would feel throwing money into a firepit over the two years period, before his wife leaves him.

 

[Xerxes]

21 minutes ago, Viking said:

My biggest mistakes in investing the past 10 years have happened by not paying enough attention to what the Fed was doing  

 

 

Maybe that was not the biggest mistake and perhaps it was the biggest pillar of your success. Depending on the way you are/were wired, paying attention too much on the Fed would have had you hedge your entire portfolio.

 

Perma-bears and perma-bulls are eventually both right in the fullness of time.

 

I personally think, unless if you are close to retirement, paying too much attention to the Fed can be a net costly mistake. Six months now, a portion of inflation which was more supply chain driven and not monetary related could be sorting itself out, in which case, it would help Fed, and the picture would change again, ... now with that new data point.

 

[Gregmal]

52 minutes ago, Xerxes said:

 

Most people run out of dry powder by the time it gets to 40%, depending how fast is descent.

 

A rapid flash crash of 45% (March 2020) can be timed to a certain degree and deploy capital efficiently.

 

A grueling 45% descent over 2 years with multiple bear traps will sap the investor's spirit dry. Someone with a $1 million portfolio may not have $200,000 cash on standby to deploy, and would feel throwing money into a firepit over the two years period, before his wife leaves him.

 

Managing your buying power(cash, liquidity, etc, whatever you want to call it) and sizing your positions properly are IMO two of the most important things. If you get those right, you can make a lot of mistakes and live to tell about it. Theres lot of people who get 4/5 right and the 1 wrong kills them. And then theres people who get 9/10 right but if its too small it doesnt matter. Balance and evolve. The right answer today isnt always the right answer tomorrow(or even an hour from now). 

[Gregmal]

1 hour ago, Viking said:

My biggest mistakes in investing the past 10 years have happened by not paying enough attention to what the Fed was doing  

 

I understand other investors ignore the Fed and earn very good returns. 
 

Just another example of there is no ‘right’ way to make money in financial markets. The trick for each investor is to find a ‘way’ that fits their life situation AND their intellect and how they are wired.

 

And that is why i like and get so much value out of what people post on this board. Even when they sometimes drive me a little nuts (and i say that with a smile on my face). Just like my wife drives me a little nuts some days…

TBH I probably agree with you more than I let on with some regards. I wouldnt even fully say that everything I throw out there is held in high conviction. Most of it is, but sometimes  simply smashing ideas together, especially with other thoughtful people, helps form a useful Frankenstein. These sort of places are great because you see enough of everything. 

[MikeL]

6 minutes ago, Gregmal said:

Managing your buying power(cash, liquidity, etc, whatever you want to call it) and sizing your positions properly are IMO two of the most important things. If you get those right, you can make a lot of mistakes and live to tell about it. Theres lot of people who get 4/5 right and the 1 wrong kills them. And then theres people who get 9/10 right but if its too small it doesnt matter. Balance and evolve. The right answer today isnt always the right answer tomorrow(or even an hour from now). 

@Gregmal is this something you can learn from reading books/articles, or you have to learn it the hard way by practicing and making mistakes.

I am new to investing, I don't play with options and I don't short. how can I always have dry powder to deploy when market dips. 

 

Sorry if it's a silly question.

[Parsad]

1 hour ago, Xerxes said:

 

Most people run out of dry powder by the time it gets to 40%, depending how fast is descent.

 

A rapid flash crash of 45% (March 2020) can be timed to a certain degree and deploy capital efficiently.

 

A grueling 45% descent over 2 years with multiple bear traps will sap the investor's spirit dry. Someone with a $1 million portfolio may not have $200,000 cash on standby to deploy, and would feel throwing money into a firepit over the two years period, before his wife leaves him.

 

 

LOL!  That's about right.  I remember on all three occasions, I had invested all of the capital by the time markets hit about a 40% correction. 

 

After that it was selling 7-10 times PE stocks to buy 3-5 times PE stocks.  In 2008-2009, literally selling 5-7 times PE stocks to buy 2-3 times PE stocks and 6 month to 2 year corporate bonds at 40-50 cents on the dollar.  I remember buying Sears Holdings 6 month bonds for 50 cents on the dollar.  They had enough cash, let alone inventory, to cover the next 2 years worth of debt, but investors were selling 6 month out bonds for 50 cents on the dollar!

 

This time around in March 2020, there were so many bargains in retail and restaurants, for the first time in my life I said I'm going to use 15% margin.  Bought Macy's at $4.99 and Overstock at $2.99...crazy!  Luckily, I'm not married, so no wife to worry about and I was able to take advantage of those opportunities.  Cheers! 

[Kupotea]

I think the FEDs action from the last decade can be seen as a fight against deflation. It makes sense to prop up the stock market when you need more cash in people's pockets. Conversely, I think we're moving into at least a temporary period where the FED would prefer financial assets to fall in order to mitigate some inflationary pressures. The more the market falls the less they actually have to do in terms of raising rates. The US government can't afford significantly higher rates at this time so hawkish talk is really the best tool in their belt.

 

I'm fully allocated right now with a defensive tilt to my chosen positions. I also have a 5% SPY hedge in place. If the market continues to falls and pulls everything down I can liquidate the put/lower beta stocks and use that cash to invest into new opportunities. If the market shrugs it off and climbs higher my assumption is the longs more than cover the insurance from the put. You can't time the market but I do believe you can get a sense of when you should be positioned defensibly and when it's okay to leverage up a bit and swing for the fences.

[Viking]

1 hour ago, MikeL said:

@Gregmal is this something you can learn from reading books/articles, or you have to learn it the hard way by practicing and making mistakes.

I am new to investing, I don't play with options and I don't short. how can I always have dry powder to deploy when market dips. 

 

Sorry if it's a silly question.

@MikeL if you are new to investing hopefully that means you are also young. Being young usually means you are adding lots of new money to your portfolio (that savings thing)… New money often increases portfolio value faster than portfolio return. At least it did for me when i was young. 
 

I tell all young family members to train their brains to pray for BIG market sell offs. And when they happen find as much money as possible and buy…

 

Dollar cost average, but try and go bigger when markets sell off. 
————-

Now if you are retired and trying to protect your nest egg (versus grow it quickly) then you can stop praying for a stock market sell off… and pray for something else instead.

 

 

[Gregmal]

1 hour ago, MikeL said:

@Gregmal is this something you can learn from reading books/articles, or you have to learn it the hard way by practicing and making mistakes.

I am new to investing, I don't play with options and I don't short. how can I always have dry powder to deploy when market dips. 

 

Sorry if it's a silly question.

No silly questions. Because there isnt really a right answer. I didnt invest through 1987 and 1999 but I immersed myself in material related to those events. Dig up newspapers that give you real time sentiment. Shit like that. BRK letters are good. If you can conceptualize events and then put them in context, you will be ahead of the game. 

 

For certain styles, unfortunately, you really just have to be in the market. You'll never know how truly terrible it is to be in a short squeeze if you've never been short over the weekend and some great news gets released. Shit like that. Overtime, you get that experience by being in a lot of different positions and seeing how they end up playing out. Psychology is one of the most underrated aspects of investing. Markets and cycles are always heavily driven by psychology. 

 

On position sizing, its personal. But if you are young and capable, you can almost never go too big. Up til maybe your mid 30s. By then you need to have something put in the bank. But my biggest regrets were being in my mid 20s and doing it the proper textbook way. Where I diversified and put less than 10% into a big winner by the name of GOOG. Of course, years later simply by earning, the GOOG position and all its success wasn't really relevant. Could I have risked 3-4x that? Absolutely. Even if it went down 50% 3-4x the allocation at that point in my life wouldnt be a big deal. So position sizing, assumptions matter. But project a position against your net worth 5-10 years out and ask if youre really making a worthwhile investment. 

 

Further on that. If you have a 6 figure portfolio in your 30s, but make 6 figures annually, again, a 10% loss can easily be replaced. Whereas if you have $5M and you're 50 and never plan on working again, you're going to go the @Viking route and try to preserve your wealth rather than grow it aggressively. Once you have what you need to live on your own terms, more isnt really more, at least not all the time. The other side of that, IMO, is that once you have what you need, you can have fun with anything over that. The @ERICOPOLY route I guess we can call it. So theres really different strokes for different folks. If you enjoy investing then theres added benefit. 

 

My only real advice is if you're doing it, know yourself, and immerse yourself in it. Ask questions(like you did) theres lots of people here you can learn from. I learn lots from folks all the time, sometimes they probably dont even realize it. 1) stick to quality. 2) size yourself properly. 3) realize where you are in your life and where you want to go. Money is just a means to an end. 

Edited January 25, 2022 by Gregmal

[MikeL]

@Gregmal and @Viking, much appreciated your invaluable advice. Unfortunately, I am not young any more  I find investing fascinating, as it's not only about making money, it's about changing and shaping your mind constantly, I learned a lot from this board.

 

 

[Xerxes]

2 hours ago, Kupotea said:

I think the FEDs action from the last decade can be seen as a fight against deflation. It makes sense to prop up the stock market when you need more cash in people's pockets.

 

Technically speaking, this is not their mandate.

 

Their mandate is inflation and unemployment (I believe). I think that asset inflation is just a by-product of Greenspanism and his successors.  

 

 

[Xerxes]

2 hours ago, Parsad said:

  Bought Macy's at $4.99 and Overstock at $2.99...crazy!  

 

Cheers!

By the way, the movie "Dark Waters" that you recommended last year is finally on Crave TV.

Dont know if you remember, finally i will be watching it.

 

[Parsad]

2 minutes ago, Xerxes said:

 

Cheers!

By the way, the movie "Dark Waters" that you recommended last year is finally on Crave TV.

Dont know if you remember, finally i will be watching it.

 

 

I thought it was quite good...and the story is compelling.  Cheers!

[Thrifty3000]

2 hours ago, Parsad said:

 

LOL!  That's about right.  I remember on all three occasions, I had invested all of the capital by the time markets hit about a 40% correction. 

 

After that it was selling 7-10 times PE stocks to buy 3-5 times PE stocks.  In 2008-2009, literally selling 5-7 times PE stocks to buy 2-3 times PE stocks and 6 month to 2 year corporate bonds at 40-50 cents on the dollar.  I remember buying Sears Holdings 6 month bonds for 50 cents on the dollar.  They had enough cash, let alone inventory, to cover the next 2 years worth of debt, but investors were selling 6 month out bonds for 50 cents on the dollar!

 

This time around in March 2020, there were so many bargains in retail and restaurants, for the first time in my life I said I'm going to use 15% margin.  Bought Macy's at $4.99 and Overstock at $2.99...crazy!  Luckily, I'm not married, so no wife to worry about and I was able to take advantage of those opportunities.  Cheers! 

Are you still tapping margin? I don’t use margin, but I’ve been thinking about doing what you did during future panics. But, I don’t have my margin game plan nailed down yet.

[Parsad]

9 minutes ago, Thrifty3000 said:

Are you still tapping margin? I don’t use margin, but I’ve been thinking about doing what you did during future panics. But, I don’t have my margin game plan nailed down yet.

 

No.  Once the Macy's tripled and Overstock.com shot through the roof, I paid it off.  Also, I should correct what I said...I actually used a secured line of credit that I keep dry, rather than actual margin from a broker.  That way I wasn't exposed to any margin calls if things kept dropping for a while.  I would not use actual margin from a broker...no matter what. 

 

I had never used debt to leverage my investments before, but in such a dramatic fall, I would do so again...limited to about 15% of the portfolio value.  That way I get some leverage, but I can sleep at night. 

 

Also, the pandemic was different...you knew that things would recover relatively quickly and many industries would be barely hurt, whereas 2008-2009 was much scarier...the potential destruction was extremely broad in 2008-2009, and the financial system was at risk.  I would not have used leverage in 2008-2009, but probably would if something like 2000-2002 happened or 2020.  Cheers!  

[Kupotea]

12 hours ago, Xerxes said:

 

Technically speaking, this is not their mandate.

 

Their mandate is inflation and unemployment (I believe). I think that asset inflation is just a by-product of Greenspanism and his successors.  

 

 

 

Their mandate is price stability and unemployment. My point is that the stock market affects inflation via the wealth effect and when you're fighting deflation it helps to have a rising stock market. The reverse is also true. I think it's silly that people think the FED has their back and would never let the market crash. One of the easiest tools in their belt today is purposely talking the market down.

[backtothebeach]

In my opinion the drop and yesterday‘s bounce were way too fast to have been a meaningful bottom. 

 

Also there is a gap in SPY / S&P500 from April last year at $400 that needs to be filled.

[Thrifty3000]

19 hours ago, Parsad said:

 

No.  Once the Macy's tripled and Overstock.com shot through the roof, I paid it off.  Also, I should correct what I said...I actually used a secured line of credit that I keep dry, rather than actual margin from a broker.  That way I wasn't exposed to any margin calls if things kept dropping for a while.  I would not use actual margin from a broker...no matter what. 

 

I had never used debt to leverage my investments before, but in such a dramatic fall, I would do so again...limited to about 15% of the portfolio value.  That way I get some leverage, but I can sleep at night. 

 

Also, the pandemic was different...you knew that things would recover relatively quickly and many industries would be barely hurt, whereas 2008-2009 was much scarier...the potential destruction was extremely broad in 2008-2009, and the financial system was at risk.  I would not have used leverage in 2008-2009, but probably would if something like 2000-2002 happened or 2020.  Cheers!  

 

Yeah, that makes sense to use asset backed debt rather than margin - to guard against a great depression scenario. Like I said, I don't have a game plan yet, and I'm only talking about pulling the trigger in an extreme market dislocation (probably at least a 30% decline from a recent peak). I may only go that route when I see a really crazy spread between an investment's dividend yield and the loan's interest rate. For example, I believe Fairfax had some preferreds yielding over 12% at the height of the 2020 panic. Situations like that seem like a decent candidate to borrow at a sub 5% rate to net at least 7% (and hopefully enjoy appreciation as fear subsides and yields normalize).

 

I'd love to have a handful of situations like that to take advantage of. And, I'd probably be tempted to ride high yielders like that to maturity, and then use the principle payback to pay down that debt. However, if I invested in heavily discounted low yielders, like BRK, then I'd probably cash out of that once it made a return trip to fair value.

[Gregmal]

So now Grantham is on TV talking about how things are going to be even more severe than he thought…last week! 
 

Some of these guys are such scammers. The more attention you give them the more they seek. Don’t know how anyone can take him seriously. What a fool.

[Xerxes]

Greg,

I believe that Bloomberg Front Row interview was done few weeks ago, tidbit of which was released only. And this week additional tidbits are released. I still cannot find his full interview. He did one last year which I thought was pretty good (but early).