Significantly Outperforming a Bear Market

[formthirteen]

On 5/20/2022 at 2:50 PM, wabuffo said:

In the past, I would make sure that 25-40% of my portfolio was in market-neutral special situations like liquidations, Ch.11s where the equity was money-good, etc. 

 

Good thread and ideas.

 

@wabuffo where do you find these special situations? Any opinion on a potential $KSS buyout offers? There has been some speculation about a price above $60.

 

$KSS up 15% from when I started writing this post, LOL.

[wabuffo]

where do you find these special situations?

 

I set up certain types of search terms & SEC document types which help me flag them.  Also google news alerts based on those same types of search terms.  You have to cast a wide net that most of the time comes back empty - but occasionally it catches something.

 

Bill

[formthirteen]

10 minutes ago, wabuffo said:

I set up certain types of search terms & SEC document types which help me flag them.  Also google news alerts based on those same types of search terms.  You have to cast a wide net that most of the time comes back empty - but occasionally it catches something.

 

Bill

 

Thanks!

[rkbabang]

I've been almost fully invested since 1996 or so.  I rarely hold more than 5% cash.   In bear markets I do the same thing I do in bull markets: look for individual stocks I think will go up from here and sell stocks I think will go down from here.   I got clobbered in 2000, because I was heavily invested in tech.  I started investing in 1996 and thought tech stocks simply go up and never down.  I discovered value investing shortly after the crash and re-evaluated what I was doing.   I actually had up years in 2008 and 2009, due to Fairfax, Middleby/Turbochef acquisition arbitrage, and Steak & Shake.   I'm not down as much as the market is this year, mostly because last year I started lightening up on my tech stocks and buying real estate and O&G stocks.   Just selling things I think are bubbly and going into things I think will go up.

 

[Gregmal]

7 minutes ago, rkbabang said:

I've been almost fully invested since 1996 or so.  I rarely hold more than 5% cash.   In bear markets I do the same thing I do in bull markets: look for individual stocks I think will go up from here and sell stocks I think will go down from here.   I got clobbered in 2000, because I was heavily invested in tech.  I started investing in 1996 and thought tech stocks simply go up and never down.  I discovered value investing shortly after the crash and re-evaluated what I was doing.   I actually had up years in 2008 and 2009, due to Fairfax, Middleby/Turbochef acquisition arbitrage, and Steak & Shake.   I'm not down as much as the market is this year, mostly because last year I started lightening up on my tech stocks and buying real estate and O&G stocks.   Just selling things I think are bubbly and going into things I think will go up.

 

Ya. Common sense is really the largest and most useful input. But not everyone has it. Weirdly, most financial types I’ve run into are all WAYYY too academic or anchored to textbook shit and business school or CFA type nonsense.

 

All I’ve heard since I’ve started my career, 2010 or so, is “you’ve never seen a bear market” and “your generation doesn’t appreciate cycles and risk management”…but whenever shit hits the fan, at least so far the past decade, Im always like “well you have and I haven’t, how come I’m still doing better than you? Lower drawdowns. Quicker recoveries. Using meaningful amounts of margin and never holding cash, and holding concentrated positions! How is it possible?”

 

And really, as you said, it’s about being sensible and knowing what you’re buying in the context of the current macro backdrop. Then applying common sense.

[Cigarbutt]

On 5/21/2022 at 11:34 AM, flesh said:

...

What the statistical name for it when you start your graph at the point in time that makes your point the best? I'd call it framing. It's like when the left touts income inequality, graph always starts about 1980 at the peak of equality due to a decade of inflation and high rates. Right before decades of lowering interest rates benefiting those with assets. There should be asterisks next to everything humans say. 

Interesting.

And potentially relevant bcoz if inequality is a 'thing', the typical course of human events usually implies some kind of forced redistribution of a smaller pie.

Can this be discussed here without reverting to locker room talk?

What you refer to is the time frame bias and it's significant (climate, investment performance etc). What is the bias whereby all causation is linked to a single variable when the variable is, in fact, only part of a confluence of other significant variables?*

-----

Inequality has become a 'thing' in the sense that most data show it convincingly well and in the framework of a potential to a return to the mean and of the fact that too much of a good thing is not good.

The following shows the top 1%'s share of income (just an example that matches the top 5%, top 20%, top 40% long term trends, pre or post 'transfers'; using wealth or income etc etc; trend has continued and even accelerated after 2019):

For some reasons, the 1945-75 time 'frame' was associated with high (inclusive, 'shared' or whatever you want to call it) growth and high productivity.

There are many factors driving inequality, including main drivers and possibly unknown or undefined circumstances but low rates, as a single variable, do not explain inequality trends. 

There is some evidence that the inequality derived form quite fragmented data during the roaring 20s may have been, in fact, slightly exaggerated. From an excellent 2000 paper, there was the following quote, showing how essentially all inequality that occurred during the Coolidge 'prosperity' years happened as a result of capital gains:

More recently, capital gains and other equity-related income have played a role but straight compensation has also become a key ingredient.

i would offer the opinion that, apart from low interest rates, polarization, automation, globalization and a generally lower level of dynamism (temporary) have been the main drivers.

Now what to do?

Whatever the case, nature will take its course (eventually).