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Is The Bottom Almost Here?


Parsad
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I was nearly 60% cash back in November 2021, and now finally I'm getting close to 100% invested...probably about 95% right now.  That usually happens as we approach the bottom...I'm usually early, but we must be starting to get close if I have that many ideas in my portfolio!  Cheers!

 

https://finance.yahoo.com/news/jpmorgan-says-retail-investors-finally-125001587.html

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I am down to 40% cash. I am going to be patient until we see what happens with earnings season in July. I think earnings estimates are too high… spiking interest rates, oil and US$… and now a slowing economy… will hit corporate margins at some point in time. If i am right and earnings and earnings outlooks come down as companies report Q2 then analysts will be bringing down their 2022 and 2023 earnings estimates. And this will give us perhaps the final flush down in equity prices (or at least the next leg down).
 

If not, i am 60% invested. Regardless i am confident Mr Market will serve up more wonderful opportunities in the coming months. 
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Normal bear markets take about 18 months on average to play out. We are what, about 6 months into this bear market… and inflation (the reason we are having a bear market) is not yet under control…

Edited by Viking
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7 minutes ago, Viking said:

I am down to 40% cash. I am going to be patient until we see what happens with earnings season in July. I think earnings estimates are too high… spiking interest rates, oil and US$… will hit margins at some point in time. If i am right and earnings and earnings outlooks come down as companies report Q2 then analysts will be bringing down their 2022 and 2023 earnings estimates. And this will give us perhaps the final flush down in equity prices. 
 

If not, i am 60% invested. Regardless i am confident Mr Market will serve up more wonderful opportunities in the coming months. 
—————

Normal bear markets take about 18 months on average to play out…

 

Could be right!  In a worse case scenario when I'm out of cash and markets keep falling, I keep trading down to lower and lower P/E's...tightening the spring on the way back up.  That's what I did in 2008/2009 and March/April 2020...works like a charm.  In March/April of 2020, I even tapped into my line of credit to leverage up as things became stupid cheap!  Cheers!

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43 minutes ago, Parsad said:

I was nearly 60% cash back in November 2021, and now finally I'm getting close to 100% invested...probably about 95% right now.  That usually happens as we approach the bottom...I'm usually early, but we must be starting to get close if I have that many ideas in my portfolio!  Cheers!

 

https://finance.yahoo.com/news/jpmorgan-says-retail-investors-finally-125001587.html


Care to share your top 3 holdings (highest conviction ideas as of todays prices)?

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Just now, Viking said:


Care to share your top 3 holdings?

 

I'll do better...I'll give them all to you...in order:

 

FFH, META, ATCO, GOOGL, AMZN, BAC, JEF, OSTK, GE

 

I estimate the portfolio will rise 30-50% in a year or so...50-80% over 2-3 years.  At least my expectations say so...reality is another thing!

 

Cheers!

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1 minute ago, modiva said:

I think there is a good chance of a recession (if we are not in one already, statistically at least). Wouldnt banks be negatively impacted during recessions? Lower loan volumes, higher defaults etc. I am looking to avoid bank stocks until the air clears. 


Yes, recessions are not good for banks. With BAC selling off close to 40% i think its current share price already discounts a slowing economy. If we get a mild recession it will probably sell off another 5-10%. If we get a severe recession perhaps it sells off another 15-20%. Or maybe the narrative shifts and stock pops 10-15% higher. Maybe the stock at $31 already discounts a mild recession? We just don’t really know. I would love to bottom tick all my purchases… but i don’t think that is a realistic objective. 

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Energy Inflation, strong dollar (traditionally not good for S&P earnings where 50% is derived from overseas), rising labor costs, waning consumer sentiment at home & abroad........means S&P500 profits & profit margins are going to get whacked in the next 3-6 months......multiples have come in from heady highs giving some comfort to jump into a bear market rally.....but everybody forgets the denominator risk with our friend E in P/E........and thats the next shoe to drop with earnings revisions by companies then analysts pulling in 23/24 index earning forecasts. 2021 will be a record year for S&P profit margins for years to come IMO.

 

I expect another 20-30% drop & some folks to be scratching their head wondering how FWD P/E multiples can stay the same at ~x16 but their index fund just did another bear on them on top of the previous bear!

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I share the concerns regarding corporate earnings. Consumers are pulling back and I'd be surprised if we don't see that reflected in corporate revenue and earnings in the next 1-2 quarters which could hit stocks. I also think that the Fed knows they missed the mark on inflation and therefore are likely to be overly aggressive on the tightening side to show the markets they are serious. I'm sure they'll want to seen consecutive reports of CPI/PCE on the way down before they stop. 

 

But it's hard to know where the bottom is. Greg's point about what's priced in already is well taken. 

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I would be surprised if we are at the bottom.  Interest rates are going up, housing is not affordable for a large segment of the population, consumers might be squeezed and the US (maybe lots of the world) is headed into a recession.  Also, lest we forget, the fed has totally shot their load-they have no tools I'm aware of. 

 

Not making predictions, just saying I wouldn't be surprised if we saw more downside pressure  

 

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9 minutes ago, AzCactus said:

I would be surprised if we are at the bottom.  Interest rates are going up, housing is not affordable for a large segment of the population, consumers might be squeezed and the US (maybe lots of the world) is headed into a recession.  Also, lest we forget, the fed has totally shot their load-they have no tools I'm aware of. 

 

Not making predictions, just saying I wouldn't be surprised if we saw more downside pressure  

 

Flip that around. If those fears were not existent, would the broader market have fallen to the extent it did? IMO, Nasdaq? Maybe. Everything else? No way.

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11 hours ago, changegonnacome said:

Energy Inflation, strong dollar (traditionally not good for S&P earnings where 50% is derived from overseas), rising labor costs, waning consumer sentiment at home & abroad........means S&P500 profits & profit margins are going to get whacked in the next 3-6 months......multiples have come in from heady highs giving some comfort to jump into a bear market rally.....but everybody forgets the denominator risk with our friend E in P/E........and thats the next shoe to drop with earnings revisions by companies then analysts pulling in 23/24 index earning forecasts. 2021 will be a record year for S&P profit margins for years to come IMO.

 

I expect another 20-30% drop & some folks to be scratching their head wondering how FWD P/E multiples can stay the same at ~x16 but their index fund just did another bear on them on top of the previous bear!

 

Are earnings going to get whacked?  What is whacked exactly...earnings off 2-3% or earnings off 10%+?  From everything I'm seeing, earnings look to be flat or slightly down for the next 2 quarters...I bet you they are good after the Christmas quarter.  Drop in consumption is being supported by an increase in the cost of goods sold...since jobs are plentiful, incomes are higher and consumers are still spending. 

 

If the average consumer buys 10% less ketchup, but the price is up 7-8%, what is the net hit to revenues?  Certainly not a deep recession "whack", but probably a light recession hit.  A lot of that is already priced into many stocks. 

 

I think this may be a prolonged up and down market...down 20-30%, then a rebound up 30-40%, then down again 15-30%, then up 20-30%...as things unwind, interest rates slowly rise...a new equilibrium has to be set each time, and it won't be a comfortable market like we saw between 2010-2019...it will be a stock picker market.  Cheers!

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18 minutes ago, Gregmal said:

Flip that around. If those fears were not existent, would the broader market have fallen to the extent it did? IMO, Nasdaq? Maybe. Everything else? No way.

 

I guess we don't know right-there's only one reality.  But markets don't go up forever-last year markets were up like 30%-was that actually warranted?

My point is over the course of a general cycle-periodic pullbacks are healthy.  In this specific cycle, there are several factors that are (somewhat) unique-inflation at a 30 year high, student loan debt at an all time high, a maxed out fed etc. Lastly here, I wouldn't categorize what I mentioned as fears other than the fear of a recession.  It's a fact that inflation is at like a 40 year high, it's a fact that housing is unaffordable and it's a fact that student loan debt is hurting many consumers.  

 

If we look at the past call it 15 years there have been a couple of times (2008 and 2020) where the fed has intervened in a huge, huge way and we can't push the can down the road forever.  

 

Appreciate the healthy debate @Gregmal

 

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31 minutes ago, Gregmal said:

Flip that around. If those fears were not existent, would the broader market have fallen to the extent it did? IMO, Nasdaq? Maybe. Everything else? No way.

It is possible that current correction is just a reversion from the artificially inflated markets of 2021 (through massive stimulus and speculative sentiment) and that markets have not priced in a prolonged economic downturn or higher interest rates. Psychologically, people are anchored to the prices of late 2021.

Valuations for some stocks are attractive at current interest rates, but fair/over-valued at higher rates. We have not seen valuations go far below fair value which tends to happen during downturns/real capitulations.

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