Sell

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Submitted by davelj on June 2, 2020 - 5:27pm

In my view...

You should pretty much sell every risk asset that you can - pretty much. This recent rally is a gift from the market gods to de-risk in the face of financial armageddon.

Amazingly, incredibly, beyond all reason... the S&P500 is down just 10% from it's (significantly overvalued) February all-time high. Despite what's likely to be 15%+ peak-to-trough decline in GDP, 15%+ unemployment, profit decimation, overwhelming corporate and personal bankruptcies, myriad bank failures... and no bullets left in the Fed's gun where rates are concerned... stocks levitate. I would argue that this stock market is the most overvalued US market I've ever seen - possibly including 1999/2000.

And it's all a trade - just like all of the classic sucker rallies. Only the big liquid names are moving and driving the indices higher. No one wants to actually "hold" anything. Everyone thinks they'll be the first ones out the door.

The good news is that the banks are *much* better capitalized than they were going into the Financial Crisis. The bad news is that they're going to need every dime of that capital to stave off a crushing wave of bad commercial and CRE loans. Drive down whatever street near you has a lot of strip malls. I live in Mexico now but I drove down Broadway in Chula Vista the other day and just looked on either side of the street - restaurants, nail/hair salons, small hotels, miscellaneous services and retail... at least 1/3 of these businesses will fail by year-end. They simply do not have the wherewithall to survive. And the others will limp along for years afterward. Virtually all restaurants are fvcked. Even if they can seat using social distancing guidelines, only a small percentage can break even. It could be 18 months before there's a "normal" restaurant business. Hospitality (resorts, hotels, vacation rentals)... fvcked. Total wipeout. Airlines and other human transportation... fvcked. Energy... fvcked. I could go on and on and on. And then think about the employees of all of these businesses... there could be 10 million jobs that simply don't return to the US economy for several years - even after there's a vaccine.

Yeah, there will be a bump in economic activity after we hit bottom and then followed by the vaccine (whenever that becomes available). But that bump will ultimately leave the economy (still) in a pretty big hole and, to add insult to injury, there will be a certain, albeit modest, percentage of folks whose behavior is going to semi-permanently change even after things normalize. They're going out less, traveling less, spending less, saving more. When you have a highly-leveraged tanker like the US economy that grows 2-3% in a good year and all of a sudden you have a modest percentage of folks that change behavior like that... you have a long-term disaster on your hands. As the saying goes, "everything important happens at the margin"... and at the margin, things are going to he11 in a handbasket.

Another piece of good news is that the bank regulators are trying to get ahead of things and using forebearance tools - as opposed to capital tools - to try to right the ship. I think that's smart - they should've done more of that during the Financial Crisis (as opposed to cramming capital down everyone's throat) - but... it's still going to get very, very ugly. There are so many permanently damaged businesses out there - eg, think about all of the commercial real estate and how these owners are going to deal with massive waves of bankrupt leasees. Yes, there are regulatory tools that can help but when you see these being pulled out, you'll know the Powers That Be are panicking. This freight train is going to level pretty much everything in its path - I'll be very surprised if it's not worse than the Financial Crisis.

Drive around your town or city. Look around. Think about the businesses that aren't coming back. Think about the folks whose jobs aren't coming back for a long time. Think about how behavior is going to change even after things begin to normalize. Think about the leverage and how the banks are going to cope with all of this. Think about what this means for corporate profitability - short-term and long-term and then what that means for nosebleed-level stock valuations.

Meanwhile, our fair-haired Nero fiddles while Rome burns.

Discretion is the better part of valor. Sell.

I could be wrong. But I doubt it.

Submitted by scaredyclassic on June 15, 2020 - 3:26pm.

we had to destroy the village to save it.

we had to destroy the market to save it.

Submitted by Coronita on June 15, 2020 - 6:17pm.

Rich Toscano wrote:
saiine wrote:
Feds now buying individual Corp bonds. I can't wait for them to announce that they will start buying all Robinhood portfolios which solely contain Hertz.

Ha!

Yeah, what's up with people buying Hertz???

Submitted by svelte on June 15, 2020 - 8:15pm.

Coronita wrote:
Rich Toscano wrote:
saiine wrote:
Feds now buying individual Corp bonds. I can't wait for them to announce that they will start buying all Robinhood portfolios which solely contain Hertz.

Ha!

Yeah, what's up with people buying Hertz???

https://www.msn.com/en-us/money/savingan...

Submitted by Coronita on June 15, 2020 - 9:41pm.

So basically the premise is we have a bunch of young people who are day trading on things like Robinhood who are doing well right now, taking higher and higher risks, and that eventually they will lose their shirt, right?

Why does this sound familiar.. Oh, that's right. It's like the DotCom era....Except this time it's a brand new generation of speculators...

Well, there was that article about the 20something year old that dug himself into a $700k margin debt hole and unfortunately killed himself.

Submitted by Coronita on June 16, 2020 - 9:08am.

https://www.cnbc.com/2020/06/16/regulato...

"Regulators never thought investors would be gullible enough to buy Hertz ‘garbage,’ Harvey Pitt says"

Submitted by Coronita on June 16, 2020 - 2:26pm.

I'm beginning to agree people are pretty stupid...

Folks really listen to this guy?

https://finance.yahoo.com/news/dave-port...

Submitted by saiine on June 16, 2020 - 9:50pm.

Coronita wrote:
I'm beginning to agree people are pretty stupid...

Folks really listen to this guy?

https://finance.yahoo.com/news/dave-portnoy-day-trading-cant-164238702.html

Dude is a straight up degen.

Submitted by ltsddd on June 17, 2020 - 6:05pm.

The stock market is in the buy-high-sell-higher beast mode not unlike the dot bomb era. This too will end badly for a lot of folks. I am more convinced to hang on tight with the cash.

Submitted by Escoguy on June 17, 2020 - 9:42pm.

My answer is EFV. International value stocks with a reasonable yield.

Japan 26% came out of Covid more or less ok.
UK is hurting (18%)
Germany 11% (also came out ok so far)
Switzerland and Australia are also managing Covid fine.

Quick theory: US creates more money, US $ declines some but still we import more to maintain relative standard of living, Fed doesn't raise rates, money is handed out to tied thing over, net effect= larger trade deficit, similar standard of living, and more debt managed at artificially low rates. Not enough "safe" assets to recycle the profits. Average person will think we muddled through but eventually this may cause some of the valuation gap to close with international value stocks. This can be a long (multi-year) process. In the meantime, we have some continuous scares in the US market, but the tech mega cap stay relatively highly valued as they can "absorb" excess funds created by central banks as they make products/services that people can't live without. So long answer, yes it's complicated but having real estate, mortgage debt at low rates, value stocks with some dividends and some mega tech will probably be ok. If you read "When Money Dies" deals with hyperinflation in Weimar Germany: 1. bondholders got killed, 2. stocks went up 3. real estate went up, 4. asset appreciation was used to pay off debt We may not get the full hyperinflation but a mild version already happened and we just didn't see it. Normally we should have seen prices drop for all kinds of goods and services including real estate, but as so much aid/handouts/rescue money was put into the system the moment of deflation was erased before the statistics became official. So net effect, your cash is worth less than it would have been but as most don't hold cash, it is a politically and economically non represented class. Shareholders, bondholders, real estate owners are those the Fed/congress cares out. I could go on.

Submitted by gzz on June 18, 2020 - 2:19pm.

Euro value stocks have been under-performing for a long time. I know because I have patiently held them.

I don't mind too much, they still have gone up, and are quite safe. Some of the dividends are very high, plenty above 6% and maintained with strong earnings for a long time.

I did very well with Telecom Italia, but sold because of the risk of Italy leaving the Euro.

Submitted by davelj on June 19, 2020 - 1:00pm.

I'm with Grantham (or he's with me - take your pick):

https://www.marketwatch.com/story/stock-...

Submitted by pinkflamingo on July 16, 2020 - 9:36pm.

I'm with Grantham (or he's with me - take your pick):

So far, Jim Rogers, and Ray Dalio, and Warren Buffet are all with you I'd say. :-)

Submitted by evolusd on August 24, 2020 - 1:11pm.

DaveLJ - with everything going up up up (housing, stocks) are you still in this frame of mind? I agree with your assessment, but wonder if "don't fight the fed" is ringing true once again. The old bank I used to work for beat Q2 EPS estimates and are telling investors that the portfolio is holding up well.

Submitted by Coronita on August 24, 2020 - 1:26pm.

My YTD on my trading account is now standing at 39.44%.. but it's getting really frothy....When the social media stars starts to try to talk about day trading on Robinhood, you know everyone is trying to get in...so it's probably getting close to time to get out. Just look at what Tesla stock is doing $2000+/share.

And two of the indexes at an all time high. Not imaginable when covid cratered the markets just a few months ago and a lot of people were running for the hills and taking cover in cash.

I guess a bigger question is...What will be the events that will finally throw cold water onto all the newbie Robinhood wannabe daytraders?

Submitted by The-Shoveler on August 24, 2020 - 1:36pm.

IMO its all about the fed right now.

As long as fed keeps printing I think it will continue, Fed got two choices IMO, go until it blows up Venezuela style or stop at some point and let it crash.

Go until she blows or stop and let it crash LOL.

My guess it will be go until it blows.

It could take a while (maybe years)

Submitted by NeetaT on August 24, 2020 - 1:40pm.

I would say that if you are concerned, put in a 10 % sliding stop loss on your entire combined investment portfolio. If you reach the stop loss, sell and go into the safest fixed income investments available. I think the government will continue to prop up low risk corporate bonds.

Submitted by ltsddd on August 24, 2020 - 8:27pm.

I am still roughly 60% cash. I am happy to see new highs, but I am really biding my time for the next melt down. The best thing about it is I actually sleep well with my current investment portfolio.

Submitted by sdrealtor on August 25, 2020 - 10:06am.

Dow up about 10% since this post. Nasdaq up closer to 20%. Like the say. Don't drink the water in Mexico. Glad I didn't

YTD trading portfolio not as good as Coronita. Up 30%.
YTD long term conservative dividend/total return portfolio. Up 8%

Submitted by Rich Toscano on August 25, 2020 - 11:05am.

Are you guys also going to share your returns if davelj turns out to be right in the end? :-)

Submitted by plm on August 25, 2020 - 11:47am.

It's actually helpful people are sharing their returns. I was thinking my returns are too absurd and should start selling but now I'm going to stick to my plan, buy and hold until I retire.

Actually I think that selling and buying back later at a lower prices is a way to have even better returns but much riskier since you have to time the market properly. Isn't it safest to buy and hold and just don't sell when they market crashes?

Submitted by sdrealtor on August 25, 2020 - 1:03pm.

Rich Toscano wrote:
Are you guys also going to share your returns if davelj turns out to be right in the end? :-)

Sure most of my assets are in that long portfolio. It typically goes up less then market on up days and down less on down days. I bought a bunch when the market tanked earlier this year moving into great companies whose dividend yield rose to 7-12% at those levels. That's why I own most companies in that portfolio. The gains have been a bonus

Submitted by ltsddd on August 25, 2020 - 7:05pm.

sdrealtor wrote:
Dow up about 10% since this post. Nasdaq up closer to 20%. Like the say. Don't drink the water in Mexico. Glad I didn't

YTD trading portfolio not as good as Coronita. Up 30%.
YTD long term conservative dividend/total return portfolio. Up 8%

After many years of being stuck in neutral (making good money with established strategy and then losing most back by deviating from it), my day-trading account has been 50%+ the last few years. A good chunk of the gains has been through dividends and the nickles and dimes I collected selling covered call options. I have more or less decided dividends+option$ is how I am going to play with my trading account. My goal is to net 10-15% yearly just on selling options. I am getting about 12% so far this year.

I am interested in hearing from others on their trading strategy. I think the days of chasing high-flying stocks is behind me. I just want a steady stream of returns from lesser volatile stocks.

Submitted by Reality on August 25, 2020 - 11:16pm.

sdrealtor wrote:
Dow up about 10% since this post. Nasdaq up closer to 20%. Like the say. Don't drink the water in Mexico. Glad I didn't

YTD trading portfolio not as good as Coronita. Up 30%.
YTD long term conservative dividend/total return portfolio. Up 8%

So when did you get back in?

https://www.piggington.com/i039m_out_again

Submitted by Reality on August 25, 2020 - 11:17pm.

Rich Toscano wrote:
Are you guys also going to share your returns if davelj turns out to be right in the end? :-)

Fat chance.

Submitted by Reality on August 25, 2020 - 11:19pm.

plm wrote:

Actually I think that selling and buying back later at a lower prices is a way to have even better returns but much riskier since you have to time the market properly. Isn't it safest to buy and hold and just don't sell when they market crashes?

What if when you need retirement income coincides with the crash?

Submitted by plm on August 26, 2020 - 12:03am.

Reality wrote:
plm wrote:

Actually I think that selling and buying back later at a lower prices is a way to have even better returns but much riskier since you have to time the market properly. Isn't it safest to buy and hold and just don't sell when they market crashes?

What if when you need retirement income coincides with the crash?

Well this last crash only lasted for a few months... But seriously, I have enough cash for a couple years worth of expenses and I have rental and significant dividend income as well so its unlikely I will have to sell at the bottom.

Submitted by Coronita on August 26, 2020 - 6:12am.

plm wrote:
Reality wrote:
plm wrote:

Actually I think that selling and buying back later at a lower prices is a way to have even better returns but much riskier since you have to time the market properly. Isn't it safest to buy and hold and just don't sell when they market crashes?

What if when you need retirement income coincides with the crash?

Well this last crash only lasted for a few months... But seriously, I have enough cash for a couple years worth of expenses and I have rental and significant dividend income as well so its unlikely I will have to sell at the bottom.

I think Reality was referring to not just the brief crash that happened due to covid.

I think Reality was referring to a real crash like the one in 2001 which lasted for several years and which a lot of overspeculated or just nonsense high flyer companies ended up crashing to oblivion and never recovered. Many of us remember.

Index fund investments survived and recovered..Many individual stocks didn't and many people who thought they could outsmart the indexes only thought so because they never really experienced a real life crash.

If you look at how the indexes are performing right now, it's sort of misleading. It's not that most of the companies that make up those indexes are all doing well this year Most of them are still negative. It's just a few select companies in those indexes have went beserk and those few companies are making the entire index look good. Companies like AMD which is trading around $86/share even though it absolutely makes no sense.

Regarding protection. I can only speak of a large company issued stock options grant. Back then, one thing we did do to protect from a big crash was to buy out of money out options regularly. I worked for a company that priced there IPO at $30/share and opened at $217, and within that first 6 months went as high as $415/share even though we were still unprofitable. Our valuation was a $6 billion software company even though are revenue was around $50million. Made no sense whatsoever. I remember the moment put options were available, many of us were buying them when the stock price was still above $300/share just so it could protect all the unvested employee stock options that had a $30 strike price that we needed to wait 4 years to fully vest

It wasn't long after the company stock fell to $7/share.

Retail speculators lost their shirts.

Employees got laid off.

Some employees that got laid off had a big grin on their face because suddenly their out of money put options that was insurance for their unvested company issued stock options was worth a lot of money, and they didn't need to wait for 4 years of vesting to get that money which was almost the same as how much their company issued options would have been...

Since then, companies have gotten a lot smarter. Many have a company policy against you or a family member owning derivatives of the company stock....

Whenever things really get frothy, individual stock ownership gets a lot more risky. I think for some of these speculation, there has to be an exit strategy because it is almost impossible to be consistently have the winning hand all the time. Once you've reached a point of a lucky windfall that matters, it's imho an equal amount of effort to try to preserve and prevent losing most of it, and that means finding a way to shift that money somewhere else that is less likely to lose as much as fast as you can in individual stocks.

At least that's how I was able to afford to buy a primary SFH down here when I moved back in 2004, when housing was already pretty expensive and also getting frothy.

Submitted by svelte on August 26, 2020 - 6:22am.

Coronita wrote:

Since then, companies have gotten a lot smarter. Many have a company policy against you or a family member owning derivatives of the company stock....

I wonder how that would hold up in court - how can you control what a family member does?

Submitted by scaredyclassic on August 26, 2020 - 9:05am.

Reality wrote:
Rich Toscano wrote:
Are you guys also going to share your returns if davelj turns out to be right in the end? :-)

Fat chance.


Its painful to even look at longterm losses let alone discuss.
I held on to some in the red gold shares for 5 years before breaking even.
This hasnt happened with the normal indices.
.we alk think we could withstand 5 to 7 years down. That we have a longterm outlook.
If we had to look at our 401k balance at 30,40, 50 percent down, year after year, says its 2026, and your a third down and inflation is wild, no one would want to talk about whether they were 38 or 44 % down in terms of better performance.

hell, no one, self included, is even sure of this is possible anymore, with the fed backstopping losses.

talk is cheap when things are good, painful in bad times. that's why therapists charge so much.

Submitted by ltsddd on August 26, 2020 - 6:57am.

svelte wrote:
Coronita wrote:

Since then, companies have gotten a lot smarter. Many have a company policy against you or a family member owning derivatives of the company stock....

I wonder how that would hold up in court - how can you control what a family member does?

Probably as enforceable as the new home builders telling the buyers "thou shall not resell within the next 12 months".

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