TomB16 investing blog

At this point, it isn't clear to me if this will turn into a global depression. I'm not ready to make that call and will invest our cash from the perspective of a recession lasting three quarters. There is no rush to go all-in, at this point.

 

In any century, there will be 10 major negative market situations. An extreme long term investor is someone who pays attention to the markets for perhaps 40 years. Most retail investors take an interest in the markets at mid life and convert to an annuity around the age 60.

Most people will see 2~4 major market events. That isn't a lot to build experience on.

These events are the best opportunity we have to make major, life impacting, gains.

People who focus on playing the crash for maximum effect do very poorly, because they get very little of the benefit of market growth over time. When a crash does come, they aren't in as good a position to capitalize on it. These people spend a dollar to make five cents.

People who completely ignore crashes, trends, and macro factors do far better long term. In fact, the only situations that perform worse by ignoring macro factors are short term corner cases.

There are a few indicators of impending crisis. Primarily, I use the WBI. This indicator is far from absolute and it isn't proportional. A WBI of 130 is exactly the same as 120. All we know from either of these numbers is the market is within a sane range, although that needs to be considered with current interest rates. With extreme low rates, the WBI can go quite a bit higher and indicate sane market conditions.

A decent economic indicator is global air travel. When air travel reduces, this is a sign of reduced economic health. With the corona virus, the tail is wagging the dog. Reduced travel is curtailing tourism cashflow which then directly impacts economies in all other ways. In this way, reduced air travel is not so much an indicator as a trigger event for a known domino effect.

This is a good time to be heavy in housing and medical REITs. Retail REITs are rarely a good idea, IMO.

Tesla is not a bad stock to own, at this time. It's also not a good stock. It is strategic but only as a long term market disruptor. During times like this, Tesla is a hole in my portfolio that does nothing for us.

Distributing companies are fuel that build a portfolio during hard times.

 

Opportunities:

How come my highly distributing, hospital, REIT has taken a small hit? I don't understand it but thank you.

With interest rates low, there isn't much of a penalty for holding cash.

Oil is becoming very interesting. I'm in no rush to move but I'd like to have more oil exposure before this crisis is over.

With oil, we need to figure out who is going to survive the current price war.

With stimulus and quantitative easing on the horizon, real estate will be the obvious beneficiary.

A lot of good quality, distributing, businesses are being sold at good prices, right now. These aren't steals, yet. They are just OK deals. In a low interest rate environment, OK deals become very good.

Markets can crash as low as they want, without limit. Rationally, I don't see a case for the WBI to fall to 80% again, as it did in 2008. I will be surprised if it goes much below 120% but we will see. I base this on the vast sums of money on the sidelines and the low interest rate environment. This is nothing but speculation, of course.

Speaking of falling skys, trading has been halted.

 

At times like this, I find myself wondering if co-located traders are given the final opportunity to trade before the lights are flicked on and off to get the student's attention. I assume so. They pay for an opportunity to feed from the market.

Personally, I think trading halts due to falling markets are lame. It makes it a non-free market.

The only Dark pool I have visibility to, also known as an Alternative Trading System (ATS), is still active. Interesting.

 

We are going to find out how virulent COVID-19 is. Trump shook hands with a confirmed positive case, yesterday.

It will be interesting to see how this plays out.

From an investment perspective, if Trump comes down with it, the markets will probably go crazy.

 

Hi Dude.

I took the liberty of running GEO through a massively truncated version of my normal analysis. GEO doesn't come up showing value but it doesn't show much negative value, either. They are a bit light on cash to weather a financial storm, also. On the other hand, statistics are a crap shoot so if you know the company, you're way ahead of any numerical analysis I might do. I am happy to own companies that have ugly numbers, in some cases.

I am going to follow GEO, for a while. There are some things to like about them.


As for comparing thought process, I'm happy to compare but it will not be a flip answer. I look forward to providing a more complete response with detail tomorrow or the next day.

In the mean time, I encourage you to believe in yourself and remember: The sky didn't really fall.

Lastly, thanks for posting in this thread.

 

Does anyone believe Trump has not been tested for COVID-19? Anyone?

 

The US has done 5000 total tests for COVID-19 and 1000 positives.

 

I was going to write "I wonder why COVID-19 testing has diminished recently" but I don't really wonder. That would have been a polite way of pointing out something evil and political is going on.

https://www.cdc.gov/coronavirus/2019-ncov/testing-in-us.html


At some point, it will probably make sense to stop most testing of coronavirus but surely that point is months away. At least, from the standpoint of analyzing and tracking the spread of the virus. From a political standpoint, it's an election year so, the more slowly the numbers increase, the better.

Meanwhile, the economic impact of the virus is becoming more clear but certainly not fully in view. A recession is pretty much inevitable and the economic dominoes are already starting to fall. I cannot imagine a scenario in which there is no recession, including if a cure is found in the next month.

 

If your nerves are sufficiently steady, you may find this interesting.

 

OK, Dude. This is the update I promised a few days ago. I mixed it in with our situation update.

Our moves....

When I saw a crash coming in early 2019, I took my time getting out of all retail positions. I also got out of all US positions, except Tesla and two utilities. I also turned off most of our DRIPs (the easy, synthetic, ones were turned off). That was all done by early December.

In early 2019, I held two Canadian listed, but internationally focused, companies. One was Dream Global REIT and the other was North West Healthcare REIT.

Dream went through the roof and was ultimately purchased by Blackstone. A significant amount of that money went into NWH but some remained cash.

In the middle of January, I sold the two utilities. I was going to hold them through the next crash but valuations got so high, I had little choice but to sell them.

Almost a month ago, I spent nearly a third of our cash expanding two positions, one of which was NWH. Both are strong distributors of cash. That is the only type of company I would buy, at this point. The rest of the rather substantial pile of cash was left for greener pastures. It is in cash. Not cash equivalents. Cash.

Three weeks ago, I purchased some put contracts on CCL and shorted another company that I'm not prepared to cite specifically... yet.

The vast majority of our equity holdings are international, at this point.


Our outlook....

I could see this crash coming, mostly. We had (and still mostly have) a huge pile of cash. Our positions are all defensive. You would think I'd be all set to plunder but that is not looking to be the case.

At one point, I projected that we would gain 30% in net worth when this is all over. That was a likely case.

At this point, I'm not confident I will invest in anything in the next year or two. I can see an existential threat to the US economy and I don't trust the correct moves will be made.

This is certainly not a time to go long term on indices. Right now, it's about cash. Not bonds. Not ETFs. Not mutual funds. Cash.

We have lived frugal, saved, invested, worked our asses off, saved some more, and gotten to a position we are really proud of. Now, I'm thinking of how we will survive the next five years. Our best case scenario is really good. Our worst case scenario is unthinkable.

I've always assumed I'd be the guy who plunders when others are running for cover. Now, I'm happy that we won't have to sell anything but I don't see us expanding a lot more positions.

The majority of our dividends appear to be secure, for now. Assuming most of our dividends hold, we will be fine for the rest of our lives and the massive cash buffer plus quite a bit more will be re-invested. With the exception of Tesla, our portfolio is wildly defensive so I think we are OK.

In terms of long-term buys in the next few months, we have a very small amount of cash for that purpose. I will be watching great deals come up and letting them slip past without so much as a bid.

 

Back at the CDC, the COVID-19 testing web page hasn't been updated in two days. I hope it's updated today.

The last update on March 11 shows only 5 state level tests and 0 CDC tests. I hope these numbers plummeted because of the reporting date change, and not for other reasons.

https://www.cdc.gov/coronavirus/2019-ncov/testing-in-us.html

I expect New York to be the first state to openly use COVID-19 testing kits sourced from another country.

 

I feel like I'm harping but I'm going to harp.....


Here is my view on the odds of likely scenarios:

SHTF - 20%
global depression - 45%
global recession - 30%
light damage - 5%
no damage - 0%

My confidence in understanding the near term future is medium. To be honest, it's rare that my confidence is absolute but it does happen.

If I'm pretty confident of big impact, why didn't I sell everything? I'm an investor. I'm partnered with the companies I hold close. This is more than a metaphor. This is really how I view ownership of these companies.

The good news is, my cash ratio is going to go up quickly.

The bad news is, the cash ratio will go up because our equities will go down, more than the cash expanding. lol!

A trader would have sold everything three weeks ago. An investor sees what is coming and hunkers down for the storm.

I'm a long. I buy valleys but I don't sell peaks.


I also think that situations that happen, like in January, when I look at a stock, see an extreme valuation, and simply run out of guts to own it because I only see downside, are good. I look at it like corporate downsizing. It's a healthy part of evolution to get rid of the less desirables, once in a while. In my case, I didn't fully understand how little I expected out of these companies, long term, until I was faced with selling them and realized how obvious the choice was.

 

Suffice to say, I don't share this point of view.

Brian Belski from BMO is calling current market trends "all about fear and rhetoric and emotion". He says, "We don't see anything fundamentally changing with these companies." "Just a quarter blip or maybe a few weeks."




There is something fundamentally different at this point in the COVID-19 trajectory. Receivables have always bene fundamental to any of my businesses. Without them, business turns to a charity and that is a fundamental change.

 

I'm starting to like the Yahoo finance YouTube channel.

They don't talk down to viewers nearly as much and some of the content is relevant and intelligent.

This afternoon, they had a couple of people discuss the bond markets using actual data and specific information. Impressive.

The few guests on CNBC that have a clue seem to get shouted down.