3/16/2019 Monday
Stock down 12% today!? Funny how I’m so desensitized to 5-8% moves now.
Any random stock gets hit 15% today.
I have several down 20%+ (e.g. SQ, STOR, FNF).
Square's meltdown is entirely expected, I was just too pigheaded to sell before their upcoming investor day.
STOR - the early hits had some elements of reflexivity unwind (this is growth by acquisition after all). But the new hits are due to worries about tenants renegotiating rent deferral or even rent holidays. My view is that's ok, STOR has enough liquidity to survive and thing will be back to normal in an year or so.
FNF was completely shot and I don’t quite get it.
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I suppose this is the beginning of a new, prolonged bear market, under which stocks can be down 90% before it recovers.
The past few years I've WANTED a recession. I figured I hold more liquidity than most and can survive and take advantage of the situation. Now that the crisis is in front of me, the mental stress is almost unbearable.
I'm actually fairly calm during the trading hours. The hard part is after market closes and I go through my portfolio and count the losses. That's when it hits home.
I agonize over my own inaction. Even though I'm technically executing my plan. I upgraded my exposure in January and Feb with the idea that should a 2008 style crisis hits I will keep my stocks and ride out the losses.
Well, that crisis is here. I'm executing my plan. I'm just not sure that is the correct strategy...
Will I end up panic sell at the bottom? To fight that instinct I got a list of stocks and the prices I want to buy them at; and I will force myself into buying when those prices hit. Even if it's tiny positions.
Things are starting to looks worse than 2008 - 1929 / Great Depression is now the comp.
3/17/2019 Tuesday
Stock went up 6% today after Mnuchin and Trump talked about helicopter money.
I added 3% to my equity exposure today. 1% each to STOR/FAF(to replace the FNF I sold earlier)/BRKS. They are cheap enough and solid enough that I'm wiling to sit long term and take short term pain.
I added a little to SQ on whim after the Mnuchin speech, but will have to offload that addition tmw - here's why.
After market closes I had time to reflect. Directionally, the helicopter money approach is correct but I came to the conclusion it just be enough. The local restaurant might pay $15k a month in rent. How is $1000 going to help them stay alive when revenue goes to $0?
Some back of envelop calculation: US has $20trn GDP. Let's say 1/3 of that shuts down. And we shut down for 2 months. You got 20/3/12*2=1.1111. That’s $1 Trillion hit to GDP. But GDP doesn’t count intermediate goods, so the real amount that needs to be bailed out is probably a multiple of that.
Ideally, the government says "let's freeze time, everyone stay home, business keep their employees, we'll pay your expense". But that’s going to be an astronomical number that makes US debt/GDP go to unreasonable amounts and USD will totally lose credibility.
All we can hope for is the shutdowns flatten out the disease curve, buy us time so healthcare system doesn’t get over whelmed. Some business will go bankrupt but hopefully you save enough of them that we don’t get a permanent damage to economy that we cant bounce back from.
There is some offset here. Big companies like Facebook are already reaching out to small businesses and employees, in the form of cash grants and product credits. So maybe everyone shares some pain but no one goes under, then we bounce back?
3/18/2020 Wednesday
Another wild day. S&P down more than 5% today. Frankly, I expected worse. Stock futures were limit down the night before so I knew it was going to be ugly.
It now looks like teh fiscal package wont' be enough, and in any case it hasn't passed yet.
The situation deteriorates every minute.
Stock went down 9-10% ..(this is truly looking like 1929), before clawing back to "only" down 5%ish.
My buy limit order for TTD hit at $153 and so I added a little there. But I'm mentally ready for this thing to be down 80% from peak. That would be below <$60.
I don't know when the market will bottom, but I don't want to reduce on the way down and not have enough exposure when it roars back (and given the speed of the decline, its very possible the market recovery will be just as violent)..
So the plan is add on the way down, however incrementally.
TTD, SQ, UBER. I have small positions in these, all are potential 10 baggers if I can accumulate in the right price. Hopefully by the time market bottoms I have a decent position in each of these (and other oligopolies in structural growth markets with strong moats). Then maybe add on the way up?
It's way early to talk about recovery, but I can dream right?
3/19/2020 Thursday
A relatively calm day in the market. Markets went up but this is a very weak looking bounce.
Some of the big shorts names like Hempton, Cohodes came out yesterday and say they're no longer net short. Ackman talked about buying BX.
Yesterday, I talked about accumulating on the way down. As if to demonstrate the rightness of that logic, Uber was up 37% when I checked. Company says 80% of cost is variable, so they will be able to cut cost, survive and come out stronger.
Natera (NTRA, which I don't have) was also up about 40% today. Any glimmer of hope does wonders for beaten down stocks.
The market heat map (below) shows rotation away from defensive/yield names. the market didn't move up too much, so apparently there's no inflow to funds but managers are positioning for a risk-on rally? If so, they risk getting wipsawed and their selling will exacerbate the downward move. This can end in tears.
It's pretty hard to ignore the market, focus and do fundamental research. But i will try to do that today.
Trades
I cut some DLR as it breached MA50. I also sold EQIX. These are expensive stock that have held up but are liable to get hit. EQIX for example has <2% div yield. That makes the valuation dependent on growth, and that means acquisition - so reflexivity unwinds as stock prices go down.
3/20/2020 Friday
Spent time looking at preferred stocks today. There's a massive dislocation in the credit market. Credit spread have blown out and a bunch of preferreds are now trading at discounts to par.
It's tempting to look at Yield to Call (in some cases showing 30-40% upside) but that is not right for preferred trading at discount:
1) companies have no reason to call securities trading at discount.
2) the logic of yield to call is somewhat circular: to get the YTC you need the prefs to get called. But a company will call only when prefs trade at premium, which happens only when market yield comes down to below the preferred coupon.
So the bottom line is to look at current yield for preferred trading at discount, and compare that to the coupon to see how likely you are to get called at par.
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What an exhausting week. This is supposedly the worst week in the market since 1929.
I guess we are all Bayesians updating probabilities as facts emerge. Each day the economic situation look dramatically worse than before, so in retrospect it's not surprising that market took such a drastic downturn.
Some of us see the facts earlier or update probabilities earlier. I am unfortunately one of the slower ones.
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