Author Topic: How to make money from this crash - Lessons from 2008  (Read 7325 times)

jhcap

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Re: How to make money from this crash - Lessons from 2008
« Reply #50 on: March 22, 2020, 06:56:44 PM »
I would like to discuss how the most money was made from the depths of the last crisis.  There are different approaches.  eg.

"Now is the time to buy quality names as they are on sale"
"Buy the strongest companies is beaten up sectors"
"Buy net/nets trading below cash"

Let's please assume that this coronavirus will end in months and that the underlying productivity and demand in the world has not fundamentally changed.  Some things will change.  I think once all this is over a lot more people will have tried food delivery and will have decided they like it (or not).  What are the second/third order effects and what is the sector to buy.  My thoughts:

- Sovereign debt crisis as countries are forced to borrow on a massive scale
- This leads to further bid for quality names - "if you made money in two crises you are unbreakable"
- General further shift to online/digital as people who had never previously used online became aware of ease of setting up accounts/payments etc.
- Defined benefit pension plans are further hit by lower discount rates - this could be offset by lower life expectancies and mortalities (unlikely to be material)
- Further shift away from physical entertainment as people realise they like staying in and playing playstation etc.
- Shift away from gyms as people realise they like jogging/their peloton.

My current thought on the sectors to buy are:

Highest quality airlines as soon as I am convinced they are past raising capital, hopefully in a closed end fund that is trading at a discount.  Demand for air travel will continue rising in long term.
Levered airline industry names that have to recapitalise - eg Sydney Airport, Aercap. 
Levered small cap in a fund that is trading at a discount as soon as it's clear economy is recovering.
Capital allocators like Berkshire, Markel and Exor at point of maximum dislocation and uncertainty.

I was very lucky and new to value investing in the GFC. I didn't start entering the market until May of 2009 which proved to be pretty close to the bottom which had occurred a few months early (pure luck). I was able to quadruple my portfolio from there by buying very cheap companies with good fundamentals as well as net-nets. I was pretty concentrated in about five stocks. I'm not a momentum or growth oriented investor and I don't claim to be able to pick a bottom, but back in 2009 net-nets were abundant in many industries. I have yet to see that in this market. I'll start buying when I can fill a portfolio with net-nets (non-biotech) from a variety of industries. I also will wait until limits aren't being tripped on a regular basis, both in regular trading hours and futures. I do remember looking at LVS in 2009 which hadn't opened Macau yet. It traded at 72 cents a share at one point. I didn't buy because of the debt and fear that no one would gamble again. I remember when it hit $72 a share four years later. Not sure if there is a lesson there.


Uccmal

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Re: How to make money from this crash - Lessons from 2008
« Reply #51 on: March 23, 2020, 04:52:38 AM »
I was just recollecting 2009, about this time of year.  I bought Leaps on HD - share price <$20.  Sbux < $10; GE< $10; and American Express (Can’t recall but it was cheap).  Hd and Sbux were unrelated to the Financial Crisis in any direct sense.  GE had already received bailouts.  AXP was affected by the GFC.  I held FFh going into March 2009 and it got cut in half after announcing huge bond and derivative gains. 

My main point is that things could get a whole lot cheaper from here, regardless of any stimulus measures.  The main bailouts occurred in the fall of 2008.  The market bottom was in March 2009.  Even after the virus runs its course it may take months to years to see any meaningful recovery.  We were due for this pull back for years.  Covid 19 was  just the trigger. 
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meiroy

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Re: How to make money from this crash - Lessons from 2008
« Reply #52 on: March 23, 2020, 05:41:29 AM »
USA economy can reach positive GDP quite quickly by boosting local demand and protecting it from external economies.

Demand means money going straight to households and via large infrastructure projects.

The GOP proposed package is not going in this direction, but if the Dems get their way, it might just happen.

Demand is not going to come from the second-largest economy in the world, or all these other economies teetering on the brink of the abyss.  It has to be created at home. No other way this time around.

Creating local demand also means debt-forgiveness and incentives, so SMEs can actually reopen quite quickly as long as the demand exists it will support their growth.

This is not 2008.

Also, there's serious pent-up housing demand, unlike 2008.  Housing can provide a tremendous push, of course as long as all the conditions are met... people need the money to buy.

I would not worry about inflation for half a second.

 
« Last Edit: March 23, 2020, 05:56:33 AM by meiroy »

ukvalueinvestment

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Re: How to make money from this crash - Lessons from 2008
« Reply #53 on: Today at 06:46:15 AM »
To further summarise some ideas I've seen:

Thanks for starting the thread.  I’ve been watching a few other similar conversations so the below is a bit of a compilation. 

I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

Lots of them are accelerations of long term trends.

-   The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

-   Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

-   The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

-   Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

-   Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

-   Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

-   Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

-   Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

-   As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

-   China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

-   Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.
@ukvalueinv

Uccmal

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Re: How to make money from this crash - Lessons from 2008
« Reply #54 on: Today at 07:22:57 AM »


I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

Lots of them are accelerations of long term trends.

-   The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

-   Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

-   The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

-   Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

-   Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

-   Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

-   Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

-   Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

-   As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

-   China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

-   Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.


Some of these are likely but some are unlikely, based on observations since 2000 or so. 

- Digital purchasing may increase but in whole sectors it just doesn't work that well.  i.e. groceries:  delivery has always been available, for 120 years, and has never become the primary means of purchase, home supplies: people still like to kick the tires.  I can look at 20 profiles of a reno part I need and nothing compares to actually holding and looking at it.  This will play out one way or the other in real time, in the next couple of months. 

- for alot of people working from home sucks, and nothing really gets done.  Not everyone but many.  People are social. Maybe it  increases a bit, but so many jobs don't work that way.  More and more people fly for business every year. 

- many companies are never prudent with their capital.  Most CEOs in general don't think that way.  They are not value investors, and have no investing acumen.  Look at the huge number of share buybacks at market highs as an example.  Sure they will be prudent for awhile until the heat is off then its back to debt fuelled empire building.

- same goes with people saving.  If the aftermath of 2007-2009 has shown me anything its that human nature doesn't change. 

- definitely agree about the high quality companies.  But that has always been the case. 

- bureaucracy never goes away.  It gets cut in one area and appears elsewhere.  All big organizations have it.  That is why the investing curve exists - Peter Lynch covered this really well 30 years ago. 

- supply chains might diversify.  Probably due more to automation becoming cheaper than sending raw materials to Asia in return for garbage products.   

GARP tending toward value

SharperDingaan

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Re: How to make money from this crash - Lessons from 2008
« Reply #55 on: Today at 07:26:10 AM »
Just to throw some things out ...

Bet on break-down. Share prices of major companies decline an additional 50-70% from where they are today.
It will take time for the market denial to penetrate, but we're coming down from a decade worth of artificially high and inflated levels.

Bet on a FDR type 'New Deal'. Trump gone, fiscal vs monetary stimulus into mega-projects to get people working again, critical off-shored supply chains returning on-shore. The US ban on the export of N-95 masks, in a global pandemic, underlying the necessity.

Bet on infrastructure redevelopment, and the supply-chains feeding it. New power grid, new charging station grid for e-vehicles, new inner-city housing redevelopment, new tech and the use of that tech (blockchain, AI, WeWork type set-ups, etc.)

Bet on accelerated change. Trump is 78, and representative of 1-2 generations of privilege.
According to the 2015 Actuarial Life Table, he will be dead within 9.5 years. https://www.ssa.gov/oact/STATS/table4c6.html
Attitudes and influence that are rapidly waning, and at accelerated rates.

Point is ... bet on change, and a lot of it.

SD






Cigarbutt

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Re: How to make money from this crash - Lessons from 2008
« Reply #56 on: Today at 07:42:20 AM »
To further summarise some ideas I've seen:

Thanks for starting the thread.  I’ve been watching a few other similar conversations so the below is a bit of a compilation. 

I do think that those who predict long term changes in human behaviours or society are probably wrong.  In five years, I think our economies and societies will look similar to today, although there will some changes at the margin.

Lots of them are accelerations of long term trends.

-   The shift to digital continues with more of a tailwind as sections of the population that never shopped online were forced to and realised it was …. Ok.

-   Employers realise that working from home can work at scale and will find it harder to justify expensive office rents

-   The combination of the above and the recession leads to more “we work” type facilities (although not necessarily WeWork)

-   Some employees will realise they got a whole load happier without the daily commute and demand to their employers they do it more, and will also look to shift away from “traditional” office based careers.

-   Lots of companies realise they need a more prudent capital structure and raise capital.  There is a general deleveraging.

-   Individuals remember that having cash savings, even in a non yielding world, is vital as a buffer against lifes emergences.  Savings rates go up.

-   Governments are forced to finance their emergency spending with more debt issuance and higher taxes.  This leads to increasing societal disharmony between old and young and higher vs lower paid.

-   Those high quality businesses that were well insulated from the crisis become even more highly valued by investors in a zero interest rate world, and are rated even more higher by the stock market, leading to even more bifurcation between “high quality stocks” and the rest.

-   As hospitals are built in ten days, drugs are approved in weeks, and businesses survive with whole departments working online, a lot of bureaucracy is revealed and for what it is and there is a bonfire of red tape and employment.

-   China gets a “blamed” for the virus and the trend to move supply chains and against liberalisation of trade continues.

-   Certain western governments are shown to be relatively incompetent and liberal democracy continues to be questioned.  At the same time certain populists are thrown out of power.
Can you talk a bit about pricing. What's risk/reward.  What is fair value for these assumptions.