Corner of Berkshire & Fairfax Message Board

General Category => Strategies => Topic started by: longlake95 on March 13, 2020, 04:24:04 AM

Title: Did we just here a bell?
Post by: longlake95 on March 13, 2020, 04:24:04 AM
A friend was in a local TD branch in our town yesterday, apparently people in the line were yelling at tellers to call their ( the people in the line) investment advisors, to get all of their investments sold. Sounds like, the maximum point of pessimism.

Title: Re: Did we just here a bell?
Post by: Read the Footnotes on March 13, 2020, 04:41:19 AM
That's good data, and I agree that a bell rung say it is now finally time to start buying.

However, I wouldn't be too confident in saying today or yesterday or Monday will be the bottom. The problem is that the assessments of the risks for most people are likely still not completely in line with reality.

Here's one possible progression:

1. On average people have been underestimating the risks for the next four months
2. On average people are probably about to be accurate in their assessments of the risks for the next four months
3. Any day people will start to overestimate the risks for the next four months, followed by relief that things didn't turn out so bad
4. At which point they will start to realize that we probably won't be completely done with SARS 2.0 for fifteen months.

Even if you accept that narrative as fact, I would say it will be hard to anticipate the point at which most people hit those inflection points and what their response will be. Plus there will be a random element thrown in all this.
Title: Re: Did we just here a bell?
Post by: Uccmal on March 13, 2020, 05:32:47 AM
There is no way we are at the bottom.  The ripple effects of all the cancellations are only starting this week.  Earnings warnings will come next.  Millions of events are being cancelled.  Big money making events. 

I have been buying and have had some ďhigherĒ  priced fills, but the bulk of my bids look like this: (just a few examples)
CDN Last Close    my  Bid
Ry.    79                  50
Bam.  65.               53

US:     
Hd.    190.           140
Fb.      154.          110
Goog. 1115.          900
Costco. 280.         230

These bids are for small numbers of shares each and cover 15 or so companies.  When these get filled I will reset new bids lower.  I have them set to March 20.  I am removing as much emotion from the decision process as I can.  Even slow, I was so wound up yesterday that I had trouble sleeping.  But thatís the business I chose.

A little context. I am more than fully invested in great companies, all of which I would buy more.  So, I donít need to rush this, and really donít care all that much if I get fills.  I have bids on the best multinationals in the world that I have had as targets  for years. 

Out of context:  Dead bounce bounce today?
Title: Re: Did we just here a bell?
Post by: stahleyp on March 13, 2020, 05:51:20 AM
has the market ever dropped 25% and not had any bankruptcies?
Title: Re: Did we just here a bell?
Post by: chrispy on March 13, 2020, 06:06:14 AM
Besides cancellations we really haven't had 'bad' news. Political leaders becoming ill, retailer or restaurant going under, food and hospitality industry raising hell

Wife's friend was on hold for 3.5 hours trying to cancel their stay in Hawaii. I don't think they are the only ones...
Title: Re: Did we just here a bell?
Post by: stahleyp on March 13, 2020, 06:45:12 AM
I'll say that for our personal experience we're cancelling a stay in CA for a wedding (3 flight tickets and 1 hotel for a few nights). I was going to get my wife on a trip for her birthday and that'll be delayed (and make not happen at all).
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 13, 2020, 06:45:29 AM
We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.
Title: Re: Did we just here a bell?
Post by: longlake95 on March 13, 2020, 06:50:32 AM
16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.
Title: Re: Did we just here a bell?
Post by: hyten1 on March 13, 2020, 06:54:14 AM
not saying its the bottom, i have no idea, but remember market bottom before the real economy does
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 13, 2020, 06:55:33 AM
16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.
Title: Re: Did we just here a bell?
Post by: stahleyp on March 13, 2020, 07:44:24 AM

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

This is good information. thanks.
Title: Re: Did we just here a bell?
Post by: jschembs on March 13, 2020, 08:35:05 AM
We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

Exactly - this began with elevated multiples, which in conjunction with a recession doesn't seem like it would end in just a ~25% decline.
Title: Re: Did we just here a bell?
Post by: ERICOPOLY on March 13, 2020, 08:48:08 AM
16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

Japan has traded above P/E 20 for a very long time:

https://www.ceicdata.com/en/indicator/japan/pe-ratio
Title: Re: Did we just here a bell?
Post by: thepupil on March 13, 2020, 08:48:33 AM
I would draw a distinction between high quality, growing, going-concern businesses, such as Google for example, which I think is reasonably priced, having corrected down from levels where one could start to get nervous and a bunch of other lower quality assets (banks, real estate, chemicals, energy, midstream, travel) etc. where we have seen far greater declines and are seeing the beginnings of a potential credit opportunity and or highly levered recovery play (if one is more bullish)

I think a lot of the "this ain't close to the bottom" crowd is looking at the first type. Google is trading where it was in October 2019, and well above the Christmas eve 2018 lows, which was a more clear opportunity.

For the other shittier stuff, I am not saying it's the bottom either, but I'm saying that a more material de-rating / unwind has occuured than is implied by the broad market indices. As one example, the Alerian index is down over 50%
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 13, 2020, 09:07:20 AM
16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

Japan has traded above P/E 20 for a very long time:

https://www.ceicdata.com/en/indicator/japan/pe-ratio

Thanks for pointing this out. Going to have to research the discrepancies. It's been awhile since I looked, but had previously seen data that Japanese companies traded cheap to earnings (like 12x) and even cheaper compared to assets.

Will need to dig in to determine the differences in how this is being measured to respond.
Title: Re: Did we just here a bell?
Post by: tradevestor on March 13, 2020, 09:29:14 AM
How does low interest rates imply low growth?
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 13, 2020, 09:41:41 AM
Because 1% yields don't exist in a world of 5% growth - at least not more than temporarily. And if they do, you get massive inflation which would then drive the yields back up.
Title: Re: Did we just here a bell?
Post by: tede02 on March 13, 2020, 10:29:14 AM
It's agonizing trying to balance buying what looks very attractive against keeping dry powder. I've been nibbling on a few things I already own. On one hand, feel like I've been too aggressive adding. On the other, if this is the bottom, I'll regret not having bought way more. It's very difficult.

Separately, I work with retail clients and no one is selling which leads me to ask, who is? Are the machines selling? Perhaps all the buyers just disappeared which has caused the huge blow out on bid/asks.

Title: Re: Did we just here a bell?
Post by: LC on March 13, 2020, 10:36:29 AM
It's agonizing trying to balance buying what looks very attractive against keeping dry powder. I've been nibbling on a few things I already own. On one hand, feel like I've been too aggressive adding. On the other, if this is the bottom, I'll regret not having bought way more. It's very difficult.

I think a lot of people are having the same problem.

One potential solution, estimate the level at which you'd start buying hand-over-fist, on margin. Is it SP500 at 2000? 1800? Then you can create a curve from here to that terminal point and invest a portion of your dry powder along that curve.

Title: Re: Did we just here a bell?
Post by: Cigarbutt on March 13, 2020, 10:51:41 AM
How does low interest rates imply low growth?
If you have time to waste and don't mind circular arguments, you can think about cause and effect and directionality of cause.
Somebody looked at correlations and interest rates (real or expected) tend to correlate with growth.
https://seekingalpha.com/article/4169837-what-is-relationship-interest-rates-growth-and-inflation
There's been some "progress" since the article was published.

That's unlikely to be useful for stock picking but you may realize that the widening disconnect between lower growth rates and personal "wealth" has been correlated to lower discount rates used.
It's interesting because once (if?) rates go negative, your financial calculator will keep producing error messages and somebody may suggest: "Anybody herd a bell?"
I read Uccmal's post above and realized (again) how irrelevant my entry points are and I'll just go back to sleep.
Title: Re: Did we just here a bell?
Post by: Kaegi2011 on March 13, 2020, 11:05:50 AM
not saying its the bottom, i have no idea, but remember market bottom before the real economy does

Lol the real economy has barely registered the impact outside of travel.  3 weeks is barely enough time to think about a reorg, put aside the uncertainty on whether it's a good idea, how much to cut, etc.  We're about to see a lot worse when the movement of people stops. 
Title: Re: Did we just here a bell?
Post by: Kaegi2011 on March 13, 2020, 11:07:00 AM
Separately, I work with retail clients and no one is selling which leads me to ask, who is? Are the machines selling?

Clearly it's just the democrats selling and the republicans buying!!  :)
Title: Re: Did we just here a bell?
Post by: ERICOPOLY on March 13, 2020, 11:09:16 AM

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.


Don't inflation expectations drive interest rates down?  Don't inflation expectations also drive P/E for the markets?

P/E of 15x == 6.67% earnings yield
P/E of 20x == 5% earnings yield

So if future inflation expectations are (hypothetically) 167 basis points lower, then isn't a 15x multiple the same as a 20x multiple in real terms?
Title: Re: Did we just here a bell?
Post by: hyten1 on March 13, 2020, 11:10:25 AM
haha, i understand, as we all know market is forward looking, it obviously has price in something, you can argue its hasn't price in a recession or what the levels of recession will be, no one knows. many stocks are down over 50%.

the point of this is, market bottom before the actual economy, you can be hearing bad news from the economy while the market goes up.

i have no idea

not saying its the bottom, i have no idea, but remember market bottom before the real economy does

Lol the real economy has barely registered the impact outside of travel.  3 weeks is barely enough time to think about a reorg, put aside the uncertainty on whether it's a good idea, how much to cut, etc.  We're about to see a lot worse when the movement of people stops.
Title: Re: Did we just here a bell?
Post by: chrispy on March 13, 2020, 02:29:04 PM
This situation is unique in that there is a good chance in 1-2 weeks things will seem more grim then they do today (unless the ace of spades vaccine comes about)
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 13, 2020, 04:21:51 PM

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.


Don't inflation expectations drive interest rates down?  Don't inflation expectations also drive P/E for the markets?

P/E of 15x == 6.67% earnings yield
P/E of 20x == 5% earnings yield

So if future inflation expectations are (hypothetically) 167 basis points lower, then isn't a 15x multiple the same as a 20x multiple in real terms?

Agreed. Inflation is far more important than nominal rates. But it's not linear.

Top multiples tend to be found when inflation is 1-3% (regardless of what nominal rates are T that time). If inflation falls sustainably below, or above, that range is when P/Es start collapsing dramatically.

Also, found some of the data I was looking at on Japanese companies. They were actually using earnings relative to Enterprise value since Japanese companies tend to hold so much cash while U.S. companies were far more levered. The difference was stark!
Title: Re: Did we just here a bell?
Post by: mcliu on March 13, 2020, 06:33:57 PM
I think you might have to factor in both growth and inflation/interest rate.
They're linked since low growth implies low inflation/interest rate, but not always. With globalization, there's possibility of importing deflation from other countries.
In Japan/Europe, you have negative growth, negative inflation/interest rattes, hence low multiples.
In US, you have low-medium growth but also low inflation/interest rates, hence high multiples.
I dunno, not an economist, so just a guess.
Title: Re: Did we just here a bell?
Post by: Spekulatius on March 14, 2020, 05:20:16 AM
I think you might have to factor in both growth and inflation/interest rate.
They're linked since low growth implies low inflation/interest rate, but not always. With globalization, there's possibility of importing deflation from other countries.
In Japan/Europe, you have negative growth, negative inflation/interest rattes, hence low multiples.
In US, you have low-medium growth but also low inflation/interest rates, hence high multiples.
I dunno, not an economist, so just a guess.

Low or negative interest rates mean that the economy tends to be very slow growing and fragile. This also means that profits donít grow a d may be fragile, which doesnít support high equity multiples. If Europe and Japan is any guide, the multiples for equity wonít go up if interest rates in the US go negative, because this wonít occur in isolation, there will be other factors that negate higher discount rates (crappy profit growth, fragile profits etc).

At least thatís how I think about this, but I am not an economist. I do think that multiples for real estate, especially residential RE will go up if interest rates go negative, because borrowing costs  is the largest cost factor except in very high tax states.
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 16, 2020, 06:11:15 PM

We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

Going to change my tune here. The last two business days have been filled with clients wanting to change to less volatile asset allocations (a la sell equities and buy bonds....).

Still not seeing people say sell everything yet, but we're getting closer.
Title: Re: Did we just here a bell?
Post by: no_free_lunch on March 16, 2020, 07:49:26 PM
Financials and cyclicals are getting hit hard right now. So many banks down 50%.   It makes sense if there is an extended downturn.  Small businesses and average joe won't be able to make their mortgage payments and will certainly delay spending.  It could be really ugly.

If you think all of this will happen I just don't see how it won't impact other industries more downstream.  If it is this bad then it has to ripple through. I think it will make its way through to tech.  Still very bubbly there.  Perhaps tech spending will get cut by smaller businesses and ad spending will be put on hold.

If I'm wrong I just don't see the banks going under and they are a bargain now.

Just some random thoughts.

Title: Re: Did we just here a bell?
Post by: stahleyp on March 19, 2020, 03:59:19 AM

We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

Going to change my tune here. The last two business days have been filled with clients wanting to change to less volatile asset allocations (a la sell equities and buy bonds....).

Still not seeing people say sell everything yet, but we're getting closer.

two, please keep us updated on what you're seeing there.
Title: Re: Did we just here a bell?
Post by: longlake95 on March 23, 2020, 11:20:09 AM
Just had a call from an acquaintance, who is terrified, and has sold a a good portion of his holdings, including some 3X-ETF type stuff. The word depression came up several times.  Maybe that was the bottom tick?
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 23, 2020, 11:50:21 AM
Just had a call from an acquaintance, who is terrified, and has sold a a good portion of his holdings, including some 3X-ETF type stuff. The word depression came up several times.  Maybe that was the bottom tick?

When you start hearing that from people who weren't in 3x leveraged stuff, I'd be listening

The leveraged players are always the first ones out because they can't handle the ride down.
Title: Re: Did we just here a bell?
Post by: gfp on March 23, 2020, 11:55:57 AM
My next-door neighbor told me this morning from his front porch that he sold everything for him and his wife today - which will be this afternoon's closing price because it was all open ended mutual funds and index funds.  They are one year away from retirement and they just couldn't take it anymore.
Title: Re: Did we just hear a bell?
Post by: gfp on March 24, 2020, 01:05:00 PM
Neighbor's liquidation at yesterday's closing price followed by 11.4% up day on the Dow Jones Industrial Average... 

My next-door neighbor told me this morning from his front porch that he sold everything for him and his wife today - which will be this afternoon's closing price because it was all open ended mutual funds and index funds.  They are one year away from retirement and they just couldn't take it anymore.
Title: Re: Did we just here a bell?
Post by: netnet on March 24, 2020, 01:15:03 PM
My next-door neighbor told me this morning from his front porch that he sold everything for him and his wife today - which will be this afternoon's closing price because it was all open ended mutual funds and index funds.  They are one year away from retirement and they just couldn't take it anymore.

Sigh...we humans are our own worst enemy.
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 24, 2020, 01:56:17 PM

We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

Going to change my tune here. The last two business days have been filled with clients wanting to change to less volatile asset allocations (a la sell equities and buy bonds....).

Still not seeing people say sell everything yet, but we're getting closer.

two, please keep us updated on what you're seeing there.

Still seeing mixed feedback. For every client adding risk, there are clients reducing risk. At this point, accounts are automatically rebalancing back to equity targets so we're net buyers, but that happens w/o client input so not sure it helps in measuring the sentiment of the crowd.

I still down think buy-the-dip has been punished enough and not seeing the kind of panic that I saw even during late-2018. Makes me think this isn't over.

Particularly since we still have yet to see the worst of this in the U.S. , Spain, India, etc.
Title: Re: Did we just here a bell?
Post by: bookie71 on March 24, 2020, 02:09:55 PM
Is it really an uptick or is it another "dead cat" bounce?
Title: Re: Did we just here a bell?
Post by: gurpaul88 on March 24, 2020, 03:13:55 PM
Who knows?
Title: Re: Did we just here a bell?
Post by: TwoCitiesCapital on March 24, 2020, 03:52:59 PM
Is it really an uptick or is it another "dead cat" bounce?

Deadcat bounce.

Until you have clarity on what the virus' impact will be on earnings, the fear of the virus will drive more selling IMO.
Title: Re: Did we just here a bell?
Post by: Kaegi2011 on March 24, 2020, 05:41:08 PM
Is it really an uptick or is it another "dead cat" bounce?

Deadcat bounce.

Until you have clarity on what the virus' impact will be on earnings, the fear of the virus will drive more selling IMO.

I agree.  However, these rallies can be volatile and go on longer than than one would expect.  I know I was taken for a few rides during 08/09 when I thought coast was "all clear" and I basically end up being the sucker that top ticked the bounce.  So this may go on for another 5, 10, 15% - who knows, but I don't think what we've seen this cycle is even close to representative of an usual bear market (e.g., much slower grind down vs. just a massive drop in the span of a couple of weeks). 
Title: Re: Did we just here a bell?
Post by: Spekulatius on March 24, 2020, 06:22:04 PM
My next-door neighbor told me this morning from his front porch that he sold everything for him and his wife today - which will be this afternoon's closing price because it was all open ended mutual funds and index funds.  They are one year away from retirement and they just couldn't take it anymore.

Sigh...we humans are our own worst enemy.

It might be a wise decision if further market erosion would impact his retirement plans and he can live with what he got at this point. Plus he got out on a strong up day, so there is that.