most of an email from Wednesday night

 I think we won’t really begin to know how bad things are going to be before we see companies report earnings for 1Q20 over the next few weeks.  And it may not be until we get well into 2Q20 that we’ll have a solid grip on what the situation is.  That’s when we’ll be able to assess whether the market has already discounted all the possible bad news.
We can already figure out stuff that should be avoided–cruise ships, department stores, airlines, the Detroit auto companies…
If a professional manager has to remain close to fully invested, meaning no more than 10% in cash (for a pension manager, the maximum cash percent will typically be stipulated in a contract), just avoiding the losers will probably be enough to do better than the market.
For me, I think the investment focus should be narrower.  I find techy businesses with worldwide appeal and little investment in physical plant and equipment are especially attractive.   This is partly because technological change is very rapid, partly because I think the Trump back-to-the-Fifties economic strategy is already doing huge long-term harm to the US economy.  If he or someone like him continues in office, I think the ability of a company to pick up roots quickly and move to, say, Canada will be a distinct plus.  I also think this flight capital idea is already being factored into stock prices (look at NASDAQ  +50.8% vs Russell 2000 -13.6% since Trump has been in office).  I wouldn’t just distribute money across the board in the -non-losers.  I’d emphasize what I think are the long-term winners.
I’m sure that there are some people buying NVDA, NFLX and ATVI not because they believe in them or even know much about them but purely to defend themselves from the possibility that conventional consumer names will have hugely bad earnings performance over the next couple of quarters.  They may not be table to quantify how bad but they’re convinced that there won’t be any positive surprises, only potential negative ones.
Assuming I’m right in what I’ve written so far, the key question for me is when/how does this market situation reverse itself.
Reversal typically comes in one of two forms: the price difference between the good stocks and the bad stocks will get so extreme that, purely on valuation, the bad stocks will start to catch up with the good ones–this is a “counter-trend rally” and tends to be short; or the economy will begin to improve and there will be a genuine reversal of relative economic momentum toward business cycle recovery stocks.  I agree we’re a long way off from that.  At some point, though, it will be right to shift holdings to more traditional cyclical names in anticipation.
To some degree, the first thing has happened already.   MAR, for example was $150 in mid-December, then $46 a few weeks ago, and is now $80.  So it’s up by almost 75% from the low.  I don’t know what will happen from here but I might be tempted at $60 to buy a little bit.  Generally speaking, though, I think this kind of stock will be lucky to go sideways between now and the time, late this year?, that we get signs that business is recovering.  I’m really not accustomed to thinking about ETFs but a hotel ETF might be the better way to go.

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