very close to the June lows

As I’m writing this just before the open in New York, the S&P and NASDAQ are both hovering a couple of percentage pointes above their mid-June lows. The Dow, valuable mostly as an indicator of the user’s cluelessness, actually dipped below its prior lows last Friday.

The first thing to note is that my guess was that this wouldn’t happen–that we would maybe approach the old lows but that most investors had already acted out their fears by selling during the summer.

My experience is that in Asian markets, which have historically been deeply influenced by charts, when a support level cracks, the market quickly sells off until it approaches the next level support level (meaning a locus of broad-based buying and selling–in a sense a former battlefield of bulls and bears). In my experience, US behavior is quite different. For whatever reason, we tend to want to see the abyss opening up beneath our feet before we stop selling. The break below old support is the catalyst for the reversal of selling to buying.

Who knows whether this will still be true in an AI-driven world.

In any event, I think the overall level of the market should be a secondary concern. For us as investors, the much more important task is to try to imagine what the world will look like after this selloff is over and to seek out companies that stand to prosper in the new environment. So much the better if they have been pounded into the ground and are unusually cheap today.

The ideal stock, for me at least, is a growth stock that has lost so much that it is buyable as a value stock–that is, based on here-and-now cash flow and asset value.

Looking at performance since the mid-June lows can be useful, I think, as a way of trying to capture the mind of the market today.

ROKU, for example, was around $73 in mid-June. It’s now $68.

ZM bottomed at around $85 in early May–it was $100+ in mid-June. It’s now $76.

SHOP was $31 in June. It’s $30 now.

In contrast, HOOD, which I hold, was $7 in June and is $9.70 now.

F’s figures (I hold a tiny bit, I’m almost embarrassed to say): $11.25 and $12.25

MGM, another holding: $27.25 and $31.40.

The financial press seems to me to be more stridently negative and more devoid of substantive content than usual. Yes, interest rates are rising; yes, the dollar is strong; yes, wages are up; yes, the market is down. But who doesn’t know about this already? This is usually a contrary indicator.

more tomorrow

2 responses

  1. On Zoom
    It’s interesting that Zoom (or equivalent) is thought to be the future of business communications.
    All those restaurants, transit services, office staff , received their trickle down income from the world that will be disappearing.
    Who will buy the products of these virtual offices? Is it a precursor of civil unrest?

    • Thanks for your comment. As to Zoom, I do think that it has been the catalyst for a big change in the way office work and professional training are done. My sense is that, having experienced remote work for a couple of years, people are now willing to go to a physical office, say, three days a week, but no more. In areas like Manhattan, where I spent a major part of my working life, jam packed with offices in midtown, with support services like restaurants, apartment blocks, hotels, stores, entertainment, transit services, the economics are changing radically. I’m not sure how this will all play out, but I’d imagine at the very least that a massive recent development like Hudson Yards is not as attractive today as it seemed when it was planned. More likely, I think, and potentially more damaging, the long-term demand for office space in urban areas has probably shrunk a lot. If so, as you suggest, support services will also shrink, and there’s also the issue of how to pay for public transit if peak volumes are only 60% of pre-pandemic levels and if many workers are no longer subject to NYC taxes.

      On the other hand, I’m seeing upstate NY and eastern PA being revitalized as people relocate to less urban areas where the cost of living is much lower, and where they’re no longer subject to NYC taxes. In eastern PA, where I spend a lot of time now, real estate prices have shot up, new restaurants and craft breweries are emerging, farms are turning into housing developments, axe throwing is becoming a thing…Same in old industrial cities in western CT. So the change is starting to revive areas that have been economically dead for many decades.

      My belief is that big city offices make ideas rather than things. So I don’t think there’s an overall GDP issue. The areas perking up seem to me to be hotbeds of current Trump-galvanized civil unrest, so maybe that will diminish. On the other hand, I think you’re right that urban residents will likely be less well off than before, but stuck with the same bad public schools and inept government.

      As to ZM, the stock, I think the issue there is that ultimately its service is a feature, not a service–meaning that companies like MSFT and CSCO will up their game enough to prevent their traditional customers to shift to ZM. I haven’t looked at the stock, so I have no idea if/when it will be cheap enough that this doesn’t matter.

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