Having call the equity market crash a lot of people are asking me about re-entering.
Im about 50% back in and regretting it every second even while the profits pile up. That feeling is not a bad thing to have in the circumstances because a controlled level of fear is a good thing when the circumstances are so dangerous.
This is an amended diagram of my strategy.
I simply haven’t been able to keep away.
Stocks look delicious to me but balancing that is what amounts to the only call you need to make.
Is this the bottom or are we half way down.
This is the nightmare scenario as expressed by the dotcom crash and if you want to go back to 1929 the chart is extremely similar.
Every time I look at this chart I want to go back to cash.
So why am I back in 50%?
Because the rescue packages are so huge, the aftermath need not be terrible
The easing of lockdown seems to be on target before terminal economic devastation
I’m buying the insanely trashed companies with great businesses not bruised ‘superstars.’
If the alternative is 2000/1929 there will be plenty of time to see it coming.
50% of my capital can buy in over the next few months and average up or down.
Nonetheless calling the market as ‘not 1929’ cannot be a 100% call, it has to be probabilistic.
But what is an investor to do.
If you are buy and hold, you have to stick with it.
If you need stock picks, stay away.
If you are anyone else you should:
Re-enter slowly.
If you get FOMO you can be sure it will be costly.
Only buy shares that scream at you as irresistibly cheap.
You know the share and you think its terribly cheap now.
Go back over all the shares you ever owned and buy the ones that look really great to you now.
You will have a feel for these stocks and have a head start on your research. If they are proper companies, you will have a knowledge of their intrinsic value.
Look for companies which are proper businesses but have forced sellers battering their value.
These will probably be small caps but as long as you know the business that’s OK
Make a call on oil and
If you think oil is a dead duck, stay away
If you think oil will come back buy the big oil companies.
Contra thinking. A lot of US superstar stocks are relatively undamaged. That remains very unsettling. The loftiness of the Nasdaq defies logic. I cant swallow the futurism argument. Market cap 10 times sales simply doesn’t make conventional sense even in a boom and certainly not for a mold breaking trillion dollar market cap company. That for me is the only thing that pulls me back to the 1929 possibility. Triilon dollar companies simply cant have 30 p/e unless something revolutionarily futuristic has happened. It hasn’t, so that reset is left hanging like a sword of Damocles over my head.
So the answer is, re-enter slowly, watch out for the development of a 1929/2000 scenario and only by the truly obvious stocks.
Meanwhile for the brave, there a trading opportunities because for a fairly long time the market wont be able to price stock specific bad news. I’ll be trading shares of great companies that get hit hard but innocuous news. Until the market settles down a lot there will be plenty of these opportunities and investors should be looking to turn a ‘buy the dip’ idea into a trade the tip maneuver.
But frankly that kind of thing is beloved by people that like stocks but it’s a side show to the main event of enentering at the right time in the right stocks.
That time starts now, but if you smear that over the next few months you will be in good shape for 2021.