dimanche 22 mars 2020

Recent crisis and how long it took to come back

What's tragic about the current crisis is that many people will lose their job. A lot of people working in tourism (airlines, hotels, attraction parks, and many other activities), restaurants and retail will be unemployed for at least a few months. It's certain that a recession will occur. That means less money in the economy and a much higher unemployment rate.

You know the famous quote about the difference between a recession and a depression? A recession is when your neighbour loses his job. A depression occurs when you lose your job. That's the only funny joke I know about economics.

So, in a way, we're going through a tragedy. I have the chance to work in a field related to the public sector, so, the crisis won't affect my job. But it's not the case of many people.

Let's compare apples with oranges. In other words, let's compare the lenght of some recent big market drops that happened for reasons that aren't related:

2008-2009 crisis: 2 years and a half to recover (from september 2008 to february 2011);
Techno crisis of 2000: Almost 7 years to recover (from august 2000 to may 2007);
1987 crisis: About one year and a half to recover (from october 1987 to may 1989).

This time, the experts say that a vaccine could be available in 12 to 18 months. That means that the crisis would probably last a few more months before the economy comes back.

Meanwhile, brick and mortar shops will suffer, it's obvious. There's probably only food shops that will do okay because that's the only place where people will be allowed to go without restrictions. A lot of people will become obese, having nothing else to do than eating.

I think that techno stocks are the best one the face the crisis. Google, Facebook, Netflix, Amazon. I think that payment stocks like Mastercard, Visa and Paypal will also do well even if the economy goes into a contraction phase. People are encouraged to pay with cards instead of money in many places and I believe that this event will accelerate the disparation of real money (not really the disparition, but at least a big drop). I'd also bet on Metro and CN. Well, CN will be affected but their position seems very solid. Many companies will have a hard time, but when you have a monopoly or an oligopoly, you're always in a much better place than all the others.

Once again, oil stocks are a pretty bad place to put your money. Retail was half-interesting, half-bad, but now, it's almost all bad.

Eventually, we'll be back on track. It may be tough until then, but meanwhile, while the battlefield is all fucked up, it's a good time to take a strategic position for the future. That's how I'm approaching the issue.

13 commentaires:

  1. Are you still planning to open a margin account now?

  2. If Mr. Market will continue having his way like this, my bum hole will be the size of a cat flap by the end of this correction.

    Another one of my holdings is down by 1/3 of its price in a single day, after already being down by half since a few weeks ago. At this point, my portfolio will need to more than double in value just to climb back to its 52 week high.

    I hope that everyone else's portfolios are doing better than mine!

  3. after today, down (7.5%) YTD with tremendous upside ahead. the stimulus that will be around long after the health issue is settled down will help stocks more in the long run that had the whole correction not happened at all.

  4. Wow Edutrader congrats on amazing results! You must be a clairvoyant magician or an exceptional investor to be able to pull such great numbers. I hold some mutual fund to deposit dividends into without paying broker fees and that one is down almost 40% so you beat RBC's professional portfolio managers by a huge margin.

    In terms of the recent tick up on the market, I wish I had so much optimism and confidence as you guys. For the past two weeks, there were about 1M Canadians laid off (keep in mind only about 19M are working at any moment... and this does not count contractors and self-employed people). This will substantially erode consumer confidence even after lock down will be over.

    Trump tweeted that he wants the lock down to be over before Easter (12th of April). If Europe, Korea, etc. are representative of what we might expect in North America, I am worried the lock-down might be quite prolonged. Italy has been locked down since end of February - roughly 5 weeks and now it seems to be getting worse than better. There is military in streets of their cities. In other countries like Hungary the army took over strategic businesses and the president is acting like a war-time dictator, ruling by special edicts. China is claiming to have no new domestic cases... and that any new infections are because subversive activity of capitalist foreigners who are infecting the locals on purpose... so their numbers are not worth the propaganda paper they are written on. There are so few tests being done that the numbers hyped by the media are essentially useless and statistically insignificant. Nobody has a clue about what is happening in third world countries in Asia, Africa, and South America, where most people live. The media reports are not only inaccurate but often plainly misleading. Unless most people will get gradually infected, I do not anticipate the restrictions will be over before mass vaccination will be possible and even then travel bans might persist for much longer than that. That is of course unless the politicians give up and decide that economy is more important that old people. Laid off people kill themselves etc. so there is cost to everything.

    I cannot really buy anything until April 8 since I have to spend essentially all of tomorrow's paycheque on living expenses like rent and paying off my credit card. Even then, I am a little tempted to build up a mini war chest of at least 5-10k in case the contraction is more prolonged. Really good quality companies have not dropped by a lot and some are more than 50% over their price from December 2018 levels - which had no substance to it compared to the pandemic happening now. I was hoping for a little bit more panic to buy some higher quality names with new money rather than just average down into the lower quality companies I currently own which were cut down in less than half. Adding 1% a month to portfolio when it drops easily 5-10% a day does not make much difference anyways but at least it makes me feel like I have some control over the value of my portfolio.

    It would be very helpful if the governments would actually say what their plan is. For example, we will lock everything down for 2 months and then do this if x or do that if y happens. To many people and businesses this simple guidance information would actually help more than some delay on taxes or some other fiscal intervention. Right now a few connected people know what is happening and are making a killing while everyone else is ignorantly sitting on the fence, drooling out of their mouths.

  5. ($)o($)
    Please write shorter answers. We will be more willing to read them. Thanks.

    1. Sorry for being a public nuisance. Hope that you are having a nice day, Fred.

    2. With a shorter post, It was easier for me to read and enjoy what you wrote.
      Fred's comment was constructive

  6. currency helps. i am canadian, and moved to 100% US stocks about six months ago. the USD has moved about + 12% against the USD dollar in the last month alone.

    My holdings: in the past two days, before the big moves, I bought back three canadian stocks -- Enbridge, Brookfield Infrastructure and CN Rail. That's 20% of my portfolio

    US holdings - MSFT, PYPL, FB, INTU, ADP, JNJ, BDX, PEP, BF.B, MKC, EL, v

    That's it. Keep it simple, beat the markets.

    1. Thank you for sharing. Excellent companies. Brown Forman even survived prohibition... Maybe burning my hands this time will finally make me smarten up. Out of curiosity, why do you hold both PYPL and V and why not MA?

    2. Do you guys think yesterday and today are just shorts covering or an actual sign of price stabilization?

      For e.g. MTY (quick food franchisor) and NFI (bus manufacturer) are both up by about 1/3 today and are both fairly thinly traded stocks. I am still planning to sell Lassonde to average down into MTY but without full scale nation wide quarantine like in Europe, I think there might still be a lot more pain for MTY franchisees and shareholders.

  7. MA would have been the better investment, relatively speaking. I chose Visa after they bought Visa Europe years ago and that's been a drag for them. I think PayPal though is the V/MA of the next generation and much more, i have twice as much of it as I do V.

    On the macro move, if you missed the bottom, i think we can get a rally higher from here for sure, even all the way up to SP-500 2950. However, many times double-bottoms or at least higher lows are formed, in this case, it would on the realization of Q2 reports coming out that will not be pretty. So don't chase here is something to consider.

    Good luck.

  8. An interesting observation. 3 days ago at the low I was down ~ (16%) for the year. Today at the close I am down (3%) for the year. I stayed 100% invested in stocks. Had I missed even one of those three days, I would have caused myself irreparable harm.