An experiment

[MustacheAndaHalf]

The experiment lost -19% in one week, while the benchmark dropped -3%, so it's back to break even.

Benchmark (VTI)   20.00%                                 
Experiment   20.00%   (   DIN   20.00%   /   M   3.00%   /   DXPE   37.00%   )   

[MustacheAndaHalf]

It's a bit hard to believe the change in one week, so I've quoted the June 5th (Fri) numbers:

Benchmark (VTI)   26.00%                              
Experiment   56.00%   (   DIN   61.00%   /   M   31.00%   /   DXPE   75.00%   )

Which seems a long way away from June 12th (Fri) numbers:

Benchmark (VTI)   20.00%                                 
Experiment   28.00%   (   DIN   33.00%   /   M   10.00%   /   DXPE   40.00%   )

While the benchmark fell -6%, the experiment dropped -28%.  I've done two experiments before: one that lasted 2.5 years, and another that I dropped quickly owing to volatility.  The difference here is the volatility doesn't impact my decision: I'm waiting for recovery or bankruptcy.  That plan makes things a lot easier - I'm watching the path these stocks take to their destination, but I don't need to do anything until they arrive.

I'm not exactly sure what "recovery" will mean, though.  The 3 stocks in this experiment are all far down year to date (DIN -40%, Macy's -55%,  DXPE -51%).  At some point, I need to consider if I'm waiting for a full recovery or a new normal.

[BicycleB]

I don't have a suggestion yet for recovery target, but like your thought process.

[MustacheAndaHalf]

It looks like the markets have more volatility to get through before recovery becomes relevant.  Now that markets are more interesting and volatile, I think I'll try updating this thread Mon/Wed/Fri.

The benchmark did better (-6%) than the experiment (-36%) for the past week, but the experiment still holds the lead.  I suppose restaurant food is a more known quantity, while retail requires more time spent browsing and trying things on.  Maybe that's why Macy's keeps lagging behind the restaurants.

Benchmark (VTI)   21.00%                              
Experiment   27.00%   (   DIN   32.00%   /   M   8.00%   /   DXPE   40.00%   )

[MustacheAndaHalf]

Sometimes the news matches what I see in stock prices.  Right now, I'm not sure - maybe stocks drifting lower on COVID-19 concerns?  In the past 48 hours, the benchmark went up +2% to the experiment's -1%, but the experiment still has a narrow lead.

Benchmark (VTI)   23.00%
Experiment   26.00%   (   DIN   26.00%   /   M   10.00%   /   DXPE   44.00%   )

[BicycleB]

I think that when COVID started, there was capacity for surprise on both the nature of COVID's effect and its size. Because it did surprise heavily in both effects, growing dangerous rapidly but also having much wider impact than a normal disease, correctly anticipating its course was a "tell" so big that it could out-influence all other factors combined.

That was a brief era. Maybe now it's over. Even if COVID continues to produce surprises, having a more positive or negative influence than the news or the investing public currently anticipates, the fact of its influence is no longer a surprise. Other factors can out-influence it, so even correctly anticipating COVID's effect can now lead to false investing theses. Maybe we've returned to the normal situation where single-factor analysis is a very unsteady, risky way of analyzing stock prices and investment strategies. So to win with such a technique, you have to:

1. Predict COVID outcomes better than the public, even though much attention is now paid to the subject
2. Correctly guess whether COVID will out-influence the many other factors that affect the market (is that likely any more?)
3. Derive a winning investment strategy - you have to be right about the investment as well as the trend, more complex than it looks

Generally speaking, index investing often wins because most one or more elements similar to the above list causes failures, while indexing routinely sidesteps all of them. Is anyone really in a position any more to beat indexing by anticipating COVID? Or is the variance we're seeing primarily a function of choosing a small set of stocks vs a larger index? How would we tell the difference?

I may have missed something along the way. Does this experiment have a defined endpoint, or defined criteria for when to end the experiment?

I realize my reasoning above isn't quantitative or reliant on specific sources. It's what does leap to mind when considering recent results and reasoning in the thread though. Best wishes.

[MustacheAndaHalf]

It's a group of deeply discounted stocks I picked, that I plan to hold for the duration of the COVID-19 crisis.  Either they reach their 52 week highs, or go bankrupt.  I made a table in an earlier post showing how far they have to go:

The closer these stocks get to their 52 week high, the closer I get to selling off these individual stocks and buying index funds again ...

Stock	52 week high	price/share	52 week / now
Macy's	23.40	9.34	+150%
DXPE	43.94	24.71	+78%
DIN	104.47	62.54	+67%
VTI	172.56	163.14	+6%

I usually just post percentages, but my spreadsheet also holds the price/share of each stock right now:
M $7.35  ,  DXPE $19.19  ,  DIN $47.07

Once DIN hits $104.47/share, I plan to sell.  There's a risk it hits $0/share in bankruptcy.  My theory is most of these deeply discounted stocks will recover, and overall the gains will outweigh the bankruptcies.

[BicycleB]

Thanks! Sorry for not paying quite enough attention.  :)

[MustacheAndaHalf]

At some point I expect a news story to scare people about the rising cases, which damages Macy's (retail) and Dine Brands (dining) more than the typical stock.  The experiment is behind it's benchmark -4% now, and I expect further drops in the next couple weeks.

Benchmark (VTI)   22.00%                              
Experiment   18.00%   (   DIN   11.00%   /   M   4.00%   /   DXPE   38.00%   )

[MustacheAndaHalf]

The COVID-19 news stories are getting more frequent and contain more foreboding.  Some U.S. states may block travel from other states, the EU might block U.S. travelers, and Dr Fauci warned of rising cases becoming new outbreaks.  I think the markets have some more room to fall with the current situation, which will mean a wider gap between benchmark and experiment.

Benchmark (VTI)   20.00%                              
Experiment   15.00%   (   DIN   10.00%   /   M   3.00%   /   DXPE   32.00%   )

[MustacheAndaHalf]

My recent posts proved correct: markets are heading lower on COVID-19 news.  I expect this to continue for weeks - the bad news isn't done.  State by state color maps on Bloomberg implied most of the U.S. didn't have a problem, a stance repeated by the President and Vice President.  So we're not even though the denial stage, while cases and hospitalizations are rising.

Benchmark (VTI)   18.00%                              
Experiment   9.00%   (   DIN   5.00%   /   M   -10.00%   /   DXPE   32.00%   )

In my own account, I actually sold a fraction of these stocks for the first time since I bought them.  I plan to market time the rising cases, and buy when the reality has set in.  The experiment isn't really set up for that, so it stays with the same stocks as they keep falling (so does most of my portfolio).

[ChpBstrd]

My state had an increase for the week of over 150%.

As of yesterday/today I would estimate about 20% mask wearing. 15% if you only count doing it right.

Definitely still in denial, with a lot of help from politicians.

[MustacheAndaHalf]

Looking at the data, there's only one state you could be living in - not sure if you intended to narrow it down so closely (Wikipedia's entry for your state capital shows "area" of "state capital city" between 110 and 115 sq mi, if we're talking about the same place.  Everyone else: good luck searching for that :)

[MustacheAndaHalf]

Today I sold half my holdings in the stocks in this experiment.  I predict rising Covid-19 cases leading to sharp drops in restaurant and retail stocks.  The experiment is -6% behind, and I expect it to get worse.

Benchmark (VTI)   22.00%                              
Experiment   16.00%   (   DIN   11.00%   /   M   -1.00%   /   DXPE   39.00%   )


I actually went a step further, and bought PUT options on DIN stock ($41.42/sh).  I guess I'll include the details here, to track the PUT option until it expires in 2.3 weeks.
JULY 17 PUT strike $35 cost me $1/share.  It's like having 35X leverage on DIN stock drops below $35/sh.

Worst case: DIN stock falls -15.5% or less, and the investment is a -100% loss as the contract expires.
Profit case: DIN stock falls -22%, and I get repaid my investment plus a +187% profit.

With current testing and government support, I am extremely doubtful we hit the March lows, so my "Profit case" is 1/3 of the way between the current stock price and the March lows.

[BicycleB]

Continuing to like the way your moves do flow from your analysis. Leverage to back it up! Reading with curiousity.

[MustacheAndaHalf]

Besides individual stocks, my portfolio also includes a standard index portfolio and market timing portfolio - both of which haven't done anything that interesting.  This experiment is a slice of my individual stocks, which are held in Roth IRA, so I won't be paying taxes on any gains (or sales).  When I sold half my shares in M/DIN/DXPE this week, there was no tax impact - might help my performance.

In a way, DIN and M have leverage as well.  These stocks dropped -67% during March, leaving them at 1/3rd of their former value... which means if they recover fully, they triple.  To me, that's also a form of leverage - but with zero ongoing costs, since I simply hold the stock until selling.

With options, the leverage is very controlled.  If someone takes a huge margin loan, they could double losses across their portfolio.  For option buyers, the cost of the option is the amount at risk.  But so far, so good: hours after I bought my DIN Put options, they went from costing me $1.00/sh to being worth $1.08/sh, so they're up +8%.

My guess is next week will be very interesting.

[MustacheAndaHalf]

The entire market opened with gains on the jobs report... then investors realized that mid-June data wasn't as recent as the end of month data, where jobless claims went up.  So markets reversed course, and now DIN stock is down -3% or so.

I originally predicted drops to half of March lows, but 1/3rd is more realistic.  That changes which options I value most and least, with DIN being a loser in that comparison.  It's also gone up in price, so I've sold 1/5th of my DIN put options for $1.15/sh (cost $1.00/sh, profit +15%) and moved that money into other options.
JULY 17 PUT strike $35 cost me $1/share and are now worth $1.15/share.  Sold 1/5th @ $1.15/sh.

---
The experiment lost -3% against it's benchmark since yesterday, leaving it down -9%.  I didn't bother with PUT options on Macy's or DXPE because I don't predict them falling as far as DIN.  So that's my outlook on the experiment: it will fall against the benchmark, with DIN falling faster than the others.

Benchmark (VTI)   24.00%                                 
Experiment   15.00%   (   DIN   7.00%   /   M   0.00%   /   DXPE   39.00%   )   

Markets are closed Friday, so next update will be Monday (July 6).

[MustacheAndaHalf]

Both up +1% today, with benchmark staying ahead by +9%.

Benchmark (VTI)   25.00%                              
Experiment   16.00%   (   DIN   7.00%   /   M   0.00%   /   DXPE   43.00%   )


---
I still can't figure out why retail stores are headed upwards, while restaurants drop.  It's like people need to shop more than they need to eat?  (To be fair, "eat in a restaurant").

In my continuing bad luck for PUTs... Friday was a jobs report so good it broke records... and today Warren Buffet has finally spent $10 billion buying new companies.  A couple PUTS gained, the other 3 did worse.

[bigblock440]

---
I still can't figure out why retail stores are headed upwards, while restaurants drop.  It's like people need to shop more than they need to eat?  (To be fair, "eat in a restaurant").

As more and more focus is put on masks, one of those things is easy to do with a mask, one of those isn't.

[BicycleB]

Exactly!

Retail can do about as much business as before. Restaurants are operating at lower capacity, yet have similar fixed costs; the profit impact is probably terrible.

I had 2 renters in food service before COVID. One was working 2 jobs, a bar/restaurant and a food truck. Bar/restaurant is running on skeleton crew (4 employees), no need for their barback; food truck is still closed. He's looking for jobs but hasn't found any yet. The other renter's restaurant reopened but is struggling due to the current walkback of our state's reopening. My on-the-ground report is suggestive only, but it's logical that restaurants are in a tough spot.

[MustacheAndaHalf]

bigblock440 , BicycleB - Totally agree with that logic, but I don't think most people are logical.  :)

Only two weeks ago, a state poll showed about 1/3rd of Republicans wore masks most/all of the time when they go out, versus about 2/3rds or so of Democrats.  It sounded like wearing a mask was divisive, and most Republicans (literally) follow President Trump and refuse to wear a mask - it's political.  Even independents were split right down the middle (50/50 if I recall right).

Something else worth considering, most restaurants can't make money at 75% capacity.  For the same logical reason you mentioned(can't eat with a mask), restaurants could be targeted first with new rules or restrictions.  In Texas, for example, restaurants are back to 50% capacity, which hits restaurant revenue badly.

Yesterday the restaurant stock DIN went up +2.4% during the day's trading, which had a -24% impact on the PUT options.  They were at $1.25 (+25%), and dropped to $0.95 (-5%).  Most of the others also lost ground yesterday (thanks, Buffet!), with only one PUT option going up +25%.

[MustacheAndaHalf]

I don't know if this will last, but it looks like all of the stocks I picked are down -4% after the markets have been open for an hour.  I'll put them in categories, despite them mostly being anonymous:
1x 95-99% (below strike price!... barely)
1x 105-110%
2x 110-115% (includes DIN stock)
1x 120-125%

At this point, I think my choices are locked in.  It's not worth paying higher prices for these same options now, and it's not worth selling them if they might go up sharply in value.  (Yesterday I attempted one buy order at half of what I originally paid, but the bid-ask spread remained too wide - nobody bought).

https://time.com/5863564/hospitals-capacity-coronavirus-surge/
"Hospitals in Florida, Texas and Arizona Are Almost at Capacity as Coronavirus Cases Surge"
"In Miami-Dade County, population 2.7 million, Mayor Carlos Gimenez ordered the closing of restaurants and certain other indoor places ..."

I haven't researched if the Florida/Texas governor's claims are true about younger Covid-19 patients.  Younger patients handle Covid-19 much better.  So if most patients are younger, there should be a far higher survival rate (which normally takes weeks before it plays out, so that's also not in the data yet).

[MustacheAndaHalf]

Yesterday was very interesting.  When time is short, distance to break even matters.

DIN stock lost -5.8%, causing the option to gain +42%.  Option is -10% until break even.

Best performer, stock lost -7.0%, causing it's option to gain +70%.  Option is -1.5% until break even.
Worst performer, stock dropped -2%, option lost -33%, break even is -16% away.


Yesterday's drop might provide appealing stock prices for some investors, so I'm guessing buyers will show up at the open to push prices slightly higher.  But they're fighting Covid-19's impact on the economy, so I expect stocks to drop again.

[MustacheAndaHalf]

Only one of my experiments can do well at a time.  As expected, my long-term experiment has fallen behind it's benchmark as restaurant and retail dropped lower today.  Now -13% it's benchmark:

Benchmark (VTI)   24.00%                              
Experiment   11.00%   (   DIN   0.00%   /   M   -2.00%   /   DXPE   35.00%   )

---
Just a remainder, a "PUT option" lets me put 100 shares in someone else's account at a certain price.  So if I have a PUT option at $35, I can sell them 100 shares for $3,500.  If the market offers those shares for $3,400 I have a $100 profit.  The more the stock drops, the more valuable the option becomes.

The market price of all my PUT options are up since I purchased them.  The markets priced in Covid-19 Tuesday, but seem mixed today.  Prices still dropping, but more slowly.

I bought DIN options for $1.00/share, which are now priced by the market at $1.60/share.  But DIN stock is still at $37.20, and my option only kicks in at $35 (the strike price).  It has another -6% to fall before then.

[MustacheAndaHalf]

Two of three stocks remain break even or worse, while industrial supply company DXPE is dropping more slowly  (As mentioned in an earlier post, I sold some of each stock earlier)  The "stock experiment" trails it's benchmark by -17%, and right now looks to go lower.

Benchmark (VTI)   24.00%                              
Experiment   7.00%   (   DIN   -4.00%   /   M   0.00%   /   DXPE   27.00%   )

----
The "options experiment" that anticipated significant Covid-19 impact is doing well.

After dropping -7.2% Thursday, DIN stock is now $35.47, or within 2% of my strike price ($35).  The market value of the DIN put options is now $1.87/sh (bought for $1.00/sh).

If DIN stock drops an average of -1% for 5 days, my options would have a +30% profit.
If DIN stock drops an average of -2% for 5 days, my options would have a +200% profit.

In my view, the -2% or greater average drop is more likely, so I'll keep the DIN options.  I haven't seen a moment of panic in the markets yet.  Back in March, the dramatic events tended to happen on Mondays (since anything happening on the weekend gets priced in instantly at Monday's open).

[MustacheAndaHalf]

Since my last post earlier today, the experiment has risen +4% while the US stock market went up +1%.  An article put out by the makers of remdesivir claim it has new found benefits if you ignore everything after the first 14 days.  I've noticed at least one news article gloss over the 14 day aspect, which I think is a key flaw.

Benchmark (VTI)   25.00%                              
Experiment   11.00%   (   DIN   2.00%   /   M   2.00%   /   DXPE   30.00%   )

[MustacheAndaHalf]

Rising Covid-19 cases are bad for the long-term experiment, currently down -17% against it's benchmark.  Since a week ago, the benchmark went up +2% and the experiment dropped -6%.

Benchmark (VTI)   27.00%                              
Experiment   10.00%   (   DIN   0.00%   /   M   -2.00%   /   DXPE   33.00%   )

There's two routes for a local stock market bottom, in my view.
(1) The impact of Covid-19 causes panic, and stocks drop in response.  I'll buy in near that low point - the moment of maximum panic is easier to spot than the actual bottom, anyways.
(2) Stage III clinical trials result in a vaccine for Covid-19.  President Trump will put extreme pressure on a fast approval, and then it's up to production of the vaccine.  Multiple companies are already scaling up their candidate vaccine production on the assumption their candidate will succeed in stage III trials.

Waiting a little while increases the chance of (1), while waiting too long increases the chance of (2).

Currently most of my PUT options have stale prices, giving an average +40% profit that's probably an over estimate.  The retail option has tripled, while another option is headed for a total loss (-85%, probably from a merger than benefits the stock).

If nothing changes by the market close Thursday, even with a +40% profit I'd consider my predictions wrong.  With this much Covid-19, I expected multiple PUT options to triple.

[ChpBstrd]

Long puts are in a race against time. To rise, they have to convert their time value into intrinsic value at a fast enough pace that time decay does not outrun the growth of intrinsic value. Your option’s theta is the amount of value the option loses every day due to the reduction in time, and theta accelerates as the option nears expiration. Option sellers think the time value is to expensive and option buyers think it is too cheap.

I suggest buying longer-duration options when betting on a theme, macro event, etc. Yes they’re more expensive and less responsive to changes in the stock price but theta is lower and most importantly you give the market more time to remain irrational before your option becomes worthless.

[MustacheAndaHalf]

In general, people should follow that advice, and have longer dated put options.

But for my specific bet, the timing was very deliberate.  I predicted a moment of panic as Covid-19 became impossible to ignore.  And maybe today is the day, as California announced new closures (notably indoor restaurants will close indefinitely).

Longer dated options don't move as much - the economy might reopen before the option expires.  So there's hope built into the longer time frame.  With my short dated PUT options, there's no room for error on my side - but there's also no room for optimism if events play out like I predicted (which they did).

President Trump deprived Dr Fauci of air time, and I think that had the biggest impact.  In the absence of factual, expert opinion, people are denying reality to a much greater extent.  I expected governors of Florida and Texas to already be harshly criticized and forced to close their economies to an extent.  Now I think it will take a more severe situation to convince people they are going about it wrong.

Most importantly, I don't know if I can predict the connection between Covid, the news, and stock prices right now.  So I'll let the bet win or lose, and not extend it, since I'm unclear if I have an advantage.  I'll probably update later after the markets are open (or maybe after the close).  California should have a big impact, but I'm much less certain of that now.

[MustacheAndaHalf]

Moderna is starting a phase III vaccine trial, which pushed their stock up (MRNA +5%).  But that's nothing compared to DIN stock, which is up +14% today.  My put options on DIN went from profitable (+70%) to a near total loss (-80%) soon after the market opened today owing to vaccine news.  The reaction to small vaccine news was much stronger than I expected this early, before the most risky stage III testing is completed.

Some of my worst performing options were involved in a merger deal, spoiling the impact of Covid-19 on that stock.  So I sold almost half of those options yesterday at about a -70% loss... today they are trading at -94%.  Most of the options are likely to be a complete loss owing to jumps similar to the +14% seen for DIN stock.  Only my retail PUT is profitable, but probably not by much... so if it reverses tomorrow, I could salvage something from that.

---
In the long-term experiment, the benchmark stood still while the experiment gained +7%, leaving it -10% behind it's benchmark.  Over the next couple months, I expect a lot more days when the experiment does better than the overall market.

Benchmark (VTI)   27.00%                              
Experiment   17.00%   (   DIN   9.00%   /   M   6.00%   /   DXPE   37.00%   )

[MustacheAndaHalf]

The short-term options bet ends today at the market close, but it's outcome is fairly clear.  Several stocks are far from strike prices, and there's no buyers at any price - those will expire worthless.  Overall, the bet that Covid-19 would lead to large price drops in Covid-sensitive stocks lost -84% in 2.3 weeks.

Two options -100% loss (no buyers at any price today)
Merger related option -89% loss (sold 2/5th two days ago, rest have no buyers)
DIN options -96% loss (sold today)
restaurant options -44% loss (sold today)

The entire outcome of the bet changed dramatically yesterday when Moderna announced it had completed stage II trails of it's vaccine candidate, and begun stage III clinical trials.  Restaurant and retail stocks surged over +15%, which had a dramatically greater impact on options, which are leveraged near the strike price.  That's how a +100% or greater gain became a -44% loss in one trading day.  I assumed completion of stage III trials would be the key event for markets, and didn't know a stage II trial would have this dramatic an impact.
https://www.theguardian.com/world/2020/jul/16/moderna-coronavirus-vaccine-trials

I under estimated the depth of denial in the U.S., particularly in how Florida's governor remained defiant even today.  Texas' governor mandated masks, and still saw cases rising.  The slower growth rates now (+5%/day) probably contribute to that, causing a slower and more drawn out impact.  But it also says that I'm wrong about a strong correlation between Covid-19, full hospitals, and stock market drops.

Note the stocks with the clearest connection to Covid-19, retail and restaurants, had the strongest price moves in the direction I expected.  The less I understood a stock, the worse the loss (in this bet).  I think that's probably true in general.

[BicycleB]

I like the lessons you are learning. Kudos for conducting this process in public instead of private, and seeing it through.

[MustacheAndaHalf]

One other sad admission: I mixed up the end date for my call options, which was a huge mistake.  The day I thought things ended, I had a -44% loss on my retail options.  The next day, they would have been +76% gain.  Options expire on Fridays, not Thursdays!  Without that mistake, the bet might have lost closer to -60% instead of -84%.  To be clear, I predicted a much greater than +76% gain, so that would still be considered a failed bet (so is -60%!).

It's odd to think my bet failed on a day when the U.S. had 77,233 new cases of Covid-19.
https://covidtracking.com/data/us-daily

----
When I started the (long-term) experiment, I quoted "DIN" as being up +80%, which was my personal performance before the experiment began.  In a way, by making the experiment more pure, I'm misleading people.  To misquote Thoreau "I bought days earlier, and that has made all the difference".

Benchmark (VTI)   27.00%                              
Experiment   13.00%   (   DIN   4.00%   /   M   0.00%   /   DXPE   34.00%   )



On Wednesday, I saw DIN stock move +17% in a day.  The week was bad overall, but it demonstrates what can happen when intermediate vaccine news is available.  Again imagine if a cure is announced, and how much that impacts restaurant revenues... and restaurant profits... and restaurant stocks.  My (long-term) experiment is predicated on that moment.

[MustacheAndaHalf]

Now -18% behind, with Macy's and the supply chain stocks dropping several percent.

Benchmark (VTI)   28.00%                              
Experiment   10.00%   (   DIN   3.00%   /   M   -4.00%   /   DXPE   31.00%   )

As an aside, there's another risk to the experiment: I'm buying risky stocks with the hope they recover, which hopefully pays for some bankruptcies that may occur along the way.  When one of my stocks becomes part of a buy out, that greatly limits the upside.  There's a brief jump in price, but nothing compared to what a recovery entails.  If enough stocks get bought, while others go bankrupt, that alters the risk/reward of my portfolio.

[MustacheAndaHalf]

Macy's went up +6.1% yesterday and dropped -6.1% so far today.  It only looks like it's not moving.  So the experiment is gaining against it's benchmark, and is now -13% behind.

Benchmark (VTI)   29.00%                              
Experiment   16.00%   (   DIN   12.00%   /   M   -3.00%   /   DXPE   39.00%   )


Here's my pitch that this experiment is going to work... last Wednesday Moderna started phase III trials, and DIN stock rose +17% in one day.  If the benchmark, VTI, recovers to it's 52 week high, it gains +4.6%.  If DXPE stock recovers to it's 52 week high, it gains +130%... and others need to make even greater gains to reach their 52 week highs (DIN +150%, M +264%).  They probably won't go all the way back... but even a fraction of +130% is a huge gain.  So while DIN gaining +17% seems extreme, at the time it was just 1/10th of it's possible recovery.

Here's the steps remaining as I know them:
* other vaccine candidates enter stage III clinical trials (besides Moderna's.. and I think Oxford's)
* many vaccine candidates are being produced at huge scale, in case they are successful
* completing stage III trials means the vaccine is pending approval

Once the data shows approval is likely, I think most of the recovery happens.  The government approval releases tens or hundreds of millions of vaccine doses - the production has already been ramped up.  By the time "stage III completed" and "approved" roll out, it will be too late to buy in before the recovery occurs.  I don't know if that happens on schedule in September, or if data gets leaked in August.  That's why I plan to buy in within 1-2 weeks, and wait for vaccine news to occur.

[BicycleB]

That does sound kind of logical!

[MustacheAndaHalf]

In my own account, I've replaced Macy's shares with long-dated call options.  The benefit is less money making the same profit, while the downside is paying renewal costs if the options get close to expiring.  Since DIN and DXPE don't have long-dated call options available, I've only used that approach with Macy's.

Benchmark (VTI)   27.00%                              
Experiment   15.00%   (   DIN   15.00%   /   M   -3.00%   /   DXPE   34.00%   )

[MustacheAndaHalf]

I'm not following the Covid news that closely right now, but I heard one story about some number peaking (hospitalizations maybe?).  So that could explain the good news for restaurant stocks (DIN +11% today).  I don't follow why Macy's still lags behind - it's easier to wear a mask shopping than eating.

The experiment is now -10% behind it's benchmark, as compared to -13% a week ago.

Benchmark (VTI)   28.00%                              
Experiment   18.00%   (   DIN   26.00%   /   M   -2.00%   /   DXPE   29.00%   )

[MustacheAndaHalf]

Macy's gave me a buying opportunity a few days ago, and is up +4% today.  But over the past week, it's roughly where it started.  The experiment is now -12% behind it's benchmark.

Benchmark (VTI)   31.00%                              
Experiment   19.00%   (   DIN   26.00%   /   M   -3.00%   /   DXPE   34.00%   )

If Congress doesn't act, that would increase the risk of bankruptcies.  I don't know to what extent that risk is impacting the above stocks - overall they didn't change much over the past week.

[MustacheAndaHalf]

Right now Covid-19 is still very prevalent, and a big problem for retail stores like Macy's.  The experiment is now -9% behind it's benchmark.  Kinda what I expect when Covid-19 is prevalent.

Benchmark (VTI)   32.00%                              
Experiment   23.00%   (   DIN   34.00%   /   M   -3.00%   /   DXPE   36.00%   )

In my own portfolio, I've switched to holding "2022 call options" of Macy's, rather than stock.  And since DIN and DXPE have done well, I've sold some of those shares and bought more Macy's call options.

[MustacheAndaHalf]

The experiment is now tied with it's benchmark.  Compared to the Aug 5 update, the overall market gained +1% while the experiment went up +13%.

Benchmark (VTI)   32.00%                                 
Experiment   32.00%   (   DIN   40.00%   /   M   7.00%   /   DXPE   48.00%   )

My portfolio has diverged significantly from this experiment, which holds DIN / M / DXPE at equal weight.  Today I sold my remaining DIN stock, in order to replace it with long-dated call options on a different restaurant stock.  I've been trimming my DXPE shares as well.  Before selling DIN, I had more invested in Macy's call options than the other two stocks combined.

Fortunately I've automated the experiment: I use a Google sheet that not only tracks all 3 stocks plus the benchmark, but allows me to just copy/paste each update.  So I plan to keep tracking the experiment, even though it doesn't resemble my portfolio much anymore.

[BicycleB]

So IRL, you've been closing out positions where you're ahead and increasing your bet on Macy's (right?)

[MustacheAndaHalf]

Not exactly - I don't sell stocks because they went up, but rather because they are closer to their recovery.  I balance diversification and profit - I want more stocks, but also want more invested in the most profitable stocks.

DXPE has a gain, but in a recovery it might gain another +64%.  There isn't much overlap between industrial supply chain and retail stores, so it's a good way to diversify Macy's stock.  Macy's could gain +130% in a recovery.  While other stocks get closer to recovery, and Macy's doesn't move, I wind up investing more in Macy's (it's profit potential is the same, while DXPE has lower expected gains).

With Dine Brands (DIN), I have a restaurant stock with +65% potential recovery.  But over the weekend, I found a restaurant stock with over +200% potential recovery that meets my other criteria.  Rather than hold both, I sold DIN stock since it no longer provides diversification.

[MustacheAndaHalf]

The experiment is now slightly ahead.  My guess is Congress takes longer than expected to make a deal, which could hurt stocks sensitive to corona virus risks.

Benchmark (VTI)   33.00%                              
Experiment   35.00%   (   DIN   45.00%   /   M   7.00%   /   DXPE   54.00%   )

[mntnmn117]

What did you buy? I noticed the drive through line at the new Starbucks is consistently around the block and SBUX hasn't made a full recovery yet. 

I will say poking around at restaurant stocks has totally reinforced that individual stocks are a crapshoot. So many of these restaurant stocks are all over the board. Red Robin peaked at $90 in 2015 and now trades at $9.

[MustacheAndaHalf]

I started this experiment during Covid-19, buying deeply discounted stocks.  The idea is "stocks recover", and when they do, they'll make significant gains.  So I'm not paying close attention to 2015-2016 performance of these stocks.

I don't want to reveal my whole portfolio, which is one of the reasons I picked just 3 stocks.  I'm not recommending people hold 33% restaurant stocks, even though DIN has beaten the S&P 500.  My portfolio has dozens of stocks, and I try to pick stocks from different areas of the market.  Keeping this experiment to just 3 stocks makes it easier to track - and easier for others to verify, if they choose.

Some restaurants have almost recovered, like fast-food chain McDonalds (MCD).  Since I'm investing in the recovery / rebound, a +4% gain doesn't look appealing.  Compare that to Dine brands (DIN), which has about +60% to go before it recovers - a much more interesting investment.  McDonald's is open for drive through, while IHOP doesn't offer drive through - so they're impacted differently despite both being restaurants.  Still, I prefer to invest in just one restaurant stock at a time, to spread my risk more evenly.

Benchmark (VTI)   33.00%                              
Experiment   33.00%   (   DIN   44.00%   /   M   5.00%   /   DXPE   49.00%   )

[MustacheAndaHalf]

The S&P 500 has gone up +1% since a week ago, while the experiment fell -7% behind.

I expect no news about vaccines for another 1-2 months, but if there's extremely good news it would be too late to buy in.  It's also possible the recovery will happen in stages... vaccine news... vaccine approved... vaccine rolled out... side effects minimal... any of which could go wrong, which is why the market might wait.  But I expect the experiment to cover the -8% gap within the next few months.

Benchmark (VTI)   34.00%                              
Experiment   26.00%   (   DIN   45.00%   /   M   -6.00%   /   DXPE   38.00%   )

[ChpBstrd]

The S&P 500 has gone up +1% since a week ago, while the experiment fell -7% behind.

I expect no news about vaccines for another 1-2 months, but if there's extremely good news it would be too late to buy in.  It's also possible the recovery will happen in stages... vaccine news... vaccine approved... vaccine rolled out... side effects minimal... any of which could go wrong, which is why the market might wait.  But I expect the experiment to cover the -8% gap within the next few months.

Benchmark (VTI)   34.00%                              
Experiment   26.00%   (   DIN   45.00%   /   M   -6.00%   /   DXPE   38.00%   )

IDK. Word on the street is that Trump will pull a Vladimir Putin and force the FDA to approve a vaccine before testing is complete. A resurgence in optimism could be good for both his re-election and consumer confidence. Sensitive stocks could rally on the chance that the vaccine works without killing too many people and shortens the expected time to get back to normal.

[MustacheAndaHalf]

The S&P 500 has gone up +1% since a week ago, while the experiment fell -7% behind.

I expect no news about vaccines for another 1-2 months, but if there's extremely good news it would be too late to buy in.  It's also possible the recovery will happen in stages... vaccine news... vaccine approved... vaccine rolled out... side effects minimal... any of which could go wrong, which is why the market might wait.  But I expect the experiment to cover the -8% gap within the next few months.

Benchmark (VTI)   34.00%                              
Experiment   26.00%   (   DIN   45.00%   /   M   -6.00%   /   DXPE   38.00%   )

IDK. Word on the street is that Trump will pull a Vladimir Putin and force the FDA to approve a vaccine before testing is complete. A resurgence in optimism could be good for both his re-election and consumer confidence. Sensitive stocks could rally on the chance that the vaccine works without killing too many people and shortens the expected time to get back to normal.

Vladimir Putin claimed a vaccine worked after testing on less than 100 people, from what I understand.  The leading candidates in the U.S. are already in stage II & III testing, so my guess is that President Trump will threaten to fire the FDA commissioner if an approval doesn't immediately follow a successful stage III trial.

If you're right, though, and Trump issues an executive order,  the companies involved have to agree to it.  Would they risk lawsuits and their reputation on an incompletely tested vaccine?  My guess is they wouldn't, and the executive order would likely be challenged in court (which could make it useless, if it's delayed past the normal end of testing).

---

Benchmark (VTI)   35.00%                              
Experiment   29.00%   (   DIN   49.00%   /   M   -2.00%   /   DXPE   40.00%   )

Since Friday, the experiment rose +3% and benchmark +1%, leaving the experiment -6% behind it's benchmark.  The fact that these 3 stocks are so close to the overall market amazes me - it's like paying only a -6% penalty to make a potentially huge gain on a Covid recovery.

[ChpBstrd]

The S&P 500 has gone up +1% since a week ago, while the experiment fell -7% behind.

I expect no news about vaccines for another 1-2 months, but if there's extremely good news it would be too late to buy in.  It's also possible the recovery will happen in stages... vaccine news... vaccine approved... vaccine rolled out... side effects minimal... any of which could go wrong, which is why the market might wait.  But I expect the experiment to cover the -8% gap within the next few months.

Benchmark (VTI)   34.00%                              
Experiment   26.00%   (   DIN   45.00%   /   M   -6.00%   /   DXPE   38.00%   )

IDK. Word on the street is that Trump will pull a Vladimir Putin and force the FDA to approve a vaccine before testing is complete. A resurgence in optimism could be good for both his re-election and consumer confidence. Sensitive stocks could rally on the chance that the vaccine works without killing too many people and shortens the expected time to get back to normal.

Vladimir Putin claimed a vaccine worked after testing on less than 100 people, from what I understand.  The leading candidates in the U.S. are already in stage II & III testing, so my guess is that President Trump will threaten to fire the FDA commissioner if an approval doesn't immediately follow a successful stage III trial.

If you're right, though, and Trump issues an executive order,  the companies involved have to agree to it.  Would they risk lawsuits and their reputation on an incompletely tested vaccine?  My guess is they wouldn't, and the executive order would likely be challenged in court (which could make it useless, if it's delayed past the normal end of testing).

---

Benchmark (VTI)   35.00%                              
Experiment   29.00%   (   DIN   49.00%   /   M   -2.00%   /   DXPE   40.00%   )

Since Friday, the experiment rose +3% and benchmark +1%, leaving the experiment -6% behind it's benchmark.  The fact that these 3 stocks are so close to the overall market amazes me - it's like paying only a -6% penalty to make a potentially huge gain on a Covid recovery.

I look at everybody's interests.

Trump has an interest in looking like the person who delivered us a vaccine. Any long-term liability occurs after the election.

Pharma executives have an interest in making a quick buck (via their stock options). They also have an enormous interest in NOT being late to this party. For example, if Astrazeneca's candidate is not the one Trump chooses to fast-track, their product will arrive months after tens/hundreds of millions of people buy their competitor's product, and that could mean they never earn back their development costs, even if their vaccine is better. Also, executives are perfectly willing to take on long-term liabilities in exchange for a short-term blockbuster, even if they are aware of risks. See Vioxx and a dozen other examples.

Given everyone's interests, I think the odds of Trump going around the scientists and forcing an approval are close to 100% and the odds of a pharmaceutical company turning down the opportunity to sell all these vaccines is near 0%. In fact, I imagine the pharma lobbyists are furiously trying to reach administration officials to lobby for their product. I certainly would be if I was in their shoes, and knew my competitors were doing the same.

In terms of translating this conviction into a speculative investment, IDK. Probably airlines and tourism stocks would benefit most from the possibility this nightmare could all be over by March.