The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: MustacheAndaHalf on March 10, 2020, 12:52:28 AM
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Sometimes I feel a combination of media and markets are in denial, and I want to prove them wrong. It's not that I start by wanting to make money - it's that I first get annoyed at how the data differs from expectations, and I want to put some of my money where my mouth is (or my typing fingers :).
So I have a market timing plan that involves 3 stages, and about 1/14 th of my portfolio:
(1) Sell 7% of equities and move those into 6% long-term bonds and 1% gold.
(2) I predict 10k cases of COVID-19 in the U.S., probably within a week. I predict a new panic over 10,000 cases. During that market panic, I will sell 3% of long-term bonds, 0.5% of gold, and an additional 1% of my existing bonds. I will then buy 4.5% equities.
(3) When long-term bonds spike upwards, or I see 100% pure panic before/after the 10k cases, I'll sell the other chunk: 3% long-term bonds, 0.5% gold, and 1% of existing bonds. I will move that 4.5% into equities.
Essentially, I'm market timing for a few weeks in order to demonstrate the markets have it wrong: Monday's panic wasn't deep enough. My primarily goal isn't profit, it's proving the markets / media wrong.
I watched the situation in China closely. In another thread, I predicted 10,000 cases in China several days before the media broke the story. The markets dropped right on prediction. Then on Feb 28th, the markets were in a panic mode so pure, I knew it was exaggerated, so I bought. That was the lowest point of that week and the week after... but now there's new information, and the market still isn't getting it, in my view.
Here's how I see the U.S. right now: in denial, about to get scared. As of March 6th, "fewer than 2,000 people have been tested for Covid-19 in the US" according to a Vox article. I saw another figure of 2,500 tests used. Those numbers are insanely low - and that was 3 days ago. From the news I read, the U.S. is very far behind in testing for the virus.
In China, once enough tests were being used, cases increased +50% per day. That probably represents both testing being in a "catch up" mode, and the virus continuing to spread. That's where I think the U.S. will find itself once tens of thousands of people are being tested every day.
"It’s likely that at some point, widespread transmission of COVID-19 in the United States will occur."
https://www.cdc.gov/coronavirus/2019-ncov/summary.html#anchor_1582494216224
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I wound up doing limit orders at the market open, which ultimately resulted in a sale price +0.85% better than the market close. A small win. But I purchased Vanguard Extended Duration ETF at a high premium, and SGOL gold ETF. The purchases were -4.6% by market close, compared to where I bought them.
Best time to buy yesterday was after the market pause, when US and international recovered slightly to under a -6% loss.
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Quite interesting plan! Not in the USA but PTF.
Good luck with your plan, hope it will work out for you!
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Here's how I see the U.S. right now: in denial, about to get scared. As of March 6th, "fewer than 2,000 people have been tested for Covid-19 in the US" according to a Vox article. I saw another figure of 2,500 tests used. Those numbers are insanely low - and that was 3 days ago. From the news I read, the U.S. is very far behind in testing for the virus.
In China, once enough tests were being used, cases increased +50% per day. That probably represents both testing being in a "catch up" mode, and the virus continuing to spread. That's where I think the U.S. will find itself once tens of thousands of people are being tested every day.
"It’s likely that at some point, widespread transmission of COVID-19 in the United States will occur."
https://www.cdc.gov/coronavirus/2019-ncov/summary.html#anchor_1582494216224
I agree. We've not been testing quickly enough, either through mistakes, or our "leaders" hiding their heads in the sand, maybe a bit of both. People don't quite get exponential growth. It's going to be a shocker.
That said, I have no confidence in my own ability to time the market. I bought some Berkshire yesterday because it looks cheap at $195/b share (1.12x last known book value). I sold some BND to do it.
I was surprised to see you were market timing again. Be interesting to see how your experiment works out.
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This experiment now involves 1/10th of my portfolio, while my "momentum experiment" involved less than 1%. I wasn't searching for market timing - I just got annoyed markets weren't reacting enough.
Because the market offered a better price today, I actually moved down to 64% equities (from 66% yesterday). I sold off 2% equities, and bought 1% gold and 1% bonds. So I'm currently 64% equities, 34% bonds, and 2% gold.
There's a variety of ways I can be wrong. South Korea's new cases keep dropping, which is a significant success against the virus. If the U.S. can replicate that, it could get control of things much faster than I expect. In South Korea, most cases were related to a secretive church which opened up about their membership, and the government tracked them down and tested them. They had recently visited Wuhan. In the U.S., it's not as centralized, so I expect it will be harder to track down.
The oil price war could come to a sudden close, and markets could react strongly upwards while I hold bonds / gold.
China plans to start letting people go back to work, and that could turn out to be successful, and bring production back online - and maybe consumption. Emerging markets could head upwards, and U.S. companies could benefit.
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Mon VTI was down -8% (VXUS -8%)
Tue VTI was up +5% (VXUS +3.9%)
Maybe I'll succeed, or maybe not, but I've already (re-)learned some things:
(1) I'm reminded of Buffet's quote that investing is like baseball, where you don't have to swing unless you like the pitch. Instead of putting my thesis to the test during a market panic, I could skip this pitch, and wait for something better.
(2) It's very rare for a large drop to happen all at once. The market is volatile. If I still want to invest near a panic, it's better to see what happens the next day or two. The pitch might be better, like it was Tuesday this week (Mar 10).
(3) I'm the only one who is certain I put 9% of my portfolio behind the thesis. I can just as easily put 0-1%, and make the same predictions.
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I couldn't figure out what yesterday was about. Payroll tax cut? That's not going to help the virus problem. It would save companies some money short-term.
Today looks more sensible. Down a few % so far.
I'm short-term pessimistic, long-term optimistic. I think we're in for some pain, and we'll come out of it stronger with better prospects for future good market returns.
I'm feeling like moving some out of VXUS in taxable - I'm showing a cap loss on purchases from 3 years ago (!) - that'll help a bit with our ACA PTC. It's only 5% of port. Hmmm.
EDIT: I sold half the VXUS at $45.57
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Ptf
Your experiment forgot the market panic today from the pandemic announcement, take any advantage of that?
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The pandemic was the match. Extreme valuations were the gunpowder.
That said, the bottom always occurs when things look their worst. The cost of getting back into stocks a little bit late can exceed the costs of exiting stocks too late. Ask someone who sold in early 2009 and bought in 2011.
Similarly, the media’s rationale for a correction can evaporate into thin air. The December 2018 correction of 20% was allegedly a response to Trump’s renewed emphasis on economically damaging tariffs. But then those losses were erased within weeks even as the tariff war became a reality. Could stocks rally even as the pandemic spreads? Ask someone who exited the market when HIV became a pandemic!
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I couldn't figure out what yesterday was about. Payroll tax cut?
Saudi Arabia started a price war with Russia, which was reflected in energy stocks on Monday. Then on Tuesday, oil stocks regained most (not all) of their losses, and the market swung upwards. If you look at energy company stock performance Monday and Tuesday, the situation will probably make more sense.
Your experiment forgot the market panic today from the pandemic announcement, take any advantage of that?
I sold stocks on Monday and Tuesday, but now I'm waiting. I'd rather wait at 64% stocks than go any lower, in case my predictions are wrong.
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Similarly, the media’s rationale for a correction can evaporate into thin air. The December 2018 correction of 20% was allegedly a response to Trump’s renewed emphasis on economically damaging tariffs. But then those losses were erased within weeks even as the tariff war became a reality. Could stocks rally even as the pandemic spreads? Ask someone who exited the market when HIV became a pandemic!
The media disseminates new information, which then gets incorporated into the stock market as price changes. The media doesn't control the markets, and doesn't even control information: these days they try to react as fast as possible, so they aren't scooped by Twitter users. My thesis does rely on the media:
(1) The media can't resist publishing big numbers as a headline. If something scary happens, they want people to know.
My theory is they get more viewers when they scare people. And people, in turn, can be shocked when a problem has reached a new scale, like 10,000 cases. So I think 10,000 cases is interesting, and likely to create headlines.
(2) The media does not predict the number of COVID-19 cases in advance.
It's extremely rare to have a story involving exponential growth, so maybe the media isn't prepared for it. Even people who discuss market moves are careful, and trying not to spread fear and panic. I suppose they have their reasons, but the net result is that I can estimate future cases, and the media refuses to do so.
When I combine these two theories, I get "project 10,000 cases in the U.S." and wait for the media to spread the news, which then panics markets. One missing piece of my theory is why seasoned investors aren't making projections. Maybe they are, but they include a level of uncertainty that I'm ignoring - my chance of being wrong. I suspect the answer is somewhere between my extreme view, and the market's. I have a chance to be wrong, but a greater chance to be right. But that's an extremely pessimistic view.
Are there any other threads talking about extreme valuations? I'm ignoring that right now, and just focused on market shocks driven by exponential growth in corona virus cases.
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I sold investments on Monday (Mar 9) and Tuesday (Mar 10) of this week to prepare for future market drops driven by the spread of COVID-19. Here's the market performance so far:
Mar 9, VTI was down -8% (VXUS -8%)
Mar 10, VTI was up +5% (VXUS +4%)
Mar 11, VTI was down -5% (VXUS -5%)
In the U.S., there were 1,010 cases of COVID-19 as of Tuesday, March 10. In Korea and Italy, one week after hitting 1,000 cases they hit 5,000 cases. That would suggest the U.S. hits 5,000 cases on March 17.
I'm very tentatively guessing March 20-23 will see 10,000 cases in the U.S. I predict the media will then make that the headlines, and stocks will react badly to the news. At that point, I will sell non-equity assets of 5.5% and buy stocks, bringing my stock allocation to 69.5%. I'm playing the other 5.5% "by ear", watching for bond price spikes or a day that feels like Feb 28th (a local low point for the surrounding two weeks - good enough for me).
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I think it's more accurate to track my actual sell/buy prices to calculate gains and losses.
I mostly "sold short" VTI and VEU. I sold them Mon/Tues, and will buy them back later. So my "profit" is the fall in price.
I used the proceeds to mostly buy EDV and SGOL, which I hold long. Here's my average sell/buy prices:
VTI sold at 140.00 (limit sale at market open) "short" - I will buy it back later.
VEU sold at 45.10 (blend of sales on Mon/Tues) "short" - I will buy it back later.
EDV bought at 185.19 (held long)
SGOL bought at 16.03 (held long)
As of 3/11 market close, I have the following prices:
VTI at 138.01, short profit of +1.4%
VEU at 43.76, short profit of +3.0%
EDV at 168.38, loss of -9.1%
SGOL at 15.76, loss if -1.7%
Buying 20-30 year Treasuries at peak panic isn't looking good at the moment, while switching from stocks to gold is already profitable.
I need to track headlines, not yesterday's data, so I won't be using the slowly updated data on WHO and CDC websites. I'll be checking worldnews.info data, which seems to lead even CNN's reporting. According to that source:
China 80.8k ; Italy 12.5k ; Korea 7.9k ; France 2.3k ; Spain 2.3k ; Germany 2.0k ; USA 1.3k
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My experiment just broke even - my short positions are +10.7% and long positions -10.5%.
If you're going to be a successful contrarian investor, I suspect being a hermit is important. Can you imagine trying to celebrate anywhere on the NYSE stock exchange today? I'd need security.
Most of my portfolio is still down - it's just the experiment which broke even. Here's the performance mid-day:
gold -5.4% (top performer)
VTI +8.8% (short position, anyone long lost -8.8%)
EDV -12.2% (long position, owch)
VEU +12.6% (short position)
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COVID-19 update: China 80.8 Italy 15.1 Iran 10.0 Korea 8.0 Spain 3.1 France 2.9 Germany 2.4 USA 1.7
I have roughly 75% LT Treasuries and 25% gold in this experiment, versus being short 50% VTI / 50% VEU. After the close of markets Thursday:
ED -14.5% (bought long at 185.19, now
SGOL -5.5% (bought long at 16.03, now 15.14)
VEU +13.4% (sold short at 45.10, now 39.05)
VTI +11.0% (sold short at 140.00, now 124.59)
My profit from short positions is +12.2%, and losses from long positions -12.3%.
Now I know short-term treasuries are the thing to own in a crisis / panic. Everything was correlated, including 20-30 year Treasuries, and all fell together. The only thing going up is short-term U.S. Treasuries (2-5 year in particular, maybe 10 year).
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Ouch, heck of a bad time to move 7% to EDV. In fact, the all-time record worst time.
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Ouch, heck of a bad time to move 7% to EDV. In fact, the all-time record worst time.
I deserve it for being greedy. Besides 6.75% in EDV, I hold 2.25% in gold (SGOL).
I bought EDV between the market open on Monday, and the trading halt minutes later. It was already up +10%, and Treasuries are what everyone wants to own in a panic, so it made sense to buy them. For some reason I didn't "bar bell", and buy both short-term and long-term treasuries. Monday's panic was the only day this week where EDV went up: it's been moving in lock-step with equities since then.
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Ouch, heck of a bad time to move 7% to EDV. In fact, the all-time record worst time.
I deserve it for being greedy. Besides 6.75% in EDV, I hold 2.25% in gold (SGOL).
I bought EDV between the market open on Monday, and the trading halt minutes later. It was already up +10%, and Treasuries are what everyone wants to own in a panic, so it made sense to buy them. For some reason I didn't "bar bell", and buy both short-term and long-term treasuries. Monday's panic was the only day this week where EDV went up: it's been moving in lock-step with equities since then.
Of course I am a little sympathetic because I also keep a small percent in ZROZ and RING, and barely missed a rebalance on that day. Though, this has been a long term play and ZROZ is still around 50% above my cost basis, I just have had no cause to rebalance since.
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Update after Friday's +9% rise to the U.S. stock market.
VTI: short +2.9% (135.93 / 140.00)
VEU: short +7.6% (41.68 / 45.10)
EDV: long -15.7% (156.07 / 185.19 )
SGOL: long -8.5% (14.67 / 16.03 )
Overall down -3.4% compared to the market. Not bad considering Friday, but buying 20y/30y Treasury bonds still hurts. Not only was it a greedy move, those treasuries became a non-safe haven asset exactly after I bought them. And I didn't just buy them at the peak: I bought them +5% ABOVE the peak, during the most expensive 3 minutes for 20y/30y treasuries (the market open Monday, March 9).
Next week will be a huge test for my thesis. The Fed meets this week, with market consensus being a slash of -1% to the Fed Funds rate, to a bottom range of 0%. That could be my one chance to profit off 20y/30y treasuries... It also looks like COVID-19 testing will ramp up in the U.S., so the number of cases will get more accurate.
The U.S. has between 1600 (CDC) and 2400 (worldometers.info) cases, and that's with inadequate testing. Bahrain (pop 1.7M) and the U.S. (pop 331M) performed the same number of COVID-19 tests so far (data as of Mar 9). The current U.S. cases is probably an under count. Plus tens of millions are uninsured, and even more have meager health insurance that's expensive to use. Congress is still fighting over free tests and making sick leave paid... this is an ideal environment for the virus to spread, countered only by local government efforts. I get why the national state of emergency helps the situation, but a +9% jump seems excessive to me.
I'm estimating that this next week will see 10,000 COVID-19 cases in the U.S., and possibly a spike in bond prices. So it's possible 50-100% of the experiment ends this upcoming week.
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I've devised tactics for the week ahead, during which I will be moving some money out of bonds and into stocks.
(Mon/Tue) - a severe drop could convince me to move some bonds back into stocks.
(Wed) - FOMC (the Fed) decides interest rates, probably cutting Fed Funds rate to near 0% (100 basis pt cut). If 20y/30y treasuries rocket upwards, I'll sell half of my EDV holdings and buy stocks.
(Th/Fr) - US cases should be near 10k, and the media will be shocked, inducing some panic. If EDV goes up while stocks drop, I'll sell the other half of EDV and buy stocks.
If the market doesn't react, and U.S. hasn't reached 10k cases, I'll move 1/3rd of the experiment from bonds to stocks.
If U.S. did reach 10k cases without a market panic, I'll move about 1/2 of the experiment from bonds to stocks.
So either way, I'll be selling bonds and buying stocks during this next week (Mar 16 - Mar 20). Time to see if I beat the market.
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People don't quite get exponential growth. It's going to be a shocker.
Indeed. For example, there are now about 2,300 cases in the US. About 20% of those were announced yesterday.
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I get why the national state of emergency helps the situation, but a +9% jump seems excessive to me.
I'm estimating that this next week will see 10,000 COVID-19 cases in the U.S., and possibly a spike in bond prices.
I agree with all that.
The price action on BND has surprised me. Been used to seeing only slight moves, not +/- 5%. I shall wait to see if an interest rate cut happens, and does cause a spike. If it does I think I’ll sell our BND and go to cash. Can’t see much upside from here.
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Here's a rough overview of how I'm scoring my experiment/thesis so far:
(+) I can plot exponential data, while U.S. media can't or won't. Their incentives are to shock people, not explain math, so it's a big advantage when I can predict what happens next... and they can't.
(+) Some people might be watching CDC/WHO data, like I was. They're far behind, at 1600 cases in the U.S., while I'm watching a source that already shows 3,000 cases (https://www.worldometers.info/coronavirus/country/us/)
(+) In multiple other countries, cases went from 1k to 5k in one week. As countries pass 5k cases, they tend to shut down cities... then regions.. then most of the country (Italy... Spain... now France).
(-) The size of the U.S. may allow it to shut down more narrow areas of the country, and in tech/finance employees may keep working from home.
(-) I bought EDV, an ETF holding 20y/30y treasuries - which are terrible. They drop every day, sometimes as much as stocks do, other times they drop as stocks rise. I could make a successful prediction and still lose money! (taxable loss?)
(+) The U.S. appears under prepared, especially with testing. Over the past month of the worldwide outbreak, the U.S. has run 22k tests (one source, not confirmed) while Korea runs that many every day. Congress is trying to patch a lack of sick leave, lack of free tests, etc. Everything is happening in crisis mode, not with planning.
(+) U.S. health insurance. Tens of millions lack it, and tens of millions more have plans that are too expensive to act on. A significant fraction of Americans will not visit a hospital if they get sick.
(+) This story wipes all others out of the headlines, making it less likely that other events interfere with my experiment.
I feel like I should be shouting "The epidemic is coming! The epidemic is coming!" while riding a horse and ringing a bell... but I guess I'll just recharge by watching "The Big Short" again.
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Here's how I see the U.S. right now: in denial, about to get scared. As of March 6th, "fewer than 2,000 people have been tested for Covid-19 in the US" according to a Vox article. I saw another figure of 2,500 tests used. Those numbers are insanely low - and that was 3 days ago. From the news I read, the U.S. is very far behind in testing for the virus.
Let's stay calm, however, I couldn't agree more. I expect more panic in the US once infection cases hit 10.000. The full extent of the reality has not hit the public yet.
The mortality rate due to Corona seems much higher in the US - which is not due to a more aggressive virus, but due to a high number of not-yet-detected infections. A great (and admittedly long) read:
https://medium.com/@tomaspueyo/coronavirus-act-today-or-people-will-die-f4d3d9cd99ca
PS, Greetings from a European country in lock-down. Practise social distancing today! ;)
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Yes, people need to take precautions rather than panic. But markets should be down more, and I expect markets to have at least one more panic this upcoming week (Mar 16-20).
The source of your medium article is Tomas Pueyo, who appears to be a marketing person with an MBA?
I prefer infectious disease expert Mochael Osterholm who was interviewed for 1.5 hours less than a week ago:
https://www.youtube.com/watch?v=E3URhJx0NSw
His view is more pessimistic than mine - the virus could go on for 6+ months, and re-infect countries like China a second time or more. It makes sense - if 99% of Wuhan didn't catch the virus, they have no protection from it (and there's even debate if people can catch it twice). His credentials are rock solid, so it's worth a look.
I think people need some time to process unthinkable ideas like "Italy is closed... Spain is closed... France is closed". Large chunks of the developed world are shutting down, and taking consumption, workers and production with it. And the markets aren't reflecting the magnitude of the impact - very strange.
Early this week, I expect Germany to enter lock down. And I'm guessing the U.S. will get more serious at 5,000 cases (I'm predicting Tuesday) and then start to freak out when the cases double in 3 days (predicting Friday) to 10,000. At some point the U.S. tries to contain the virus, and then my ability to predict goes way down.
I expect to close out most of my experiment this upcoming week.
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I’ve officially joined the market-timing club. I think that in the next two weeks, the US cases will increase significantly and more public closings will start. I don’t think the public has grasped the severity of the virus (I thought it was nothing a few weeks ago). I plan to jump back in within 2-4 weeks. In worst case, I get a lesson in market-timing for a few thousand dollars. In best case I make a few thousand dollars. I don’t see how the market can go up in the next few weeks as Americans start to understand this crisis.
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Is your market timing plan more specific than "jump back in within 2-4 weeks"?
In the U.S., I'm predicting 5,000 cases Tuesday followed by 10,000 cases maybe on Friday. It's possible because the U.S. is larger, more time passes before cities and regions begin shutting down... maybe 30,000 cases? But that shut down has a huge economic impact, and will hit markets.
The FOMC (the Fed) meets Tue/Wed, but surprisingly made an announcement hours ago dropping rates to 0%. So predictions were right, but the timing was a few days early. Now I'll be watching 20y/30y U.S. Treasuries to see what happens. When yields drop, existing bonds are more valuable, so I expect existing treasuries to go up in price.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm
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My plan is to buy back in if the federal government close non-essential businesses everywhere, or if the markets are up 10% after two weeks (I will just accept the loss in that case). If after 4 weeks this has not been announced, I’ll evaluate the situation and either buy back in if I’m unsure of the future or stay out a little longer if I’m confident things with the virus will get a lot worse still. If at any time in these 4 weeks if the market is down by 30% I would buy back in. If it’s down by 20% I would strongly consider buying back in. I’m selling about $45k of VTSAX (not my entire portfolio). I’ll try to remember to post an update in 2-4 weeks or when I buy back in to see if it was worth it or not.
It’s not the most well defined plan, but I’ll try to remember to post so we can see if it was worth it.
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After the Fed cut rates to zero, the futures market predicted a -5% drop in the stock market before trading was halted. A -5% drop is the maximum allowed before trading halts.
The U.S. has 3,800 cases now, which looks on track for my prediction of 5,000 cases on Tuesday. Still waiting for the markets to realize how much of an impact this will have.
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After the Fed cut rates to zero, the futures market predicted a -5% drop in the stock market before trading was halted. A -5% drop is the maximum allowed before trading halts.
The U.S. has 3,800 cases now, which looks on track for my prediction of 5,000 cases on Tuesday. Still waiting for the markets to realize how much of an impact this will have.
Now showing an expected -9% drop this morning.
Until the US has adequate testing, the numbers will continue to be lower than they actually are.
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U.S. testing has been minimal - as of last week 8k. The CDC's latest figure is a total of 22.6k tests performed in the U.S.:
https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/testing-in-us.html
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"Wu Han Organization" (WHO.int), your data on U.S. cases is way out of date! Here's U.S. cases, in thousands from various sources... see if you can spot the one that looks different.
worldometers 4718 CBS news 4500+ CDC 3487 WHO 1678
According to the "World Health Organization" (WHO), there were zero new cases on March 16... while U.S. stocks plunged -11.5% during a panic set off by the spread of COVID-19 in the U.S. They state "2 days since last reported case" in their data! You just can't make this stuff up, here's the link to their data:
https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200316-sitrep-56-covid-19.pdf
I was already annoyed WHO doesn't consider Taiwan a country - it appears as "Taipei and environs" on their page of China data. But this level of incompetent data is astounding - they need an asterisk next to these reports.
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The Fed dropped rates by -1%. Somehow 20y/30y treasuries only went up +6% on that news, but then even the treasury markets are malfunctioning (which is why the Fed stepped into the market twice in one day, offering unlimited liquidity). Here's where the experiment sits as of the closing bell Monday:
VTI: short +14.0% (120.46 / 140.00)
VEU: short +18.1% (36.95 / 45.10)
EDV: long -10.6% (165.50 / 185.19 )
SGOL: long -9.1% (14.67 / 16.03 )
Average loss is -10.2% while average gain is +16.1%. Before rounding, my experiment is beating the market by +5.8%.
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According to Vanguard's data, Extended Duration Treasury ETF (EDV) has a duration of 24.5 years.
According to the U.S. Treasury, yields on 30 year Treasuries were 1.56 last Friday and 1.34 on Monday, a drop of 0.22%
Multiplying: 0.22 x -1 x 24.5 = +5.39%
Markets seem to be reflecting a 0.25% drop (.25 x -1 x 24.5 = +6.1%).
Because of the Fed's action, I expect further drops in treasury yield, and further gains in EDV.
Markets are very volatile, so I might sell international on Friday (after +6%) and then buy it on Monday (after -10%). Regulation T states you can't "free ride" by selling, and then before the trade settles, buying it again. So I cannot buy VEU right now, and elected to start buying IXUS instead.
VEU closed at 36.95 while IXUS closed at 42.12. I'm going to assume FTSE and MSCI are the same, which isn't 100% true but is very close. So to translate from IXUS price to VEU price, I would divide by 1.14.
During yesterday's panic, I began buying. I sold a small allocation of EDV (at $165.745) and bought IXUS (at $42.56). Translating IXUS to VEU price: 42.56 / 1.14 = $37.33. On average, I paid 185.19 for EDV and sold VEU short at 45.10. So I took a short-term loss of -10.5% on EDV, but avoided a -17.2% drop in VEU, for a net profit of about +4.9%.
Outside the experiment, my portfolio was driven down to 58.5% by the market panic, so I began selling bonds and buying stocks, which brings me back up to 64% stocks.
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Wow. It's amazing how quickly everybody turned into an expert once the market started tanking. I'm so surprised at the hubris on this forum.
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I'm tracking an experiment here. If you're not interested, please don't hijack the thread.
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During yesterday's panic, I began buying.
Confused. This is outside the experiment? 5,072 cases as I write. 10k on Friday is my guess.
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During yesterday's panic, I began buying.
Confused. This is outside the experiment? 5,072 cases as I write. 10k on Friday is my guess.
If you look up above, this was according to my plan for this week:
"(Mon/Tue) - a severe drop could convince me to move some bonds back into stocks."
I ended roughly 1/16th of the experiment, selling long-term treasuries and buying total international. That part of the experiment is ended, and beat the market by +4.9%.
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During yesterday's panic, I began buying.
Confused. This is outside the experiment? 5,072 cases as I write. 10k on Friday is my guess.
If you look up above, this was according to my plan for this week:
"(Mon/Tue) - a severe drop could convince me to move some bonds back into stocks."
Ah. Last Friday’s plan. Thanks. Feels like months ago :-)
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World stock markets gained +5% as governments offered substantial economic assistance.
VTI: short +9.6% (126.50 / 140.00)
VEU: short +13.8% (36.95 / 45.10)
EDV: long -16.8% (165.50 / 185.19 )
SGOL: long -8.2% (14.67 / 16.03 )
Average loss -14.7% versus average gain +11.7% using (3 EDV to 1 SGOL) and (1 VTI to 1 VEU). The proportions are slightly off, because I've sold some EDV.
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United States 8,775
Looks like we'll be at 10k by the morning. Another down day? Already baked in? Who knows...
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World stock markets gained +5% as governments offered substantial economic assistance.
VTI: short +9.6% (126.50 / 140.00)
VEU: short +13.8% (36.95 / 45.10)
EDV: long -16.8% (165.50 / 185.19 )
SGOL: long -8.2% (14.67 / 16.03 )
Average loss -14.7% versus average gain +11.7% using (3 EDV to 1 SGOL) and (1 VTI to 1 VEU). The proportions are slightly off, because I've sold some EDV.
Something to keep in mind is a 10% drop is more than a 10% gain.
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The U.S. has 9458 cases according to worldometers, so the 10k mark might arrive a day early (Thursday).
World stock markets gained +5% as governments offered substantial economic assistance.
VTI: short +9.6% (126.50 / 140.00)
VEU: short +13.8% (36.95 / 45.10)
EDV: long -16.8% (165.50 / 185.19 )
SGOL: long -8.2% (14.67 / 16.03 )
Average loss -14.7% versus average gain +11.7% using (3 EDV to 1 SGOL) and (1 VTI to 1 VEU). The proportions are slightly off, because I've sold some EDV.
Something to keep in mind is a 10% drop is more than a 10% gain.
From the same starting point, they are the same. I agree -20% and then +20% is a net loss (0.80 x 1.20 = 0.96), but this is a different situation, where both are losses.
When I sold VTI, I avoided any losses after that point. When I bought EDV, I take any losses while I hold it. From my above data, VTI dropped -9.6% while EDV dropped -16.8%. Since EDV raced ahead of VTI, it was actually better to stay in VTI. It's just comparing two losses, to see which one is greater.
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It really sucks that my thesis seems to be right, but my execution is terrible. I'll leave the detailed post mortem for later, but "cash is King in a crisis" will probably be etched into my thinking for a very long time.
VTI: short +14.9% (119.21 / 140.00)
VEU: short +17.2% (37.33 / 45.10)
EDV: long -21.1% (146.00 / 185.19 )
SGOL: long -10.3% (14.38 / 16.03 )
I sold some EDV averaging $150.81 during the market drop, and some SGOL averaging $14.43. I need to take a closer look at which gold was sold in the experiment, and which was sold to bolster other parts of my portfolio. Overall, I'm holding 75% of the original EDV and about half of the original SGOL. So the original 3:1 ratio.... 12:4... now looks more like 9:2.
SHORT gains of +16.1% and treasuries/gold (9:2) losses of -19.1%. I successfully predicted a -16% drop and avoided it... by purchasing treasuries that fell -21%. Cash is king in a crash.
A market bottom isn't when things are at their worst, it's when things become certain. I predicted 10k U.S. cases and it's going to happen in a matter of hours, early Thursday morning, before the market opens.
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On the way to 10,000 cases in the U.S., every day had a crisis or major shift in events. There just doesn't seem to be much room for "10,000 cases" claiming headlines. So I took advantage of yesterday and today's (by 11am) prices, and bought mostly back in. I'm left with half the 20y/30y treasuries I started with - I've sold all the gold.
muni bonds.. stocks... treasuries... gold... all of it lost money in the past 10 days. In the book version of "The Big Short", I think it's Mark Baum who talked about a mean review he once made as an analyst.. he said someone had found the perfect hedge - an investment that loses money in all environments. Well, for the last 10 days, that's how I felt about 20 year and 30 year treasuries... stocks drop, they drop... stocks rise... treasuries drop. Stunning... I didn't do my research, which was sloppy. I just grabbed something with high duration, assuming that was most profitable while I waited outside of stocks.
For future reference, cash is king in a crash. You can own short-term treasuries, which amount to the same thing. But a true liquidity crunch involves selling everything. Everything but cash. So I think ultimately I may have a correct prediction that could have beat the market, but then doomed it by picking a high risk investment to wait it out.
So I've sold all the gold, and half the long-term treasuries, and I'm just going to wait and see what happens with treasury yields. Most likely, I'm falling for "anchoring bias", where an investor remembers the price they bought something, and feels that price has to be seen again - "breaking even" seems likely. Well, I don't know if that's likely.
During the market panic, the treasury market malfunctioned. The Fed recognized the problem, and stepped in to start buying treasuries in a market where buyers were lacking. That was last week, during which treasuries lost a lot. This week, the crisis continued, and the yield curve started growing wider. The Fed rate is at 0%, and 30 year treasuries are getting higher and higher yields. I can't explain what's going on.
I expect markets to eventually drop below historically high volatility. To calm down. And then maybe less uncertainty will bring down treasury yields. If that goes on, my treasury bonds should go up in value - perhaps dramatically.
So maybe I'm showing an "anchor bias", or maybe I'm waiting for calm markets and falling treasury yields. I think I'm gong to end the active part of this experiment, and monitor the market less often as I wait for a better sale price for EDV (20y/30y treasuries). So the experiment will slow down, and I don't know when it will end...
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On the way to 10,000 cases in the U.S., every day had a crisis or major shift in events. There just doesn't seem to be much room for "10,000 cases" claiming headlines. So I took advantage of yesterday and today's (by 11am) prices, and bought mostly back in. I'm left with half the 20y/30y treasuries I started with - I've sold all the gold.
I think that's right. 10k is baked in already. Worldometers is showing 10,816.
I don't understand the price action on bonds. I bought BND as "dry powder". Though I've done OK with it, lesson learned - in times of stress cash is king. I should have learned that from my hero Buffet.
Thanks for posting the experiment. It has been interesting.
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The experiment was conducted with a limited part of my portfolio, but I thought I'd also mention changes I made to my portfolio overall, that aren't included in the experiment.
Before markets opened March 9, I held 73% equities. I calculated the panic was too small, and sold down to 64%. Later in the week I sold some more, to about 61-62%. The market was also dropping, so I hit 58.5% equities at some point.
I had a detailed plan for market timing this week. When the Fed drops rates, if treasuries go up, I sell them. If there's a Mon/Tue crisis, I begin buying back in. The Fed dropped rates early, on March 15 (Sun), and markets were in such a deep state of panic that treasury yields went up! The treasury market malfunctioned, and the Fed had to step in with unlimited liquidity. It was annoying and surprising to see the Fed rate drop -1% while 30 year treasury rates went up. Oh well.
I now suspect we're at a market bottom. The people in charge are emphasizing testing, and it's ramping up exponentially. That's not an exaggeration - I mean exponentially. Last week it ramped up roughly 3x. Based on thinking over what the head of the COVID-19 response team said, I think it's gone up another 7x this week. And will keep ramping up through Sunday, according to those in charge of the COVID-19 response.
Most people will probably protect themselves and go out less - practice social distancing. That slows the growth rate of the virus. Meanwhile, I believe testing is growing at exponential speeds even greater than the virus. They're doing upgrades and sending them into the field. Supposedly testing will reach millions per day.
Now picture next week. If Dr Birx is right, testing will be ramped up by Sunday, March 22. So next week, they can afford to test everyone. You remember Trump saying "everyone who wants to be tested can get tested"? He's trying to get reality to bend to that, and if he succeeds, you better believe he's going to repeat it next week. And Dr Birx could very well agree with him, and next week say something about the explosion in testing ability now means anyone can be tested... let's reserve it for those with close contacts to known cases, etc... but testing will be at full speed.
People can still keep the virus spreading, like by going on Spring Break in Florida (a real story) and then spreading the virus to all their friends and family when they return - putting some of them in the hospital. Avoid those people - the danger isn't over because lots of tests can be performed. But it would remove much of the uncertainty and panic on the stock markets, if testing is now enough for all needs. So that's why I went all the way up to 78% equities yesterday (March 19). I still hold half of the original 30 yr treasuries, and am waiting to see if calmer markets will make those profitable (calmer meaning lower yields, meaning profits for those holding existing treasuries). We'll see...
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On the way to 10,000 cases in the U.S., every day had a crisis or major shift in events. There just doesn't seem to be much room for "10,000 cases" claiming headlines. So I took advantage of yesterday and today's (by 11am) prices, and bought mostly back in. I'm left with half the 20y/30y treasuries I started with - I've sold all the gold.
I think that's right. 10k is baked in already. Worldometers is showing 10,816.
I don't understand the price action on bonds. I bought BND as "dry powder". Though I've done OK with it, lesson learned - in times of stress cash is king. I should have learned that from my hero Buffet.
Thanks for posting the experiment. It has been interesting.
Interesting discussion. I think one factor in the rising bond yields is the ~1 trillion dollar fiscal stimulus being negotiated by Congress and the White House. Eventually this will have to be paid for and helped to drive yields higher, especially at the long end (will probably be financed mostly using longer-term debt).
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I think people might have just been selling long-term treasuries at an insane pace. If nobody buys, you need to make the yield more attractive until someone buys... so that drives up the yield, and drives down the value.
That's also reinforced by the Fed stepping into the market - a rare action - in order to provide liquidity. They bought up treasuries because nobody else was. It's extremely rare for the treasury market to lack liquidity, and is why the Fed had to step in.
Once that panic settles, I think yields drop quickly.
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I originally planned to follow the experiment's assets through selling stocks... buying gold or bonds.. and then buying stocks again. Unfortunately non-experiment assets co-mingled making that impossible, and requiring another approach. Instead I will track each asset separately, reporting their buy vs sale price. Some will be portfolio purchases, others from the experiment.
Another difficulty is comparing different index funds to each other. Although "SPTM" holds 1500 stocks to "VTI"'s 3500+, they match 99.9% most days. But not Wed, where SPTM was overpriced by +0.8%. Same Thurs, but only +0.4%. I heard about ETFs experiencing problems, but I didn't know it extended to SPTM (2.7B assets).
Instead of using one multiplier that tracks 99.9% most days, I'll need to calculate it separately each day. So for SPTM, I'll take any SPTM purchase and multiply it by closing prices (VTI divided by SPTM) to get a "VTI equivalent" price. And do the same for number of shares. This is ultimately becoming more difficult than doing taxes!
But here's the partial results so far, for my long positions in gold and long-term treasuries:
(SGOL) bought from 3/9 to 3/13 and sold 3/17 to 3/19 for a loss of -6.9%
(EDV) bought from 3/9 to 3/10 and half sold from 3/16 to 3/19 for a loss of -18.5%
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Treasuries went up during the initial day of panic (3/9), but fell every day after that. A perfect hedge - losing money regardless of conditions. I believe that was part of the treasury market malfunction which the Fed stepped in to fix. That still leaves panic and uncertainty driving up treasury yields, which hurts the value of EDV.
I believe COVID-19 testing will drive uncertainty out of the stock market, and replace fear with a more rational analysis. Treasury yields should fall, increasing the value of EDV as they do so. I can compare yields from the day of my largest purchases (3/9) and sale (3/19) to show how far yields moved against me:
(3/9) 0.87 and 0.99 for 20y / 30y, average 0.93
(3/19) 1.56 and 1.78 for 20y / 30y, average 1.67
Which changes the value of EDV by: (1.67 - 0.93 = 0.74), and 0.74 x -1 x 24.5 = -18.1% (very close to my -18.5% loss)
With my remaining EDV shares, I plan to wait. COVID-19 testing may scare people initially, but gradually should provide certainty. And when the market feels calmer and more certain, treasury yields should fall, reducing the expected losses. That has already started to happen today:
(3/20) 1.35 and 1.55, for an average of 1.45
(1.45 - 1.67 = -0.22), so -0.22 x -1 x 24.5 = +5.4%, which is a bit low compared to Friday's gain of +7.1% for EDV.
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I've finished after a couple more iterations. First the losses (a recap), then the gains:
SGOL (gold) -6.9%
EDV (treas) -18.5% (only sold 50%)
loss from starting investment: -12.5%
VEU/VXUS/IXUS (int'l stock) +20.0%
VTI/ITOT/SPTM (US stock) +11.2%
gain from short selling: 15.0%
Note these two investments run exactly in parallel. I sold VTI & VEU in order to buy SGOL & EDV and start the experiment. To end the experiment, I sold SGOL & EDV and bought VTI & VEU. So the "gain" from shorting is actually a loss, represented in reverse as a gain. I believe that means the short "gain" and long loss are directly comparable.
Overall a disappointing +2.5% saved from short selling. I predicted troubled markets, and should have made a +15% profit. Instead, supposedly safe assets tumbled and cost me -12.5%. In a crash, cash is king.
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After losing so badly with EDV, I tried to figure out what I had done wrong. The Fed clearly thought treasury markets had trouble, which is why they stepped in to buy treasuries almost two weeks ago. My mistake was when I sold: markets were so volatile, treasury yields reflected panic.
I still hold half by EDV shares from the experiment, which are currently priced at $166.50/share (markets haven't closed yet - last time I waited, I forgot to post).
50% of EDV shares: -10% (166.50/185.13)
The current -10% is far better than the -18.5% I lost from selling at the wrong time.
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Great experiment, @MustacheAndaHalf! Thanks for continuing to report.
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half of EDV: -12% (162.83 / 185.13), "marked to market" - I haven't sold it, but I'm tracking it's value.
I sold into a malfunctioning bond market at a loss. On Friday, I realized panic caused that loss, and panic will be subsiding. Two weeks ago the U.S. did embarrassingly little testing. By now the U.S. has passed up every country except Korea - and is gaining fast. Just as the media and markets don't plot exponential growth of the virus, they might be having trouble keeping up with exponentially ramping up of U.S. testing. So I expect panic to subside as that becomes known and understood.
On Friday, without mentioning it here, I bought ZROZ averaging $157.12/share. The amount is roughly equal to my current EDV holding, but I'm announcing it after the fact. So I consider this an experiment in two parts:
(strong), I announced I will buy long-term bonds in advance, and reported the average cost of EDV here.
(weak), I bought ZROZ, and 2 days later mentioned it in this thread
The second approach is (weak) because I could have bought 5 different assets Friday, and only told everyone about the one that worked best. There's a selection or survivorship bias at work when results are reported after the fact. By the way, if you think that's only academic, head over to etfdb and look for ETFS with $2 million in assets. Nobodies buying - those are "seed" ETFs. The ones that grow get publicity, and the others are quietly withdrawn.
So, the weak part of this experiment is me buying ZROZ at $157.12 / share.
(STR) EDV -12% ($162.94 / $185.13)
(WK) ZROZ +8% ($169.22 / $157.12)
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After market's close on Tuesday, March 24:
(STR) EDV -10.5% ($165.68 / $185.13)
(WK) ZROZ +10.4% ($173.47 / $157.12)
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Desirable bonds rise in value. When yields fall, existing bonds are desirable. Yesterday's Treasury yields were 1.19% and 1.39% for the 20yr and 30yr treasuries. If yields fell 0.8% quickly, EDV would rise by:
0.8 x +1 x 25 = +20%
While +20% is normally a great return, I see two disadvantages with waiting:
1) Vanguard Total World dropped from $76/share to $62/share so far in March. If it returns to it's former level at some point, that's a +22.5% gain from investing right now.
2) EDV currently has a taxable loss
With those in mind, I decided to sell the rest of my EDV shares (but not ZROZ shares) today, at $167.25. That brings up my average selling price, and turns the total EDV loss into -14% (down from -18.5%). Combined with losses in gold, that turns a bond/gold -12.5% loss into a -11.5% loss.
Because a losing position and short selling are both losses, they are directly comparable. Which rises the overall profit from +2.5% to +3.5%... before taxes.
Since EDV lost -14% of it's value, assuming a 22% tax rate for a short-term loss makes that -14% loss worth a -3% reduction in taxes. But EDV was only about 2/3rds of the experiment, so a -2% overall reduction in taxes. I know gold is a special case, so I'll have to look up the tax impact from selling gold at a loss.
So overall, ahead +5.5% versus not running the experiment.
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Congrats on winning your gamble, and thanks for updating.
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Glad it was interesting. This week (Mar 23-26) I've been pushing about 24% of my assets into an actively picked portfolio of stocks, and I've just finished. Since this is after the fact, and I'm not going to reveal them, I thought the best compromise would be to reveal a small sample for others to follow. Note I am not revealing the riskiest stocks, nor the most lightly traded stocks. Rather, I'm picking 3 interesting stocks: one of my best performing, one of my worst performing, and one famous one near the middle, by performance...
Dine Brands Global Inc (DIN) owns restaurants like Appleby's and IHOP. Avg price: $20.58/share
Macy's Inc (M) sells women's clothes in hundreds of retail stores. Avg price: $5.18
DXP Enterprises Inc (DXPE) helps run supply chains and operates service centers. Avg price: $12.29/share
A good benchmark would be Vanguard Total Stock Market (VT). On March 23, VTI opened at $113.65
Grabbing the latest prices from Yahoo! Finance:
DIN ..... 37.05 / 20.58 up +80%
M ........ 6.66 / 5.18 up +29%
DXPE ... 13.78 / 12.29 up +12%
VTI ...... 128.60 / 113.65 up +13%, benchmark
It's unfair to pick 3 stocks after they've gone up an average of +40% against the market's +13%. I have a strong conviction they can win this race more than once, so I'll track these 3 stocks at equal weight from today's prices. I'll reset the clock, and I still expect them to beat the market:
DIN at 37.05 / 37.05 up +0%
M at 6.66 / 6.66 up +0% (it's an evil experiment, I'll grant you that)
DXPE at 13.78 / 13.78 up +0%
VTI at 128.60 / 128.60 up +0% (benchmark)
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For a slightly successful experiment, there was too many mishaps. I hope I learn from them. When I predict news and market events days in advance, I should remember I have a few days to wait for prices to stabilize. And I should make sure the biggest gain/loss stocks for the day match my understanding: if oil stocks drop 4x faster than the market, COVID-19 isn't the explanation. Even the start of an oil price war can involve an overreaction that corrects the next day.
Here's the day by day ratio between the price of EDV divided by VTI, at each market's opening prices:
Calm Friday (March 6): 1.15
Panic Begins (March 9): 1.35
What Oil War? (March 10): 1.24
Fed steps in (March 11): 1.20
Max Drop Part 2 (March 12): 1.26
Friday the 13th of March: 1.16
The worst day to sell VTI and buy EDV was March 9, when I bought. That cost me roughly -10%. But that misses the big picture and main lesson: cash is king in a crash. Forget about bonds, go with cash.
Had this experiment sat in cash, instead of buying bonds, the after tax return would have been +12.8% instead of +3.5%.
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On Friday (March 28) with stocks down and long-term bonds up, I sold off my shares of ZROZ.
I'm guessing if yields keep falling, maybe I could gain another +12%. But markets or the Fed could push yields back upwards. Meanwhile stocks are down -22% and historically recover at some point. With greater certainty, I can switch to stocks and wait for a +28% gain. So that's why I sold ZROZ and got back into the market.
I bought ZROZ for $157.12 / share on March 20,
and sold ZROZ for $175.99 / share on March 27, one week later.
Profit 175.99 / 157.12 = +12% short-term profit
Using the median tax bracket of 24% gives +9.1% after-tax profit.
Not that it's too relevant to the experiment, but I'm now 100% stocks for the first time. Markets will probably have some rough weather ahead, but historically staying the course works out well. Market timing for a couple weeks was tiring - I much prefer where I am now, no action required as I wait months or years for markets to recover.
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It was a very interesting experiment. Thanks again for posting it.
I’m not convinced we’ve seen the bottom yet, I still don’t think people have grasped exponential growth. I still see people posting about over reaction, because there’s only x cases or x deaths. We’ll see in a few weeks.
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It was a very interesting experiment. Thanks again for posting it.
I’m not convinced we’ve seen the bottom yet, I still don’t think people have grasped exponential growth. I still see people posting about over reaction, because there’s only x cases or x deaths. We’ll see in a few weeks.
My experiment was founded entirely on exponential growth that markets couldn't see in advance, so naturally I have to agree with you. Waiting months for a drop is very risky, waiting weeks might be reasonable. The key thing is making specific predictions and being out of the market for a short time period. Not only do markets tend to go up over time, but the effort to fight this virus is being done over the entire world. Maybe the U.S. is short on masks, but China no longer needs as many, so countries can work together for a better outcome. Hospital space, however, is hard to import.
At no point did I list a reason for international being included, so that +20% gain from shorting - it was luck. Meanwhile long-term treasuries (-14%) and gold (-7%) were greedy choices that failed badly. A more pure experiment would stick to just U.S. equities (+11% profit) and cash.
I did get my revenge, though: realizing treasury markets malfunctioned during my experiment, but were returning to normal, I bought ZROZ and held it one week (+12%). I'm happy I took that profit and left!
Now the experiment becomes waiting for risky stock picks to beat the market. As of market close on Friday:
Benchmark : -1.3% (VTI -1.3%)
Risky Stock Picks: -12.0% (DXPE -7.0% ; DIN -12.0% ; M -17.0%)
The experiment is doing 10x worse than the market!
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Summarizing prior experiments:
March 9-20: +3.5% before taxes.
==> Tax impact involves 3 different tax rates of 4 assets, so I want to re-calculate it more carefully.
March 20-27: +12% before taxes.
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Which brings me to the current experiment (March 26 - now):
active picks -20% (DIN -22.6% ; M -26.3% ; DXPE -11.0%)
U.S. market +0.2% (VTI +0.2%)
Since the March 26 start date of this experiment, the growth rate of U.S. COVID-19 cases has been dropping. The numbers are rising, but more slowly (so keep social distancing, it's having an impact). The death rate has been inconsistent, with a spike yesterday. It's worth mentioning markets don't have to fall because more people get sick. Markets already priced in the current impact. There's a range of possible end times, and markets price each end time multiplied by it's probability - and then reduced by government relief efforts. Back when markets couldn't spot exponential growth, I had an advantage. Now Goldman Sacs is not only working on a COVID-19 specific database & system for investing - they're announcing it, essentially admitting they were behind the curve (literally!) but are catching up. In normal times, investment firms don't broadcast what they plan to research - I take it as another sign it's no longer a good idea to time the market (I'm 100% equities, waiting however long a recovery takes).
I'm deeply disappointed that testing has reached a status quo. A few weeks of exponential growth, followed by the past week roughly holding at 100k tests/day. But last week a couple new types of testing were approved, which could mean detecting active COVID-19 infections in 15-45 minutes. I don't know if those will work in the field, or how soon they will be mass produced. I hope testing gets a second wind.
Markets are probably reacting to dire predictions by experts. But those predictions are "reflexive" as a better investor than me once said - the prediction scares people, who then adhere more carefully to social distancing and washing hands. I suspect the prediction, if most people believe it, will not come true. If everyone ignores it, it will come true.
So... growth in cases slowing... death rate uncertain... predicted impact getting worse... testing stalled but new advances being rolled out. It makes sense markets are lower on that news. I'm not sure how often it makes sense to update this thread... maybe 2-3 times a week?
Current March 26 experiment down -20% compared to benchmark.
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In my mind (the only place I do such experiments), the % wins should be multiplied by a basis amount, such as $ invested an experiment, or % of original-portfolio-value-at-market-peak invested in an experiment.
Would you feel comfortable sharing such info about the amounts invested? Forgive me if I missed it upthread.
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Although I won't share dollar amounts, my ZROZ (+12%) holding was 1/3rd the size of my first experiment.
To form the current experiment, I transformed it in several ways that made it resemble my actual portfolio less. For one, I allocated slightly different amounts - but it's easier to make them the same for the experiment, and won't change the outcome. I only picked 3 stocks, while my active portfolio has many more. Finally, in my portfolio these 3 stocks are profitable, while in the experiment time was reset, resulting in losses. That makes it hard to map the current 3 stocks back to anything resembling money in my portfolio. Maybe it's best to consider them roughly equal to the ZROZ holding:
EDV/SGOL experiment 3x : ZROZ experiment 1x : active picks 1x
Markets are absorbing bad projected outcomes in New York, and later in the U.S. as a whole. Congress may delay further relief as they fight over it. And Macy's (M) just suffered two hits in 24 hours: their bonds downgraded to "junk" status, and they're being dropped from the S&P 500, since they're more like a small cap stock now.
experiment -25% (DIN -33% / M -28% / DXPE -15%)
benchmark -3% (VTI -3%)
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EDV/SGOL experiment 3x : ZROZ experiment 1x : active picks 1x
Thx.
So had someone done the actual experiments, weighted pretax results so far would be about:
.035(3)+.12 + (-.25-(-.03)) = .105+.12+(-.22) = .225-.220=.005=.5%.
Overall outcome very much in play, I suppose.
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Some CEOs on CNBC discussed their company's ability to survive 2 years of COVID-19. My worst case was 1.5 years, so I plan to take another look at my plans. I'm expecting recovery sooner, but I want to have an idea how it plays out if 2 years becomes a reality.
Partway through Friday:
experiment -31% ( DIN -45% / M -29% / DXPE -18% )
benchmark -5% ( VTI -5% )
You might think trailing the stock market by -26% is discouraging, and maybe others think that way. To me, it's vital that when U.S. stocks drop, my stock picks drop far more. If that wasn't the case, there wouldn't be room for them to recover faster than other stocks.
Right now Americans need to hear tough medicine about how to prevent COVID-19 from spreading. As Dr Fauci said, it's possible 100k to 200k die, and even President Trump has changed his tune, and recently mentioned 240k deaths. What I hope is that people hearing that message make every effort to prevent it. Per the guidelines, stay at home.
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Some CEOs on CNBC discussed their company's ability to survive 2 years of COVID-19. My worst case was 1.5 years, so I plan to take another look at my plans. I'm expecting recovery sooner, but I want to have an idea how it plays out if 2 years becomes a reality.
The timeframe for a vaccine is about a year at the earliest, but perhaps the CEO's are also counting on a financial crisis to follow the biological crisis, and a multi-year deep slump in consumer spending amidst it all. We can't compartmentalize our thinking. We must think a few moves ahead. That was the lesson in 2000 to all those people who only bought "safe" non-tech stocks, and in 2008 to tall those people who thought they were in the clear because they weren't invested in mortgages or banks. It's the 2nd order effects that create surprise market drops.
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Looking at past outbreaks (MERS, SARS), the vaccine never arrived on time. It's always other factors that ended the outbreak - consider China's case, with no vaccine the country is being opened back up (slowly). That's why I feel it's all about testing, like the new tests that detect COVID-19 in an hour or less.
This weekend, U.S. market futures were down -0.6% or so, but hours before the market opened turned sharply upwards about +3%. While events are still grim in New York, overall the number of new cases declined. In Europe, the death rate has declined. Besides slowing COVID-19 spread, the oil price war may have a positive development on Thursday (diplomatic efforts, uncertain to work). Overall I'm thinking markets could keep seeing good news, and keep going up from here.
As to my experiment, it's gone up since Friday:
experiment -21% ( DIN -33% / M -18% / DXPE -13% )
benchmark +1% (VTI +1%)
U.S. stocks are up +6% since my last update, and my experiment went up +10%.
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I hope New York manages to get enough ventilators - they are in for a rough week. I suspect when New York deals with the peak of their outbreak, markets will push upwards. My U.S. data shows COVID-19 cases grew by +8.7% on both Sunday and Monday. Seems like markets are about to begin recovering as COVID-19 fears fall away and allow for increasingly normal lives.
It looks like some oil producers are finally limiting production - which was one of the terms Saudi Arabia wanted from the U.S. - it makes a deal more likely.
https://www.texastribune.org/2020/04/06/texas-oil-producers-shutting-wells-coronavirus-dispute-plummet-prices/
As of yesterday's close, here's my experiment's status:
experiment -18% ( DIN -24% / M -15% / DXPE - 13% )
benchmark +3% ( VTI +3% )
The experiment is actually -20% behind before rounding.
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If good news piles up, markets will react strongly to it. I just thought I'd warn people that's likely, this week.
COVID-19 growth in the U.S. is below 10%. When that happened in China, growth collapsed within days. The slowing of exponential growth has taken longer in the U.S., but a week from now that growth could have collapsed (+5% or +3% a day).
Europe's death rate has declined, so they might be over the worst of their outbreak. China is slowly starting it's economy back up, and Europe may follow. It looks like the U.S. may be next in that line.
"A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs ..."
https://www.investopedia.com/terms/b/bearmarket.asp
So the Feb 19 peak of Vanguard Total Stock Market (VTI) was $171.32, making 80% the threshold for a bear market: $137.06. Yesterday VTI closed at $132.01, and in futures trading VTI is up to $136.00. In other words, the U.S. stock market is less than +1% away from ending this bear market.
https://finance.yahoo.com/quote/VTI/history?p=VTI
COVID-19 on decline worldwide, China restarting, oil negotiations, and now the bear market almost over. That's why I think it's risky for those who sit in cash right now, instead of investing in stocks.
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experiment -14% ( DIN -22% / M -11% / -10% )
benchmark +3% ( VTI +3% )
DIN stands for "Dine Brands", with restaurants like Appleby's and IHOP. Right now there's a danger the lock down lasts a long time, and could even bankrupt businesses. That's why the DIN stock is down -66% YTD, while VTI is just -20% YTD.
With stocks at 80% of previous values, recovery isn't +20% (that would be 80 x 1.2 = 96%), but +25%. Similarly, if DIN stock recovers, it's not +66%, it's +194%. If life gets halfway back to normal, I expect stocks to go halfway through their recovery. So that's what I'm waiting for, hopefully in weeks to months.
Experiment gained +3% on it's benchmark, now -17% behind.
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3 days ago...
Partway through Friday:
experiment -31% ( DIN -45% / M -29% / DXPE -18% )
benchmark -5% ( VTI -5% )
And now (2 hrs after market open on Wednesday) :
experiment -9% ( DIN -13% / M -6% / DXPE -7% )
benchmark +5% ( VTI +5% )
While the benchmark gained +10% since Friday, my experiment gained +22%. If you just look at the gap, you might miss how quickly it can change. I'm hopeful the experiment could break even against it's benchmark some time next week.
In another hit to some books I've read, their Beta over the past 5 years (according to Yahoo Finance) is the opposite of what you'd expect from the above. DIN has the lowest Beta (1.3), while DXPE has a higher Beta than the other two stocks combined (2.92). I'm glad I ignored Beta in selecting these stocks.
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COVID-19 on decline worldwide, China restarting, oil negotiations, and now the bear market almost over. That's why I think it's risky for those who sit in cash right now, instead of investing in stocks.
That's what most of traders are thinking now, which are pushing up the stock prices. We collectively also need or image some good news to cheer us up during the grim time. I personally still stand by my views that the economy will continue slide, thus drag down the stock prices for the next few months. I just sold a bunch of stocks at Roth this morning to lock in some gains and may sell more stocks at the end of the day.
Nobody knows how future unfolds. I am getting my feet wet with little more active trading now. Win or loss, it's all relatively, especially if you put long enough time frame.
I enjoy your analysis and posts. Please keep us posted.
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I would encourage you not to be content with statements of opinion, but push yourself to find data that supports and contradicts you. I can't measure the need for people to hear good news, but I can measure COVID-19 cases and testing.
My thinking on Congress is more vague. Normally Senate Majority Leader Mitch McConnell blocks every bill proposed by the Democratic-run House of Representatives. But without relief, unemployment and bankruptcies could hit historic highs (they still might) - and that would be blamed on a lack of government relief. This year the Senate Majority Leader is up for election, so his career is on the line. Nobody wants to pay huge speaking fees to a disgraced member of Congress who caused a financial mess. So I thought it's in his selfish interest to save the country and pass relief legislation.
I didn't watch CNBC or Bloomberg during Thursday's markets, so I don't know if they brought up current stock prices versus Feb 19. If a bear market is still defined as -20% off the recent highs, then the bear market ended with yesterday's market close. The bear market is over - another one can start, but it bottomed out at -35% (Mar 23).
Note I bought my individual stock picks 1-2 days after the bottom (I had to wait for prior purchases to settle T+2 before switching to individual stocks in a fraction of my account). So right now, I'm very happy with how those stocks have performed. I won't quote numbers because people shouldn't believe after the fact numbers. That's why I reset this experiment back to +0% / +0% instead of using my own starting point.
experiment -2% ( DIN -3% / M 0% / DXPE -4% )
benchmark +8% ( VTI +8% )
While the stock market had a good day of +3%, my experiment gained twice as much, +7%.
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I'll be focusing my commentary to a new thread I've created:
https://forum.mrmoneymustache.com/investor-alley/data-driven-investing/
Owing to data I crunched on the weekend, I no longer believe my active picks will catch their benchmark this week. I also plan to update this thread less often, maybe 2-3 times/week.
Benchmark +7% ( VTI +7% )
Experiment -6% ( DIN -11% / M -8% / DXPE +1% )
My experiment fell -4% while markets fell -1%, which I consider a good sign. The risk of my stock picks going into default is growing (in my view), but they are clearly swinging up and down much more than their benchmark.
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As Gov Cuomo extends New York's lock down to mid-May, I likewise expect my experiment will not be catching up with it's benchmark for awhile. Places like Macy's have no business during a lock down, but if they make it, could dramatically rise in price.
Benchmark +7% ( VTI +7% )
Experiment -16% ( DIN -22% / M -15% / DXPE -11% )
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After the close on Friday, April 17 :
Benchmark +11% ( VTI +11% )
Experiment -7% ( DIN -9% / M -11% / DXPE -2% )
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The days of negative oil prices... an hour before the Tuesday close (Apr 21):
benchmark +6% ( VTI +6% )
experiment -16% ( DIN -16% / M -24% / DXPE -7% )
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My overall idea is that retail and dining will eventually recover without bankruptcy - which is more doubtful if Senate Majority Leader McConnell intends to stick to his recent comments about being more careful with Congressional spending. Although the performance didn't drop much, that's a significant risk to the stocks in this experiment - the U.S. economy won't make it without Federal help.
It's also an election year. If McConnell causes my active picks to all go bankrupt, I suppose I'll have the Pyrrhic victory of watching him and President Trump get booted out of office in disgrace, with no fat speaking fees for either of them. Which also makes me wonder - would he really bankrupt the U.S. economy instead of spending other people's money?
We'll see in several weeks when another Federal relief package is needed. For now:
benchmark +9% ( VTI +9% )
experiment -15% ( DIN -17% / M -27% / DXPE -3% )
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As of the market close Tuesday, April 29:
benchmark +12% ( VTI +12% )
experiment -2% ( DIN +1% / M -10% / DXPE +4% )
Still trailing the benchmark by -14%.
Since April 21 (just over a week ago), the benchmark is up +6% and experiment up +14%.
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Holy ****. My own portfolio is up so much, I'm stunned. My active stock picks have gone from 1/4th of my portfolio to 1/3rd of my portfolio. This experiment started later, so it doesn't reflect all the gains I'm seeing in my portfolio.
I'm updating early because the experiment is rapidly catching up to it's benchmark.
As of 1pm EST on Apr 29:
benchmark: +15% ( VTI +15% )
experiment: +11% ( DIN +28% / M -7% / DXPE +13% )
Since yesterday, with markets still open, the experiment gained +13% while the benchmark went up +3%. I don't know if this optimistic market will persist, but it puts a break even in reach for this experiment.
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Yesterday markets fell, perhaps on quarterly data or perhaps on a new study finding a lack of benefit for several COVID-19 treatments. As expected, the experiment fell faster than it's benchmark:
benchmark +13% ( VTI +13% )
experiment +5% ( DIN +20% / M -12% / DXPE +8% )
Looking back about a week to Apr 24, the experiment moved upwards 5x faster than it's benchmark, which is unusual. But it's a good sign the experiment has the potential to recover quickly.
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I wonder if checking stocks too often leads to a desire for activity, when it's better to stay the course - even with active stock picks. I might try updating this thread on a schedule, to prevent me from caring too much about the current state of the experiment. I've noticed I want to sell Macy's more because it's trailing the other two stocks. While it's probably good in general to cut losses and let winners run... that's not the plan for my portfolio. My plan is to await a recovery, taking the bankruptcies with the gains.
As of 1 pm EST on March 5th, 2020:
benchmark +13% ( VTI +13% )
experiment -3% ( DIN +4% / M -19% / DXPE +6% )
Compared to a week ago (Apr 28), the benchmark moved up +1% and experiment -1%.
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I wonder if checking stocks too often leads to a desire for activity, when it's better to stay the course - even with active stock picks.
Good question that you are noticing. The belief that the answer is "yes" is one of the reasons indexers often give for indexing.
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@BicycleB - My new plan is to only update here on Monday and Thursday. A schedule helps me in one additional way: I don't have to decide if the results are "interesting", so I don't have to think about what's happening with Macy's stock.
Benchmark (VTI) 13.00%
Experiment -6.00% ( DIN 3.00% / M -23.00% / DXPE 3.00% )
The spacing may have changed, since I just added the above directly into my spreadsheet. Now I can hopefully just copy/paste from there without doing anything by hand.
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Compared to May 5th, benchmark +1% and experiment -1%.
Benchmark (VTI) 14.00%
Experiment -4.00% ( DIN 8.00% / M -21.00% / DXPE 2.00% )
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How symmetric! Both have moved 11%, just in different directions... compared to a week ago, benchmark lost -2% and experiment lost -5% (Beta 2.5?)
Benchmark (VTI) 11.00%
Experiment -11.00% ( DIN -5.00% / M -25.00% / DXPE -3.00% )
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Nice thing about updating on Monday and Thursday: comparing week to week is easier. Since a week ago, the benchmark is up +1% and the experiment is up +4%. Optimism about Moderna's vaccine trial seems to be pushing up markets.
Benchmark (VTI) 15.00%
Experiment -1.00% ( DIN 9.00% / M -19.00% / DXPE 9.00% )
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The overall experiment still trails its benchmark, with only ones stock performing as well as the US stock market.
Dine Brands (DIN) owns IHOP and Appleby's, which have reopened in two states with plans for more. DXP Enterprises (DXPE) is a supply chain company focused on the industrial sector (like 3M, Boeing, GE) of the economy. On July 1, Macy's (M) will report earnings, and plans to reopen most of it's stores before then.
Benchmark (VTI) 16.00%
Experiment 2.00% ( DIN 16.00% / M -19.00% / DXPE 10.00% )
Compared to 7 days ago, benchmark +5% and experiment +13%. (Suggesting a beta of 2.6)
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In phase one, everything went down.
In phase two, hard-hit industries stayed down (restaurant, travel, financials...) and investors plowed into tech stocks (e.g. microsoft, apple, adobe), bringing some above their pre-COVID levels!
What happens in phase 3?
a) A 1999 style tech melt-up, as momentum takes on a life of its own and meanwhile other industries tread water?
b) Hard-hit industries catch up, outperforming tech, as the economy normalizes and value comes into vogue.
c) Everything goes back down as people realize the financial sector and consumer are both seriously wounded and unemployment will be in the double-digits for over a year.
d) The federal reserve takes a 25% stake in the stock market, sending prices to the moon, as Mr. Trump decries the communists in Cuba and Venezuela.
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( Oops, in trying to replace my latest post, I deleted the prior one... oh well. Here's today's update. )
With stocks up yesterday and starting down today, the experiment has pulled ahead of it's benchmark. Compared to a week ago, US stocks had a good week by gaining +4%. But the experiment had a great week, gaining +25%. Currently, the experiment is +7% ahead of it's benchmark.
Benchmark (VTI) 20.00%
Experiment 27.00% ( DIN 40.00% / M 10.00% / DXPE 32.00% )
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Exciting!
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Back to tied. Macy's still lags behind, but the other stocks make up for it, leaving the experiment back at break even with the benchmark. Depending on how well retail, restaurants and supply chains come back... that will decide how well the experiment performs.
Between May 1st and June 1st, the benchmark rose +7% and the experiment +15%.
Benchmark (VTI) 20.00%
Experiment 20.00% ( DIN 29.00% / M -1.00% / DXPE 31.00% )
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Over the past week, the benchmark moved up a net of +3%, and the experiment +12%. Although they were tied on Monday, the experiment is now +16% ahead. Two of the stocks have double the market return, while Macy's is roughly tied. Seems like this month the experiment might increase it's lead over the market - but that can be reversed if the economy closes back up.
Benchmark (VTI) 23.00%
Experiment 39.00% ( DIN 45.00% / M 20.00% / DXPE 51.00% )
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Over the past week, the benchmark moved up a net of +3%, and the experiment +12%. Although they were tied on Monday, the experiment is now +16% ahead. Two of the stocks have double the market return, while Macy's is roughly tied. Seems like this month the experiment might increase it's lead over the market - but that can be reversed if the economy closes back up.
Benchmark (VTI) 23.00%
Experiment 39.00% ( DIN 45.00% / M 20.00% / DXPE 51.00% )
I guess big tech is now perceived as too expensive so money is rotating to harder hit areas. If the optimists keep piling into airlines, cruise lines, and restaurant chains maybe that’ll be where the next shorting opportunities appear (PLAY for example is exploding upward). I’ve made good $ on small OHI and GEO positions and may have them called away soon. Just milking time value and falling volatility at the moment.
Early in the year it looked like a late cycle melt-up was starting. Perhaps not even a worldwide pandemic and severe recession can interrupt a melt up once it gets started.
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ChpBstrd - I would argue "money is rotating" and "optimism" isn't enough to explain how DIN performed in the past few weeks: from +16% to +45%. I view it as the economy reopening, allowing restaurants to serve customers. That even explains the drop for big tech: fewer people will be stuck at home, so Amazon orders and Netflix viewing will both drop.
Unfortunately, "economy is reopening" isn't my idea - I assumed long-term yields were falling, and I was wrong. I bought long-term bonds at a 30-year yield of 1.4%, which has gone up to 1.6%. While selling at a loss for my mistake, I came across an article explaining yields are going up because the economy is reopening.
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Who knows what will happen next week, so here's an extra update to capture the experiment's best moment so far. Compared to 4 weeks ago, May 11, the benchmark rose +12% and the experiment rose +60%.
Benchmark (VTI) 26.00%
Experiment 56.00% ( DIN 61.00% / M 31.00% / DXPE 75.00% )
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ChpBstrd - I would argue "money is rotating" and "optimism" isn't enough to explain how DIN performed in the past few weeks: from +16% to +45%. I view it as the economy reopening, allowing restaurants to serve customers. That even explains the drop for big tech: fewer people will be stuck at home, so Amazon orders and Netflix viewing will both drop.
Unfortunately, "economy is reopening" isn't my idea - I assumed long-term yields were falling, and I was wrong. I bought long-term bonds at a 30-year yield of 1.4%, which has gone up to 1.6%. While selling at a loss for my mistake, I came across an article explaining yields are going up because the economy is reopening.
Well I can relate to being a couple weeks behind the market’s thought process. The idea now seems to be that the Fed’s buying will inflate an asset bubble regardless of how many people get sick or die from C-19, and that in the name of saving jobs, politicians have license to prevent any (large enough to sell securities) business from going under. Don’t fight the Fed they say.
Makes sense - to a degree. I still wonder about the survival of many small businesses and the health of consumers’ finances to the extent this matters at all to the price of stocks. However my biggest hesitation is whether stocks are worth these market prices simply because the Fed is bidding up everything at the auction. The efficient markets hypothesis doesn’t apply when one of the auction participants has a money printer and a mandate to pay any price.
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Well, for the experiment the economy reopening is the main story. When Appleby's and IHOP are closed, they can't sell food. Now that states are reopening, and Texas is about to allow 75% capacity in restaurants, the prospects are looking much better for Dine Brands (DIN). Similarly for retail being open (Macy's) and factories reopening and needing supplies (DXPE).
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. So how far is that away, assuming they don't go bankrupt?
| 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% |
Avoiding bankruptcy means the experiment stocks could still gain +67% to +150% from here (after they gained +41% to +79%). Meanwhile the U.S. stock market has just +6% before hitting it's 52 week high. There's a lot more upside for the experiment, but the risk of bankruptcy remains.
Benchmark (VTI) 27.00%
Experiment 63.00% ( DIN 69.00% / M 40.00% / DXPE 79.00% )
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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% )
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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.
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I don't have a suggestion yet for recovery target, but like your thought process.
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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% )
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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% )
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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.
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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.
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Thanks! Sorry for not paying quite enough attention. :)
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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% )
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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% )
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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).
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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.
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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 :)
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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.
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Continuing to like the way your moves do flow from your analysis. Leverage to back it up! Reading with curiousity.
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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.
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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.
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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).
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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% )
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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.
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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.
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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.
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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%.
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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).
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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.
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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% )
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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.
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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% )
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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).
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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% )
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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.
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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.
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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.
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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.
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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% )
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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.
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I like the lessons you are learning. Kudos for conducting this process in public instead of private, and seeing it through.
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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
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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.
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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.
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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.
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That does sound kind of logical!
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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% )
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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% )
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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.
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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.
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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.
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So IRL, you've been closing out positions where you're ahead and increasing your bet on Macy's (right?)
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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.
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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% )
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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.
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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% )
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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% )
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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.
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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).
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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.
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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).
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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.
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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.
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.
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).
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.
That's a really good point about bad behavior in the pharma industry. I would add "created the opioid epidemic" to the list of examples where large pharmaceutical companies behaved badly. And it also changes my view on ramping up vaccine production "at risk"... it's not to help people. It's risking billions to make tens of billions, which is something they do all the time with testing new drugs they hope will sell well.
Would it work, if President Trump tries to interfere in vaccine testing?
The anti-vaxers (10% of both parties) would use it as evidence their right, highlighting the program name "Warp Speed" to illustrate steps are being skipped. President Trump's political opponents would see an opportunity to make him look bad in an election year. Together, I'd expect backlash and added uncertainty over interference. It might actually delay uptake of vaccines, rather than speed it up.
I agree airlines and cruise lines will benefit from vaccine hopes. Those are included in my portfolio, although with long-dated call options (Jan 2022). Call options perfectly fit my investment thesis: the biggest risk is bankruptcy, which impacts options and stock the same way (total loss). Options mitigate that risk by allowing a smaller investment. And for the same amount of money, options have a greater potential upside (if/when a recovery occurs).
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After the market closed, the experiment is now -5% behind.
Benchmark (VTI) 35.00%
Experiment 30.00% ( DIN 49.00% / M -1.00% / DXPE 40.00% )
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Benchmark (+2%) and experiment (-2%) moved in opposite directions, leaving the experiment 9% behind it's benchmark. I saw an article suggesting a "double dip" recession was possible, meaning more bad news could lie ahead. Anyone responding to that fear would avoid the stocks in the experiment.
Benchmark (VTI) 37.00%
Experiment 28.00% ( DIN 49.00% / M -2.00% / DXPE 38.00% )
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I saw some Macy's options go up in price even while Macy's stock was dropping. So it looks like I'm not alone buying long-dated call options on Macy's stock.
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The benchmark gained +1%, while the experiment passed it up with a +11% gain. Macy's and DXPE had modest +6% gains, while Dine brands rose +21%.
(adding and dividing: (6+6+21)/3 = 33/3 = +11% gain)
Benchmark (VTI) 38.00%
Experiment 39.00% ( DIN 70.00% / M 4.00% / DXPE 44.00% )
The experiment currently leads it's benchmark by +1%.
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From Friday's close to Monday's close, the experiment lost about -4%, leaving it behind it's benchmark again. Without good news about Covid, I wouldn't expect the price rises to continue. Macy's and DXPE are about equally sensitive to Covid news, while DIN (restaurants) seems to be more volatile.
Benchmark (VTI) 38.00%
Experiment 35.00% ( DIN 61.00% / M 5.00% / DXPE 40.00% )
Right now, the best case scenario is positive news about candidate vaccine trials that arrives earlier than expected, in Sept/Oct. The more average scenario is good news arriving in Nov/Dec. Worst case scenario is no vaccine candidates provide sufficient immunity, and none are approved. A new round of research would then be required, and Covid investments would need to stay put even longer.
I'm optimistic that some positive news will leak in Sept/Oct, and probably very positive news in Nov/Dec (even if one fails, others are right behind). So for the next month or so, I'll be looking to "buy the dip" when bad news drops the price of Covid sensitive stocks and options.
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DIN stock looks even more volatile in this experiment than if you track the stock. This week started with DIN shares trading at $58.85/sh, and is now $64.20/sh. Measured from Monday's open, DIN gained +9.1%. But this experiment measures against the original purchase price back in March, which was $37.05/sh. Measured against that, a 5.35/37.05 increase is a 14.4% gain. That's why DIN can be up +49% on Aug 27 and then rocket up to +70% today.
Benchmark (VTI) 41.00%
Experiment 41.00% ( DIN 73.00% / M 6.00% / DXPE 45.00% )
The experiment is tied with its benchmark again. With 3 months in a row of rising retail numbers, I'm a bit surprised Macy's remains close to it's starting price.
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... With 3 months in a row of rising retail numbers, I'm a bit surprised Macy's remains close to it's starting price.
Thanks for fixing that so quickly, Mr Market. The experiment is now beating the market by +10%.
Benchmark (VTI) 36.00%
Experiment 46.00% ( DIN 76.00% / M 16.00% / DXPE 44.00% )
The CDC told states to prepare to distribute a vaccine by Nov 1 2020. Which means "stay at home" stocks are taking a hit while Covid sensitive stocks are gaining ground. It looks like Dr Fauci agrees with the assessment, even saying October would not be impossible (for the vaccine to be approved and start being distributed).
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After Friday's (Sept 4) close, the experiment is +9% ahead of it's benchmark, where it was +1% a week before that. The U.S. stock market dropped -3% while the experiment didn't lose ground, even making gains thanks to Macy's stock.
Benchmark (VTI) 35.00%
Experiment 44.00% ( DIN 71.00% / M 15.00% / DXPE 46.00% )
That said, I'm not investing in risky stocks to beat the market by +9%. I assume the next event is vaccine testing data getting released, which probably happens in the next 2-3 months.
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The experiment and benchmark both dropped, with the benchmark dropping slightly farther. So the experiment is now beating it's benchmark by +10%.
Benchmark (VTI) 32.00%
Experiment 42.00% ( DIN 71.00% / M 12.00% / DXPE 44.00% )
If Congress passes a relief bill, I assume that helps Covid sensitive stocks more than other stocks. We'll see.
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The experiment dropped 4% while the benchmark gianed 2%, so now the experiment is +4% ahead of it's benchmark. Prospects for Congress to pass another round of relief don't look good.
Benchmark (VTI) 34.00%
Experiment 38.00% ( DIN 66.00% / M 15.00% / DXPE 34.00% )
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The experiment is having a worse week than the overall market: down -8% since the last update, versus the benchmark falling -1%. Moderna says it will know if it's vaccine works sometime in November, which is over a month from now.
Benchmark (VTI) 33.00%
Experiment 30.00% ( DIN 61.00% / M 6.00% / DXPE 24.00% )
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I posted what I think happens next for vaccines and recovery in my thread about "Next Week's News", to avoid a long post / discussion here. Mostly, it means I think it could be many months until anything significant happens, so I will strive to update less often (maybe once/week). Next event would be a vaccine trial reaching 30,000 participants.
Benchmark (VTI) 31.00%
Experiment 27.00% ( DIN 51.00% / M 2.00% / DXPE 28.00% )
On Sept 1, the benchmark was leading by +3%, and now leads by +4%.
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Macy's (-11%) and DXPE (-14%) dropped significantly this week, putting the experiment -12% behind it's benchmark overall.
Benchmark (VTI) 30.00%
Experiment 18.00% ( DIN 49.00% / M -9.00% / DXPE 14.00% )
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The experiment is behind -9%, as compared to -12% a week before. But I expect it to get worse next week, as the relief bill won't be possible when the House is no longer in session. That means less relief for Covid sensitive stocks, like those in this experiment.
Benchmark (VTI) 32.00%
Experiment 23.00% ( DIN 55.00% / M -10.00% / DXPE 23.00% )
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Week later, both up +6%, so the experiment still trails it's benchmark -9%. Senate leader McConnel says a relief package is unlikely before the election, while President Trump disagrees. Currently it looks like no relief package, which makes things harder for companies like those in the experiment.
Benchmark (VTI) 38.00%
Experiment 29.00% ( DIN 64.00% / M -6.00% / DXPE 30.00%
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Not much change over the past 2 weeks, with the experiment trailing by 8% (vs 9%). As mentioned 2 weeks ago, a relief package still looks unlikely.
I suspect most people haven't figured out the other bit of bad news, because it's the absence of an event. No vaccine trial has ended early. A highly effective vaccine would show clear results at an earlier date (*). With a thousand people dying every day in the U.S., ethical considerations require the study be ended early once the conclusion is clear. That hasn't happened, which provides more evidence the vaccines are far from 100% effective. That also fits with several expert views on expected vaccine effectiveness.
I still expect a jump in Covid sensitive stocks when a vaccine is announced. And even a 2/3rds effective vaccine is valuable for slowing the spread of Covid-19. But it also makes it more likely the coronavirus pandemic drags on longer.
Benchmark (VTI) 38.00%
Experiment 30.00% ( DIN 56.00% / M 9.00% / DXPE 25.00% )
(*) For example, consider equal numbers of participants given either a vaccine or placebo. Once 31 people catch Covid-19, a team monitoring the study checks who got placebo v.s. the actual vaccine. If 30 of the sick people took placebo, and only 1 the vaccine, that's very strong evidence the vaccine works and is highly effective. If the numbers are not as dramatic, more data is needed before the study can be completed.
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That’s a good point. It’s the dog that didn’t bark. If the vaccine candidates aren’t working, we might be in the same place in fall 2021 as we were in 2020, which means bankruptcy for the cruise lines, airlines, etc. without more bailouts.
It would be the end of the US’ dominance as a superpower too. China is about to float a virtual currency that could replace the dollar as a reserve currency. Thus are the benefits of being able to cooperate with each other to save ones own lives.
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Excellent points that the vaccine dog is not barking!
Without even noticing that part, I'd begun thinking that getting the virus to spread substantially less will take until sometime between summer 2021 and spring 2022 or so. A consequence could easily be more COVID deaths under Biden (assuming he's elected) than Trump. With that, I agree that some sort of market decline seems likely. Europe's resurgence bodes ill too. The overall global economy might shrink for a second straight year.
The experiment becomes quite interesting in this scenario, since its plan IIRC is to persist until the individual stocks collapse or return to original values. Will they go all the way to collapse? Unclear. If they don't, would they later rise to full value? Probably. So - staying tuned.
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Some interesting information about the Oxford vaccine leaked out according to the Financial Times. Not yet confirmed by AstraZeneca self, but the claim is that the vaccine produces antibodies tested on older people (known for low immune system) and COULD get immune to Covid-19.
https://www.ft.com/content/b15446e5-66f7-4e6a-947a-1b638769ff79
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ChpBstrd - I think 50-70% effectiveness is expected, rather than the 0% you're projecting. The vaccines should help slow the spread, but not stop the outbreaks entirely.
The U.S. has a clear separation between President and Federal Reserve. Europe keeps US Treasuries as a reserve currency despite being dissatisfied with U.S. President Trump. That separation is not possible in China - there is a rule of the Communist party above the rule of law.
BicycleB - The last I heard, experts had similar estimates to yours. Vaccine effectiveness and production could determine if that date moves earlier or later.
Sadly, I don't think people will care as much about the number of deaths. Back in March, people panicked, but now people seem to react less and less. If something shocking happens, that could change. On the flip side, I think vaccine/treatment news will be met with an overenthusiastic response, so maybe I'll sell off some when that happens.
Northman - It also caused smaller reactions in older people, which was welcome news (according to that leak). To me, vaccine effectiveness is still more important. Other companies are about to release their data (any week now), so AstroZenica might be reminding people they are still in the race before that. They also have agreements with various EU countries to supply vaccine doses, so even if they're 2-3 months later they will still likely do well.
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The upsurge in Europe, and lack of relief bill in the U.S., is probably being factored into stock prices right now. The experiment lost -5% while it's benchmark dropped -3%. The biggest tech companies report earnings this week, which is more likely to impact the benchmark.
Benchmark (VTI) 35.00%
Experiment 25.00% ( DIN 50.00% / M 5.00% / DXPE 18.00% )
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I’d be surprised if any of the candidates who made it to stage 3 are 0% effective; some sort of stock pumping fraud would be likely if that were the case. It may be that what we get are 50% effective first vaccines, possibly requiring multiple doses and possibly requiring sub-zero refrigeration. In that scenario logistical challenges and lots of people refusing to take the vaccine would mean the pandemic continues. And if the freshly vaccinated pile into bars, workplaces, classrooms, and airplanes we could even see the pandemic get worse after a vaccine starts being distributed.
The benefit of a reserve currency is the network effect of everyone else using it to buy stuff like commodities and manufactured products. When China is the country buying most commodities and selling most manufactured products, it is awkward and roundabout for commodity producers to trade in a third country’s currency only to turn around and have to do it again when it is time to buy manufactured products. Similarly it is awkward and costly for the Chinese to use a third country’s currency to sell their manufactured goods to other countries. E.g. imagine if your landlord or grocery store arbitrarily required payment in Russian roubles or bitcoin instead of the currency you have and your counterparts want. You’d have to go through a broker for each trade and then your counterpart would have to do the same.
How long will they continue this way? Until they have a way to reliably transact in currencies they both want, or at least until they can minimize the number of costly and risky currency trades.
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If some vaccines are 50% effective, that dramatically slows the spread. Someone who would have infected 2 people infects 1 person, and instead of doubling it grows linearly (an exaggeration to demonstrate the point). I think very low temperatures are only required for one type of vaccine, so it's not a widespread issue.
There's also vaccines made in China and Russia, but censorship there prevents the rest of the world from knowing if those vaccines are safe and effective (Russia only did stage I testing, under 100 people).
China's largest trading partners are the U.S, Japan, and South Korea. How is China going to convince the U.S. to give up the U.S. dollar? Japan and South Korea have U.S. military bases - they are allies of the U.S., and unlikely to side with China on reserve currency.
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Right now fears of rising Covid-19 cases are combining with no hope for a financial relief bill from Congress, and the markets are dropping quickly. I'm a bit surprised the experiment and it's benchmark fell the same amount since my last update - both losing 4%. The experiment remains 10% behind it's benchmark.
Benchmark (VTI) 31.00%
Experiment 21.00%
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The 3 stocks in the experiment are down further, leaving the experiment -15% behind it's benchmark. The U.S. is hovering at just under 100k new cases/day, while parts of Europe are locking down again.
Benchmark (VTI) 30.00%
Experiment 15.00% ( DIN 39.00% / M -7.00% / DXPE 13.00% )
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Wow, both benchmark and experiment rose +10% this week. So the experiment remains 15% behind it's benchmark.
Benchmark (VTI) 40.00%
Experiment 25.00% ( DIN 52.00% / M -1.00% / DXPE 25.00% )
The Covid-sensitive stocks in the experiment benefit dramatically from government relief efforts - much more than the broader market (which is the benchmark). So the +10% jump for both suggests this isn't just stimulus talks. So this weeks gains are probably related to other things, perhaps fears over possible election scenarios.
I'm surprised by the lack of vaccine news of any kind. Vaccine trials haven't ended early, which is expected but slightly disappointing (a breakaway success would finish early). And there hasn't been any leaks, despite how valuable that information would be. So for now, the experiment waits for vaccine news.
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The Republican Senate (despite whatever is said) will have little interest in stimulating an economy that Joe Biden will take credit for. If anything, they'd like to see a second recession and say "see, told you Dems are bad for the economy". Nothing substantial will pass until Feb.
I would be interested to see a calculation of cash burn rates for the covid sensitive stocks. I.e. can they last another 6 months? 10 months?
I suspect a vaccine announcement will occur in December, early availability will be in Q1 for high priority groups, and mass vaccination will be between Q2 and Q3. Airlines and cruise lines might be worth a lot by that time, but only if they survive until that time. Companies like AMC with only 2-3 months of cash left will be going bankrupt as the vaccine comes out.
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About the effectiveness, there is news... according to Reuters the Pfizer vaccine should be more than 90% effective. Link:
https://www.reuters.com/article/us-health-coronavirus-vaccines-pfizer/pfizer-biontech-say-their-covid-19-vaccine-is-more-than-90-effective-idUSKBN27P1CT
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I guess that news is everywhere now. Also in the markets. About 4% up today.
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Northman - that's insane, thanks for the good news! That might explain why some of my Carnival Cruises stock is up +28% before the market opens... Macy's is up over +12% before the market opens. It will be interesting to see how the experiment does today, with this first vaccine news.
ChpBstrd - The market might drop as a stimulus bill becomes less likely. But President-elect Biden would have 4 years before a re-election, while 1/3rd of the Senate has just 2 years before their next election. I expect Republican Senators to focus on making themselves look good for re-election. That might mean reigning in government spending on a stimulus bill, but it might not. I think self-interest (their re-election) will prove more significant than opposing Biden.
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Looking forward to the new experiment results!
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The experiment has gone from 15% behind to beating it's benchmark by 2%.
Benchmark (VTI) 44.00%
Experiment 46.00% ( DIN 83.00% / M 18.00% / DXPE 38.00% )
Vaccine news was much better than expected. The FDA was willing to accept a vaccine with 50% effectiveness, and Pfizer has announced 90%+ effectiveness. That also suggests a related vaccine based on RNA technology might also prove very effective.
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The real game changer might be if airlines, cruise lines, movie theaters, restaurants, etc. can now obtain financing at reasonable rates. Will lenders assign an end date to the pandemic and keep these companies afloat?
If you think so, the Covid sensitive stocks could have a lot further to climb.
I’m behind the 8 ball and too heavy in big tech. Time to rotate from tech to small caps like everyone else just did! Sold some aggressive puts on VB.
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The experiment gained +24% in one day, and has now performed 8% better than it's benchmark.
Benchmark (VTI) 41.00%
Experiment 49.00% ( DIN 74.00% / M 16.00% / DXPE 56.00% )
While dramatic, it took months of waiting to reach this point. Even after today's gains, the above stocks have not recovered yet. While DIN only has +33% to go, Macy's still has +100% to grow back to it's prior level (it may have lost business to Amazon, though, so some uncertainty there).
For those wanting to diversify tech stocks, covid stocks tend to move very differently, giving some good diversification. But try and pick several different Covid stocks, from different areas of the market. There's still many stocks with the ability to double in a recovery - not just Macy's, but stocks like Carnival Cruises (CCL) which went up +40% today (and my CCL stock options went up double that). CCL could still double. There's various entertainment and airline stocks to choose from, also.
November will probably have two big themes - one, vaccine progress could drive markets higher. But two, vaccines won't be in time to stop rising cases across the U.S., which could have a bad short-term impact. If there's a hint of slowing activity or even a lock down, that would propel stocks like Zoom higher (as opposed to today, when it lost 17%).
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DIN dropped 9% while DXPE gained 9%, leaving the experiment unchanged.
Benchmark (VTI) 41.00%
Experiment 49.00% ( DIN 65.00% / M 16.00% / DXPE 65.00% )
I know of 3 events that might move these stocks next, but I don't know the order or impact:
(1) with a 90% effective vaccine in reach, people might be willing to lockdown in December. That would hurt the experiment - but people seem very opposed to lockdowns.
(2) more data on Pfizer's vaccine, and applying to the FDA for emergency use authorization. That will probably boost the experiment's stocks higher.
(3) another vaccine releases preliminary data, or completes stage III testing.
Looking at DIN and DXPE stock both up +65% might seem like they can't go up further. So I wanted to point out their current stock prices versus their 52 week high prices:
DIN: $61.29 now, 52 week high $104.47 104 / 61 = +70%
M: $7.75 now, 52 week high $18.57 19 / 8 = +138%
DXPE: $22.77 now, 52 week high $41.76 42 / 23 = +83%
Compared to the benchmark's numbers:
VTI: $181.09 now, 52 week high $187.52 188 / 181 = +4%
I expect between now and mid-2021, we'll see some of those +70% to +138% gains in the experiment's stocks.
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I think you're right (with some short-term caveats). If stocks are priced based on expectations 6 months into the future, COVID-impacted stocks ought to do well. In six months, we might be mopping up the last clusters of COVID and finishing our 2nd vaccination round. We also might be experiencing a phase of celebratory travel, restaurant dining, in-person shopping, etc.
That said, reversion to 2019 prices or earnings would be too simplistic an assumption. A lot of these businesses have reduced capacity, diluted stock, loaded up on debt, and lost market share to delivery-based competitors and alternative products (e.g. Macy's vs. Amazon, Airlines vs. AirBnB, sit-down restaurants to drive-through). Royal Caribbean just offered a half-billion equity issue, diluting current shareholders. This is just one example among many. Their stock will probably not reach 2019 levels next year for this reason alone.
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With rising numbers of Covid cases in the U.S. and Europe, Covid sensitive stocks are getting hit harder than the rest of the market. Which is how the experiment can go from 8% ahead to 3% behind in a couple days.
Benchmark (VTI) 41.00%
Experiment 38.00% ( DIN 56.00% / M 5.00% / DXPE 54.00% )
I think we'll see "some of those gains" as I put it, but not a complete recovery. After months of neglect, I updated my Covid spreadsheet... U.S. cases were 100k/day several days ago, and are now at 130k new cases every day. Experts believe that will last through the holidays, or about the next 6 weeks. So maybe there's buying opportunities.
I heard speculation that Moderna's vaccine could be better than Pfizers, which would be rather impressive. So maybe when their vaccine completes trials, markets will jump.
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Both Pfizer and Moderna's vaccines are mRNA type vaccines, which require cryogenic refrigeration and two separate doses.
The real good news would be a successful traditional vaccine that does not have these logistical challenges.
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Concering the vaciine, I find the issue pointed out by Christine Lagarde at the European Central Bank Forum on central banking yesterday potentially dangerious. Namely, the Danish mink.
'Because many COVID-19 vaccines aim to elicit an immune response to the spike protein, the worry is that those vaccines might not work well against the ΔFVI mutant, which so far has been found in 12 people in Denmark as well. [...] the government considered them serious enough to order the culling of all 12 million remaining minks in Denmark'
https://www.sciencemag.org/news/2020/11/mutant-coronaviruses-found-mink-spark-massive-culls-and-doom-danish-group-s-research
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I saw a news story that some of those who raise and tend the minks caught Covid-19 with a new mutation, but that neighboring areas hadn't been exposed. I'm not aware of that mutation escaping, as of now.
ChpBstrd - Just to put numbers to it:
Title: "Moderna and Pfizer’s COVID-19 vaccine candidates require ultra-low temperatures"
Quote: " Moderna’s coronavirus vaccine candidate, requires a storage temperature of negative 4 degrees Fahrenheit. BioNTech and Pfizer’s candidates, BN1162b2 and BNT162b2, need to be stored in negative 94 degrees Fahrenheit"
https://www.marketwatch.com/story/moderna-and-pfizers-covid-19-vaccine-candidates-require-ultra-low-temperatures-raising-questions-about-storage-distribution-2020-08-27
That plus other reading suggests Moderna's vaccine candidate could be easier to distribute. Storage keeps the vaccine potent, but both vaccines can last for a time in a refrigerator. I may be remembering it wrong, but I think Pfizer's lasts one day and Moderna's one week at normal refrigeration levels. So there might be a solution where rapid refrigerated shipping can be used to distribute those vaccines.
There's several other vaccines still in testing, like AstraZeneca's that should finish trials in January. In the meantime, cases in the U.S. have passed 150k per day. I don't know which will be more significant - more vaccine news, or a wave of infections.
Right now, the benchmark and experiment are just 1% apart. My guess is bad news about rising infections takes hold before the next round of good news about vaccines.
Benchmark (VTI) 42.00%
Experiment 41.00% ( DIN 60.00% / M 9.00% / DXPE 53.00% )
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Concering the vaciine, I find the issue pointed out by Christine Lagarde at the European Central Bank Forum on central banking yesterday potentially dangerious. Namely, the Danish mink.
'Because many COVID-19 vaccines aim to elicit an immune response to the spike protein, the worry is that those vaccines might not work well against the ΔFVI mutant, which so far has been found in 12 people in Denmark as well. [...] the government considered them serious enough to order the culling of all 12 million remaining minks in Denmark'
https://www.sciencemag.org/news/2020/11/mutant-coronaviruses-found-mink-spark-massive-culls-and-doom-danish-group-s-research
Let's hope the last year of massive funding for basic vaccine science and manufacturing capacity prepare us for the next viral outbreak.
One issue with letting COVID-19 get out of control is that it will now have hundreds of millions of hosts in which it could evolve around our first vaccine. The apparently easy transfer between humans and animals is also a way it could spread reservoirs everywhere, and attack humans across the globe with mutated varieties.
The true nightmare scenario would be if it could be spread by dogs and cats. If people wouldn't wear masks for COVID-19, they'll never cull or quarantine their pets. Luckily, these pets and humans seemed to have co-evolved some resistance to each other's germs, but then again that rationale did not protect us in the cases of disease transferred from rats, chickens, cattle, or swine.
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Overall ending point for the week was experiment 1% behind it's benchmark.
Benchmark (VTI) 43.00%
Experiment 42.00% ( DIN 61.00% / M 11.00% / DXPE 54.00% )
Note the above numbers started during a down market - VTI's year to date performance is about +13%. Despite announcing a 90% effective vaccine, Pfizer's stock is about even for the year (YTD -1.3%).
It's interesting how the stocks I'm following are doing better than the companies actually making the vaccines. Pharmaceutical companies will still be in business either way, but airlines and movie theaters could go under without a vaccine - they have much more on the line.
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There's several other vaccines still in testing, like AstraZeneca's that should finish trials in January. In the meantime, cases in the U.S. have passed 150k per day. I don't know which will be more significant - more vaccine news, or a wave of infections.
Right now, the benchmark and experiment are just 1% apart. My guess is bad news about rising infections takes hold before the next round of good news about vaccines.
Serves me right for not having data - that Friday guess was proved wrong the next day the market opened. Vaccine news today shows Moderna's vaccine is about 95% effective, which is entirely insane for a first round vaccine attempt in under a year. That's more effective than the chicken pox vaccine (92%, I believe?).
Also, I saw some numbers on durability of Moderna's vaccine on CNBC, and it's impressive:
at the freezing -4F, it can last 6 months
at normal refrigerator temperatures (36-46F, under 10C), 30 days!
and with no refrigeration, just 12 hours
All that amounts to just a small bump for the experiment today, putting it ahead of it's benchmark.
Benchmark (VTI) 44.00%
Experiment 47.00% ( DIN 70.00% / M 13.00% / DXPE 59.00% )
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I'm glad the experiment has a +11% head start leading into the holidays.
Benchmark (VTI) 42.00%
Experiment 53.00% ( DIN 64.00% / M 25.00% / DXPE 70.00% )
Experts like Fauci said a highly effective vaccine was unlikely, and I think he was wrong about that (technically he said 98% effective, and the Pfizer and Moderna vaccines are both known to be 95% effective as a day ago). I say that to preface that experts predict rising cases over the holidays, when family gatherings and travel could spread corona virus more widely.
In my own accounts, I've sold down to 90% equities (!). So that roughly 10% cash is either a safety cushion, or an opportunity to buy the dip. We'll see next month.
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Macy's upswing (+11%) countered some of DXPE's drop (-14%), so this week the benchmark ends up 9% above it's benchmark.
Benchmark (VTI) 42.00%
Experiment 51.00% ( DIN 62.00% / M 36.00% / DXPE 56.00% )
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How many Mondays in a row can a new, successful, effective vaccine be announced?
Macy's stock is up over +16% today (so far), which pushes the experiment +16% ahead of it's benchmark.
Benchmark (VTI) 43.00%
Experiment 59.00% ( DIN 65.00% / M 58.00% / DXPE 56.00% )
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The experiment made big gains today, up +13%. It's now beating it's benchmark by +26%. It looks like the news of Joe Biden becoming President Elect at the authorization of President Trump has relieved markets about a smooth transfer of power on Jan 20.
Benchmark (VTI) 46.00%
Experiment 72.00% ( DIN 80.00% / M 67.00% / DXPE 69.00% )
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The experiment finishes last week +20% ahead of it's benchmark:
Benchmark (VTI) 46.00%
Experiment 66.00% ( DIN 73.00% / M 63.00% / DXPE 62.00% )
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The experiment lost some ground earlier this week, but gained back some today. It's about the same as last week, +19% ahead of it's benchmark.
Benchmark (VTI) 47.00%
Experiment 66.00% ( DIN 73.00% / M 63.00% / DXPE 61.00% )
Moderna just applied to the FDA for emergency use authorization, to allow it's vaccine to be distributed. The application takes at least 1 week, potentially longer, but it seems very likely they will get approval. Then it's on to distributing the vaccines, which if it goes smoothly, will give the experiment another boost.
Most likely, vaccination will start this month. But it won't be widespread enough to make Christmas gatherings safe, so there could be lots of bad news accompanying the vaccine news.
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We have ignition... the experiment is now beating it's benchmark by 32%.
Benchmark (VTI) 49.00%
Experiment 81.00% ( DIN 91.00% / M 76.00% / DXPE 75.00% )
I'll need to look up the exact starting date of the experiment, but I believe it was near the end of March. Here are the starting stock prices, and current prices:
Dine Brands Global (restaurants) DIN : bought at $37.05, now $70.85
Macy's Inc (retail) M : bought at $6.66, now $11.72 (the devil made me do it?)
DXP Enterprises (supply chain) DXPE : bought at $13.78, now $24.12
Vanguard Total Stock ETF (benchmark) VTI : bought at $128.60, now $191.51
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Quite exciting! I like that you went in with a plan, and now it is paying off.
I suppose there's still a questions that could be raised about risk/reward, or something. And cherry picking, though you've been pretty clear this whole experiment is purposely with a small % of your investments, that this is a subset of your choices, and that you chose this subset to publicly track because you assumed at the start it might be representative of your process. All of which I greatly appreciate as a reader. Will read closely if knowledgeable readers discuss. Congrats in any case.
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We have ignition... the experiment is now beating it's benchmark by 32%.
It seems so obvious in hindsight. As early as last summer we had dozens of viable vaccine candidates in the works, and news that some of them were generating immune responses. Now the first 3 out of 3 to finish stage three trials have been proven to work and we are suddenly in the logistics phase. Of course there was always going to be a vaccine. Should have bet on that. Doh!
The vaccine logistics phase will be much harder to predict. Stock valuations now seem to assume a return to 2019 levels of economic activity by about the 2nd quarter. In fact they're priced beyond that, looking at price/2019earnings, CAPE, or any other relevant metric. So if anything but galloping growth occurs during the next 6 months, covid-sensitive stocks are likely to fall or remain flat. Even if economic activity rises, a tech bubble could burst.
Meanwhile, the pandemic is growing faster than it ever has before, with 7-8X as many infections per day as we were having in April. Xmas is cancelled for many families, business closures are starting to become a thing again, and we'll soon be starting the term of a new president who may be willing to enact restrictions at a national level. Meanwhile much of the economic relief enacted during 2020 is about to expire, with renewal appearing unlikely. Will vaccines be distributed fast enough to dodge the oncoming economic bullet? That's the new game. Shoulda played the old game :)
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We have ignition... the experiment is now beating it's benchmark by 32%.
It seems so obvious in hindsight. As early as last summer we had dozens of viable vaccine candidates in the works, and news that some of them were generating immune responses. Now the first 3 out of 3 to finish stage three trials have been proven to work and we are suddenly in the logistics phase. Of course there was always going to be a vaccine. Should have bet on that. Doh!
The vaccine logistics phase will be much harder to predict. Stock valuations now seem to assume a return to 2019 levels of economic activity by about the 2nd quarter. In fact they're priced beyond that, looking at price/2019earnings, CAPE, or any other relevant metric. So if anything but galloping growth occurs during the next 6 months, covid-sensitive stocks are likely to fall or remain flat. Even if economic activity rises, a tech bubble could burst.
Meanwhile, the pandemic is growing faster than it ever has before, with 7-8X as many infections per day as we were having in April. Xmas is cancelled for many families, business closures are starting to become a thing again, and we'll soon be starting the term of a new president who may be willing to enact restrictions at a national level. Meanwhile much of the economic relief enacted during 2020 is about to expire, with renewal appearing unlikely. Will vaccines be distributed fast enough to dodge the oncoming economic bullet? That's the new game. Shoulda played the old game :)
Hindsight delivers the best returns!! Getting them into the portfolio is so fiendishly difficult though, isn't it?
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We have ignition... the experiment is now beating it's benchmark by 32%.
It seems so obvious in hindsight. As early as last summer we had dozens of viable vaccine candidates in the works, and news that some of them were generating immune responses. Now the first 3 out of 3 to finish stage three trials have been proven to work and we are suddenly in the logistics phase. Of course there was always going to be a vaccine. Should have bet on that. Doh!
The vaccine logistics phase will be much harder to predict. Stock valuations now seem to assume a return to 2019 levels of economic activity by about the 2nd quarter. In fact they're priced beyond that, looking at price/2019earnings, CAPE, or any other relevant metric. So if anything but galloping growth occurs during the next 6 months, covid-sensitive stocks are likely to fall or remain flat. Even if economic activity rises, a tech bubble could burst.
Meanwhile, the pandemic is growing faster than it ever has before, with 7-8X as many infections per day as we were having in April. Xmas is cancelled for many families, business closures are starting to become a thing again, and we'll soon be starting the term of a new president who may be willing to enact restrictions at a national level. Meanwhile much of the economic relief enacted during 2020 is about to expire, with renewal appearing unlikely. Will vaccines be distributed fast enough to dodge the oncoming economic bullet? That's the new game. Shoulda played the old game :)
Hindsight delivers the best returns!! Getting them into the portfolio is so fiendishly difficult though, isn't it?
For some reason we think foresight will eventually develop out of experience, as it does for the vast majority of applications. But not the markets. Looking back just a couple of years, doing the things that I would have considered The Stupidest Move would have earned millions.
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I've revealed that I hold call options (M, CCL, XOP) that have had an amazing November to say the least. My real performance is actually insane - it simply wouldn't be believed, and I wouldn't want to provide the evidence anyways.
The main thing about this experiment is that everyone can verify it - it's just 3 stocks split evenly against the total stock market, measured from March 26.
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Benchmark (VTI) 49.00%
Experiment 75.00% ( DIN 84.00% / M 73.00% / DXPE 68.00% )
California's lockdown triggered drops in Covid sensitive stocks, leaving the experiment now +26% against the overall market.
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Congrats, @MustacheAndaHalf.
I think you've been fairly clear about your reasoning. I suppose that's not a proof against losing money sometime, but it's different than someone who just drops in and says "Hey, six months ago I did x and now I tripled my money" without even a nod toward how many times they tried long shots that didn't work. Short of a full detail, it seems like pretty fair communication.
I respect that the experiment is closer to "ordinary" investing normally and reasonably done by us typical Mustachians. Dipping into the risky world of options is another level. Glad it's paying off for you now.
Is there much tax impact from your options?
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My option purchases were inside a Roth IRA, so as I understand it, I'll owe no tax.
Today seems like the last chance to buy before the FDA grants approval for a Covid-19 vaccine. It seems extremely likely they'll approve it, and within hours or days.
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After the market closed, the FDA approved the Pfizer vaccine for emergency use. Vaccines should go out immediately, so Monday's market open should reflect both the vaccine approval and the first doses being administered in the U.S.
Benchmark (VTI) 48.00%
Experiment 70.00% ( DIN 80.00% / M 66.00% / DXPE 65.00% )
The experiment is +22% ahead of it's benchmark. The vaccine can't change the current situation much: 3,000 deaths/day and a quarter million new cases a day in the U.S.
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Looking forward to Monday!
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If the experiment is a rocket, it appears to be pointed downwards, now +20% ahead of it's benchmark.
Benchmark (VTI) 48.00%
Experiment 68.00% ( DIN 77.00% / M 58.00% / DXPE 68.00% )
Monday had some vaccination news, but more significantly a massive hack of the U.S. government was disclosed that involves a state actor (the implication is Russia). I'm guessing markets expected a lot more fallout, so maybe today will see some recovery.
I wound up buying stocks yesterday at lower prices.
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The benchmark keeps narrowing the experiment's lead, which is now just +16% ahead. 4 weeks ago both had total gains of +43% or so. Going up +7% and +23% since then is pretty good performance for both of them:
Benchmark (VTI) 50.00%
Experiment 66.00% ( DIN 75.00% / M 55.00% / DXPE 68.00% )
I suspect realism and cynicism are taking over in the markets. The start of vaccinations had no impact. I saw that projections of Christmas sales are falling, which impacts the expected earnings of the retail sector. That's probably realistic given rising unemployment and Covid-19 cases. And to add "color commentary" to the scenario, Dr Fauci said he will not be visiting family this Christmas owing to the risks involved.
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The benchmark keeps narrowing the experiment's lead, which is now just +16% ahead. 4 weeks ago both had total gains of +43% or so. Going up +7% and +23% since then is pretty good performance for both of them:
Benchmark (VTI) 50.00%
Experiment 66.00% ( DIN 75.00% / M 55.00% / DXPE 68.00% )
I suspect realism and cynicism are taking over in the markets. The start of vaccinations had no impact. I saw that projections of Christmas sales are falling, which impacts the expected earnings of the retail sector. That's probably realistic given rising unemployment and Covid-19 cases. And to add "color commentary" to the scenario, Dr Fauci said he will not be visiting family this Christmas owing to the risks involved.
I didn't trade out of the benchmark and into the experiment after the vaccine announcements because I was watching the rising case count, observing lots of Thanksgiving travel, and noting the packed restaurants and churches. I also anticipate the Biden administration will be more willing to do things like nationwide gathering bans if necessary. So I thought the rally was premature.
I'm thinking we all get another chance to buy into the experiment about two weeks into January, as many of the people who met with relatives or partied for New Years come down sick and local politicians enact more restrictions once the holiday shopping season is over.
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Benchmark (VTI) 50.00%
Experiment 66.00% ( DIN 75.00% / M 55.00% / DXPE 68.00% )
I didn't trade out of the benchmark and into the experiment after the vaccine announcements because I was watching the rising case count, observing lots of Thanksgiving travel, and noting the packed restaurants and churches. I also anticipate the Biden administration will be more willing to do things like nationwide gathering bans if necessary. So I thought the rally was premature.
I'm thinking we all get another chance to buy into the experiment about two weeks into January, as many of the people who met with relatives or partied for New Years come down sick and local politicians enact more restrictions once the holiday shopping season is over.
My personal portfolio has no DIN shares or options - I switched to call options in another restaurant company. But I do hold DXPE shares, and call options in Macy's. I've been looking for deals on call options, but they're just too expensive.
If you can really time the bottom, you would want to make money on the short and long side. Take mid-Jan for example, you might sell "put options" at the low point, when they pay the most but will soon be well out of the money. And at that same point, call options should be cheapest, so you could use those to multiply gains.
The market is already estimating how bad Christmas Covid-19 will be... so things have to be worse than expected, and continue getting worse than expected in early January.
Year to date, retail company stocks are up +37%. So they might be a bit frothy for a pandemic where people can't buy stuff, and where "black Friday" is the late November day when many retailers actually turn a profit ("go from in the red, to in the black"). So maybe the market isn't being realistic enough, yet.
https://etfdb.com/etf/XRT/#performance
I plan to set aside some investing for late December, some for January, and maybe some in February (when I expect vaccines will be starting to make a difference). That's a long time for the experiment to try to keep ahead of it's benchmark ...
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It also seems premature to value some of these travel/restaurant/retail companies near their pre-pandemic EVs, considering their share dilution, their excess and suboptimal leverage, higher interest expenses and ratings downgrades, backlog of deferred capital spending, the much-changed unemployment picture, and their reductions in employees.
The short-term play might be a bear spread.
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I took a very tiny part of my portfolio back in Aug/Sept, and invested in short-term put options. I "bet" on increasing Covid cases causing stores to lock down. Instead, governors and people ignored the situation, defying previous behavior. That loss taught me even if I predict rising cases (like you're mentioning for Jan/Feb), I can't predict people's reactions to rising cases.
Note the retail ETF doesn't represent all retail stocks, with it's 37% YTD gain. There's the stocks in this experiment, which according to Morningstar are all down:
DIN -19%, M -36%, DXPE -41%
There's other stocks like CCL (Carnival Cruises) down -56% YTD. Investing in these stocks carries two benefits, in my view: big gains in a recovery, of course. And if there's overvaluation going on, these stocks are unlikely to have that problem.
So far today, the experiment seems to share some of my optimism, up +19% against it's benchmark. Too bad I can't swap DIN for CCL!
Benchmark (VTI) 50.00%
Experiment 69.00% ( DIN 77.00% / M 62.00% / DXPE 68.00% )
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What a biased update on my part - no updates Friday, Monday or Tuesday when Covid-sensitive stocks were sinking much faster than the market. Some of those drops were mitigated by today's gains, leaving the experiment +16% ahead:
Benchmark (VTI) 51.00%
Experiment 67.00% ( DIN 77.00% / M 64.00% / DXPE 60.00% )
Here's today's numbers so far:
VTI +0.48% , DIN + 0.56% , M +7.80% , DXPE +3.57%
Averaging DIN/M/DXPE gives me a +3.98% rise today, versus +0.48% benchmark.
So yesterday, subtracting today's gains, the experiment was probably 16 - 3.5 = +12.5% ahead of it's benchmark.
There's some media attention to Trump's veto, as if Congress didn't have a huge majority when they passed the bill. If Congress simply votes the same way again, they can easily override the veto. With pressure of the looming government shutdown, that seems likely.
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There's some media attention to Trump's veto, as if Congress didn't have a huge majority when they passed the bill. If Congress simply votes the same way again, they can easily override the veto. With pressure of the looming government shutdown, that seems likely.
I read something that the concern isn't about whether the veto would get overridden so much as to how long that might take. The article I saw said it could take several weeks.
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There's some media attention to Trump's veto, as if Congress didn't have a huge majority when they passed the bill. If Congress simply votes the same way again, they can easily override the veto. With pressure of the looming government shutdown, that seems likely.
I read something that the concern isn't about whether the veto would get overridden so much as to how long that might take. The article I saw said it could take several weeks.
That makes sense. The Senate is off from Dec 21-31, so that's at least one week right there. Looks like they plan to start again on Jan 3.
https://www.senate.gov/legislative/2020_schedule.htm
https://www.rollcall.com/2020/12/22/senate-circulates-2021-calendar/
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Maybe that delay is having an impact, as the experiment dropped 2% today in the half day session, and is now +14% ahead of it's benchmark.
Benchmark (VTI) 50.00%
Experiment 64.00% ( DIN 66.00% / M 61.00% / DXPE 66.00% )
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Back up slightly, with the experiment 17% ahead.
Benchmark (VTI) 51.00%
Experiment 68.00% ( DIN 63.00% / M 75.00% / DXPE 65.00% )
I've been holding two possibilities in mind when I invest for the next 2 months. First, Thanksgiving didn't produce a spike in cases and recently cases peaked Dec 23 (*). So it's possible things get better from here, and investing now is the best choice. The second possibility is that Christmas will increase the spread of Covid. Airline travel is relatively higher, and people planning to drive for the holidays is up closer to normal years. There's certainly enough people traveling to trigger more community spread.
I think the second scenario is more likely, but I've still been buying some investments recently in case this is the low point of the market.
(*) A huge drop on Dec 25 was followed by a large jump on Dec 26. I assume people didn't get tested on Christmas day. If you average Dec 25-26 together, it's a decline from Dec 23.
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Back up slightly, with the experiment 17% ahead.
Benchmark (VTI) 51.00%
Experiment 68.00% ( DIN 63.00% / M 75.00% / DXPE 65.00% )
I've been holding two possibilities in mind when I invest for the next 2 months. First, Thanksgiving didn't produce a spike in cases and recently cases peaked Dec 23 (*). So it's possible things get better from here, and investing now is the best choice. The second possibility is that Christmas will increase the spread of Covid. Airline travel is relatively higher, and people planning to drive for the holidays is up closer to normal years. There's certainly enough people traveling to trigger more community spread.
I think the second scenario is more likely, but I've still been buying some investments recently in case this is the low point of the market.
(*) A huge drop on Dec 25 was followed by a large jump on Dec 26. I assume people didn't get tested on Christmas day. If you average Dec 25-26 together, it's a decline from Dec 23.
There will definitely be an xmas bump, starting this week. The Thanksgiving bump peaked Dec. 11 or about 15 days after the gatherings. This would represent the many people infected by silent carriers at Thanksgiving dinner returning to work/restaurants/church and infecting people, followed by the next generation of infection after that (e.g. all the household/bubble members of those infected).
So I will call the xmas peak as occurring on January 9. HOWEVER, big caveat, then there will then be a New Year's peak on Jan. 15 and many red states will allow bars to open for New Year's. We've never had back-to-back big holidays like this during the pandemic, or with this high a percentage of the population walking around carrying the infection. Plus the 6 day span between xmas and New Year's is within the window for the silent carriers to be most infectious. So this peak could have a multiplier effect compared to Thanksgiving. I predict the US will exceed 400k infections a day. That means full hospitals and a higher death rate.
Will the COVID-sensitive stocks tank, or will they rally as vaccine distribution accelerates? Hard to say. I'll stick with the indexes and think about pouncing if the buying opportunity actually occurs. I'll have to look into doing a long straddle or strangle on the covid-sensitive companies, but I bet the market expects a big move too.
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... First, Thanksgiving didn't produce a spike in cases ...
There will definitely be an xmas bump, starting this week. The Thanksgiving bump peaked Dec. 11 or about 15 days after the gatherings. This would represent the many people infected by silent carriers at Thanksgiving dinner returning to work/restaurants/church and infecting people, followed by the next generation of infection after that (e.g. all the household/bubble members of those infected).
...
I use two different criteria at different times, and might not have explained them clearly:
(1) as cases are increasing, I look at week over week growth. With 10% growth, you'll see cases rise (1000, 1100, 1210, ...), but the exponential spread would be constant at 1.1x per week.
(2) peak number of cases is a big media event. It shows the current wave has peaked and people can expect lower growth and slower spread until the next wave.
So after Thanksgiving, I'd be looking for a growth spike. California had steady growth for the week after Thanksgiving, and only saw faster growth after that. New York went from 6.8% to 8.3% growth, while Texas went in the opposite direction from 8.5% to 6.1% in those 7 days. By size I guess Florida would be next, 6.2% to 5.9%.
Also worth mentioning: people can ignore increased cases. I correctly predicted a wave several months ago ... and the stock market shrugged it off, until after my speculative options expired. A prediction also needs to include people's behavior, which then translates to the stock price moves.
Something else to keep in mind: the market knows Xmas and New Year's could be a disaster. That should be priced in, to some probability. If things are worse than expected, or as they become more certain, stocks will drop. If it's not as bad as expected, stocks can rise even as infections go up.
I don't know the percentage of people who show no symptoms for up to 8 days (time between Xmas and New Years), but I'd guess it's significant. Another point in your favor: most people celebrate those two holidays with different groups of people. So it's easy to pick it up with one group and spread it to another.
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Since my Dec 24 update (about a week ago), DIN and DXPE both dropped, while Macy's pulled ahead. Overall +11% ahead of the benchmark.
Benchmark (VTI) 51.00%
Experiment 62.00% ( DIN 57.00% / M 69.00% / DXPE 61.00% )
Two views of the Covid-19 data. New cases are heading upwards, 12/27 - 12/31:
147k .. 164k .. 198k .. 225k .. 222k
The main news right now is the total cases passing 20M in the U.S.
But I like to divide the total cases by the total from 7 days prior. If every case has a chance of spreading, the growth shows how quickly the corona virus spreads. That measure of growth peaked at 10.5% (Dec 7-8), and is now near 7%.
Following wikipedia's reference leads me to a study from October:
"Among patients who are symptomatic, the median incubation period is approximately 4 to 5 days, and 97.5% have symptoms within 11.5 days after infection."
https://www.nejm.org/doi/10.1056/NEJMcp2009249
With large numbers of cases (150k+/day), it is very improbable that a spike could hide for 7 days after Dec 25th. From the data I downloaded from John Hopkins, it looks like Dec 25th has not caused a surge.
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Dr Anthony Fauci said spikes in cases usually take "a couple weeks" after the event.
https://www.nbcnews.com/meet-the-press/video/full-dr-fauci-it-likely-will-get-worse-in-the-next-couple-of-weeks-98718789839
I suspect he's trying to save lives, in which case he's right that people need to be careful for 2 weeks after an event (14 day incubation period). Otherwise I don't understand why he's say a spike is not evidence for 2 weeks... maybe up to 2 weeks? I should check what other epidemiologists or virologists say about it.
In the meantime, the data is starting to show faster growth in cases. Here's the past 4 days of growth, measured against 7 days prior:
Dec 30 .. Jan 2 : 6.90% .. 6.98% .. 7.26% .. 7.56%
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Dr Anthony Fauci said spikes in cases usually take "a couple weeks" after the event.
https://www.nbcnews.com/meet-the-press/video/full-dr-fauci-it-likely-will-get-worse-in-the-next-couple-of-weeks-98718789839
I suspect he's trying to save lives, in which case he's right that people need to be careful for 2 weeks after an event (14 day incubation period). Otherwise I don't understand why he's say a spike is not evidence for 2 weeks... maybe up to 2 weeks? I should check what other epidemiologists or virologists say about it.
In the meantime, the data is starting to show faster growth in cases. Here's the past 4 days of growth, measured against 7 days prior:
Dec 30 .. Jan 2 : 6.90% .. 6.98% .. 7.26% .. 7.56%
I initially (mistakenly) expected simple exponential growth, such as what happens if each carrier infects on average two more people (r=2) typically 3-5 days after infection: 2, 4, 8, 16, 32, 64, 128, 256... What has actually happened seems to be that the virus hits a few limiting factors as it spreads, and so the growth rate does not continue increasing forever:
1) The virus invades new territories, quickly infects the most risk-exposed, including, but not limited to, the reckless, and then spreads at a rapid rate to the next generation, a slower rate to the next generation, and a steady rate to the next - essentially moving down the tiers of risk-exposure. This all happens within a geographical area (e.g. NYC, the Dakotas). Exponential growth in any given area eventually slows as the population of highly-risk-exposed people is depleted and the virus must spread among the more careful, with a lower "r".
2) The virus spreads by penetrating "bubbles" or social/work networks and rapidly infecting people in those networks before growth slows. Fast growth only occurs when the virus infects a new set of bubbles/networks, which goes hand in hand with its movement to new geographic areas. As networks are infected, people in them reduce contact as they observe multiple cases among other people they know, thus slowing the spread. As people get more careful, the "r" lowers and there are fewer bridges between networks.
3) The virus spreads in waves as restrictions are enacted or relaxed, or as cultural behaviors such as restarting school after summer break, gathering for holidays, or the Sturgis rally occurs. Note that each wave has a behavioral/historical explanation or cause, that occurred a few weeks before cases really began to jump. Collective behavior drives the "r" value.
So the virus may face natural limiting factors including (1) the supply of risk-exposed people within any given geographic area, and (2) the informal lockdown of social/work networks after people become aware of multiple infections around them. Note that it would likely take several weeks to exhaust the supply of risk-exposed people in a given area, even if the average time to transmit the infection one generation was only 3-5 days. Also note that it would take a couple of weeks for people to realize others in their network are getting sick, and for them to reduce contact in time so that their own infection is the end of the line (r=0). Contact tracing attempts to speed information transfer so that factor #2 is increased, but most people aren't answering the phone.
So we're left with limiting factor #3. As Republican governors in Florida, the Dakotas, and the South have demonstrated, the pandemic will never get bad enough for them to close restaurants, ban superspreader religious events, or even mandate masks. Mayors have been more bold, despite the pushback, but apparently not bold enough. So January-February will see hundreds of thousands of deaths, but starting in late Feb. I would not be surprised to see a nationwide mask mandate and some herd immunity start to lower the "r". The herd immunity might be due to equal parts infection and vaccination though!
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That's a really interesting explanation, and fits with the 2 week time frame. It also explains why some have claimed herd immunity could be achieved with much lower numbers - the people most able to spread Coronavirus. Besides the level of risk, there's also the number of contacts. A risky person with no friends won't do as much harm as a slightly less risky person who sees a few dozen friends each week.
U.S. cases are on a steady path upwards. Again comparing each day's cases to 7 days before, the past 4 days have been: 6.98% .. 7.26% .. 7.55% .. 7.80%
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I can't explain the contract between yesterday's pessimism and today's optimism. I checked Covid-19 data, but it hasn't been updated since I last checked.
The experiment has jumped to +20% ahead of it's benchmark.
Benchmark (VTI) 50.00%
Experiment 70.00% ( DIN 65.00% / M 70.00% / DXPE 74.00%)
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The UK and now Germany have gone full lockdown again.
Our existing vaccines may not work as well against the new South African variant: https://www.cbsnews.com/news/covid-vaccine-new-strain-south-africa/
Meanwhile, oil prices are rising, which is one of a handful of reasons to think inflation could rise this year.
The stock market can absolutely do its thing independent of the good or bad news, but if markets decide a Biden administration will do things like the UK and Germany are doing, we could have another big sell-off in the early spring.
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Yesterday OPEC+ reached an agreement to not raise oil production until March, which helped oil stocks push higher. If oil prices are rising with production constant, it means demand is picking back up. To the extent demand means the world economy is opening back up, I view it as positive.
Until new corona virus variants have a known impact on vaccine efficiency, the impact can't be determined. Moderna's vaccine can lose a lot of efficiency, and still be good enough to provide herd immunity.
The Georgia Senate race hasn't been called yet, but it's possible both Democrats will win, giving a tie in the Senate (broken by the Democrat's Vice President). So that possibility multiplied by tax law changes might get priced into the markets today.
Down to beating the market by 18%:
Benchmark (VTI) 50.00%
Experiment 68.00% ( DIN 66.00% / M 71.00% / DXPE 68.00%)
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My experiment here, and my personal performance, have diverged widely. I sampled some stocks from my high risk account back in March, and kept the same holdings. The experiment is beating the market by +18%, but my high risk account is beating the market by an insane amount. There's a huge gap (fortunately for me).
I wonder if I can make the experiment correspond to my results more, but my purchases happened over 4 months ago. I bought long-dated Macy's call options out of the money, and they've moved to deep in the money. Leveraged options beat the stock, but the experiment tracks one and my account holds the other.
I found a more beaten up restaurant stock than DIN, so I sold DIN and switched investments (and again used long-dated call options). DIN will probably perform well, but I no longer own it.
I still have DXPE stock in my portfolio. But it's value is far less than my Macy's call options, and less than the restaurant call options that replaced DIN. So even when my portfolio holds the same thing as the experiment, the proportions are off.
I wish Vanguard had a way to just reveal portfolio performance percentage over the past 1 year, without any other information. But being an audience of one, I doubt there's much demand for that. So I guess I'll remain excited by my personal investing and shrug when I see the experiment's relatively lesser success.
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I agree with you on Vanguard. It's really hard to track real growth over a specific time period without creating a ton of personalized spreadsheets. I'm finally biting the bullet and just doing the spreadsheets, but it's frustrating that it's necessary.
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Personal Capital has a function that can do this for you. It'll also tell you at a click which indexes you are beating/lagging, and by how much. And most importantly, I believe this excludes deposits/withdraws.
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Vanguard has a "Personal Performance" graph that's interesting, with an annualized performance if you select 1 year. But that reveals other account information, not just performance. Also, it seems to only include the prior month end data.
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The growth rate in Covid-19 cases seems to be leveling off. For Jan 2021 so far:
7.26% .. 7.55% .. 7.80% .. 7.81% .. 7.87%
From Jan 1-3, the rate of growth was increasing. From Jan 3-5, it seems to be leveling off. I don't have more recent data, yet, but from those 1.5 weeks after Dec 25th, I don't see a spike.
Earlier I posted before the market opened, and it has been dramatic since then. The experiment is now +28% ahead of the overall market.
Benchmark (VTI) 52.00%
Experiment 80.00% ( DIN 75.00% / M 83.00% / DXPE 82.00% )
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I've also found that Personal Capital's personal performance feature is pretty unreliable. Adding a large chunk of money to an account especially messes it up something awful and makes the returns dive deep into the negative. It's good for accounts that I'm not adding too, though.
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If you select "Personal Return" on the Vanguard menu (middle bottom), and pick "1 year", you should get an accurate picture of your 2020 investing performance. Vanguard tracks withdrawals and seems to exclude that money from performance.
"YTD" is this week, during which time the benchmark has moved 2% higher, while the experiment has gained 26%. Although the markets haven't closed yet, it seems worth an update: the experiment is beating it's benchmark by 35%.
Benchmark (VTI) 53.00%
Experiment 88.00% ( DIN 84.00% / M 92.00% / DXPE 89.00% )
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Nearing the end of the week, and the experiment has dropped to +28% ahead of it's benchmark.
Benchmark (VTI) 55.00%
Experiment 83.00% ( DIN 75.00% / M 88.00% / DXPE 86.00% )
Some of the call options I hold are very thinly traded, which makes me reluctant to reveal them. I think that's one of the reasons I didn't change the experiment to fit with my change in investments. A lot of people own Macy's $8 call options now, but when I bought, it was a much smaller crowd.
In another thread I predicted Macy's ($12.50/sh now) would hit $14/sh this year. Translated to the experiment, I'm predicting "M 111%" to show up some time in 2021.
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The experiment is beating the market by 37%.
Benchmark (VTI) 54.00%
Experiment 91.00% ( DIN 86.00% / M 93.00% / DXPE 93.00% )
Measuring total Covid-19 cases against 7 days prior (Sat vs Sat, Mon vs Mon), there's an +8.3% growth during each of the past 3 days. While that's worse than before Christmas Day, it's now 2 weeks after New Years and the growth looks stable. In the past, I've seen this happen before the growth rate starts falling.
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Pretty good gain since last week's +28% beat. The experiment is now beating it's benchmark by +40%.
Benchmark (VTI) 53.00%
Experiment 93.00% ( DIN 90.00% / M 95.00% / DXPE 92.00% )
The stalled Covid growth rate has started dropping, to 7.75% (versus over 10% a month ago), so that's a sign of hope. The slow vaccine rollout isn't a good sign, but that situation will become more clear from watching the new administration take over.
The experiment's restaurant, retail and supply chain stocks are still down from 1 year ago, and recovery to their old prices (if possible) is still about +65% away. Compare that with the benchmark's 5 year average of 15%, and the experiment has the edge. (That 5 year number is the most optimistic I could find)
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If you were to start all over again selecting pandemic-sensitive stocks based on today's prices and news, would DIN, M, and DXPE still be your picks?
Quite frankly, DRI and other restaurant stocks are suddenly more expensive than pre-pandemic. Airlines and cruise lines still have room to go until they again attain 2019 levels, but then again a lot more of them issued shares and increased leverage during 2020, so they probably shouldn't. Retail stocks like M and DDS may be experiencing a short squeeze.
BA? ERJ? JNJ (one-shot vaccine pending approval)? Healthcare REITs which have been beaten up today? XLE?
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Interesting, redoing the experiment today... I'd pick the stocks still down a lot, that should do well in a recovery. DIN is -15.5% , Macy's (M) -26.0%, and DXPE -29.6%.
I'd probably switch to OXY -47.9% / CCL -58.7% / SAVE -35.2%. SAVE might go up +50% ... the others might double ... then you add leveraged call options.
Their share prices are surprisingly similar, so I might aim for call options with strike prices in the $10/sh to $12.50/sh range, expiring 2023. I want the most leverage for the lowest breakeven. I'd probably get around 1.5x to 2.0x leverage, using deep in the money calls.
But instead I'm tracking this experiment (M / DXPE / DIN):
Benchmark (VTI) 56.00%
Experiment 95.00% ( DIN 97.00% / M 87.00% / DXPE 100.00% )
Oh, one big advantage of these 3 stocks: it's low effort to track. There's google sheets with a stock lookup that automatically updates prices (on a 15 min delay). So I can just copy/paste updates. With call options, I have to make guesses - the last trade was weeks ago, so which price in the bid-ask range do I use? Definitely not automated.
The experiment is keeping +39% ahead of it's benchmark, the U.S. total stock market.
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Based on which stocks are falling, I think the market is being driven by fears of a lockdown, while President Biden talks about a war on the pandemic. But looking at the 7 day growth in total cases, I think the market is wrong. That growth is in free fall, and some day soon I expect to see news stories about fewer daily cases. That should translate into a rebound for stocks.
Benchmark (VTI) 56.00%
Experiment 92.00% ( DIN 96.00% / M 85.00% / DXPE 95.00% )
The experiment is more impacted by fears of a lockdown, which leaves it +36% ahead of it's benchmark. If you see news stories about fewer cases ... remember you read it here, before it happened. :)
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I agree with you on this one. The vaccine is working. It reports to be effective against the new UK variant. People who get one variant don't seem to every get it again except in extremely rare circumstances.
Things are moving in the right direction and they'll continue to get better the only question now is, how fast can we move?
All that to say, I am 100% on board with you. The drop this week was based on unfounded fears.
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My favorite place to be is on the side of experts, against the market. Dr Fauci spoke and answered questions yesterday after the stock market closed, and said:
"However, when you look more recently at the seven-day average of cases — remember, we were going between 300,000 and 400,000, and 200,000 and 300,000. Right now, it looks like it might actually be plateauing in the sense of turning around."
https://www.whitehouse.gov/briefing-room/press-briefings/2021/01/21/press-briefing-by-press-secretary-jen-psaki-january-21-2021/
In the markets, the experiment started the day with losses, but then recovered, leaving it +41% ahead of the U.S. Total Stock market in the past 10 months.
Benchmark (VTI) 56.00%
Experiment 97.00% ( DIN 100.00% / M 93.00% / DXPE 96.00% )
One cool thing: when the experiment started I posted the gains before the experiment started of +80% for DIN stock, and claimed during the experiment it could still double. DIN is now the first stock in the experiment to double - but the other two are close behind.
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Based on which stocks are falling, I think the market is being driven by fears of a lockdown, while President Biden talks about a war on the pandemic. But looking at the 7 day growth in total cases, I think the market is wrong. That growth is in free fall, and some day soon I expect to see news stories about fewer daily cases. That should translate into a rebound for stocks.
Benchmark (VTI) 56.00%
Experiment 92.00% ( DIN 96.00% / M 85.00% / DXPE 95.00% )
The experiment is more impacted by fears of a lockdown, which leaves it +36% ahead of it's benchmark. If you see news stories about fewer cases ... remember you read it here, before it happened. :)
I get the sense the market doesn't care how many people get infected or die, it cares about whether businesses are forced to shut down. Given that Biden would like to defeat COVID ASAP, he might throw everything at it even as it declines. Never too late to save another 100,000 lives. We still have at least 300k-400k deaths to go, even as vaccines roll out.
The market also cares about whether another stimulus bill passes. I suggest keeping an ear to the ground on this topic, not so much the virus.
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The market is more interested in where the money goes. As an older population is more at risk from covid then people dying out in the over 60 group tend to have more money but less spending. Less SS and other government money then gets paid out and the funds those people had will be passed down to a spendier and younger generation.
The market would react positively to this surely?
If covid gets cleared up then more people go back to spending which is also good for the market.
Looking forward its a win for the markets either way.
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Based on which stocks are falling, I think the market is being driven by fears of a lockdown, while President Biden talks about a war on the pandemic. But looking at the 7 day growth in total cases, I think the market is wrong. That growth is in free fall, and some day soon I expect to see news stories about fewer daily cases. That should translate into a rebound for stocks.
Benchmark (VTI) 56.00%
Experiment 92.00% ( DIN 96.00% / M 85.00% / DXPE 95.00% )
The experiment is more impacted by fears of a lockdown, which leaves it +36% ahead of it's benchmark. If you see news stories about fewer cases ... remember you read it here, before it happened. :)
I get the sense the market doesn't care how many people get infected or die, it cares about whether businesses are forced to shut down. Given that Biden would like to defeat COVID ASAP, he might throw everything at it even as it declines. Never too late to save another 100,000 lives. We still have at least 300k-400k deaths to go, even as vaccines roll out.
The market also cares about whether another stimulus bill passes. I suggest keeping an ear to the ground on this topic, not so much the virus.
I agree I missed that in my market analysis, and it's important. Some of Friday's drop reflected prospects for a smaller stimulus bill. I can't do much to predict that, except expecting some deadlock.
But at some point, I expect the news to cover falling numbers of cases. By limiting the length of the current wave of inflections, it foreshadows higher economic activity and I expect will boost stocks. I haven't tried to extrapolate, but it looks like something that could happen in days - possibly on the weekend, when it's too late to invest. If I'm wrong, I'll have a longer wait. Down days also make the time value of call options cheaper, which I like.
I hope we don't rely on stock markets to do our caring for us, but agree they don't care about deaths. The markets are more about incorporating numerical information. If the markets dropped in direct proportion to the percentage of Americans who died, that percentage would be 0.1%. So even if markets cared, the impact might be smaller than we expect.
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Wow, a +10% jump from Friday's close, putting the experiment +51% ahead of it's benchmark. Macy's had the biggest jump, and has now more than doubled since the experiment began. DXPE, all eyes on you...
Benchmark (VTI) 55.00%
Experiment 106.00% ( DIN 105.00% / M 122.00% / DXPE 90.00% )
After jumping +15% so far today, Macy's winds up within 10% of it's price from a year ago. That sounds like an over-reaction to me, plus I want to start unwinding my positions as the recovery happens. So I sold 1/5th of my Macy's call options today, slightly before the peak (I'm always early...). It looks like the market agrees, as that initial 15% to 17% gain has slipped to a +13.5% gain. So, probably a good move considering my objectives and the conditions.
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CCL down though with executives selling part of their stock. Are you still optimistic about their recovery? It's an interesting industry, they were hit hard with COVID infected ships isolated in harbors for weeks, but on the other hand, if they can confirm that passengers/crew are all COVID free/vaccinated it could be one of the first industries in tourism back up and running.
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CCL down though with executives selling part of their stock. Are you still optimistic about their recovery? It's an interesting industry, they were hit hard with COVID infected ships isolated in harbors for weeks, but on the other hand, if they can confirm that passengers/crew are all COVID free/vaccinated it could be one of the first industries in tourism back up and running.
SAGA cruise (aimed at the 50 and over cruiser) has come out and said it'll do cruises only for those with a vaccine. Worth keeping an eye on that and see how it pans out. I could see other cruise lines allocating ships the same way to get up an running.
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CCL down though with executives selling part of their stock. Are you still optimistic about their recovery?
I view CCL as a Covid stock that responds strongly to vaccine news. Right now there's vaccine delays in Europe and problems with distribution in the U.S., neither of which is good for CCL. They plan to put ships in dry dock until November 2021, which is longer than expected - but maybe those plans can change with time. Here's the counter argument to my view:
https://www.fool.com/investing/2021/01/25/why-norwegian-cruise-carnival-corporation-and-roya/
That leaves CCL stock down -57% from a year ago, so I invest on the theory they make a significant recovery from here. In a full recovery they'd gain +132%, and even if they've lost 1/3rd of their revenue permanently (why?), they'd gain +50% from here. Those dry dock plans are 10 months away, which means plenty of time to change them if the company's predictions are proven wrong.
SAGA cruise (aimed at the 50 and over cruiser) has come out and said it'll do cruises only for those with a vaccine. Worth keeping an eye on that and see how it pans out. I could see other cruise lines allocating ships the same way to get up an running.
Yesterday SAGA.L, RCL and CCL dropped 5%, which is more evidence the drop wasn't related to CCL stock. Still, it might take longer for a recovery than I expect, so we'll see.
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CCL down though with executives selling part of their stock. Are you still optimistic about their recovery?
I view CCL as a Covid stock that responds strongly to vaccine news. Right now there's vaccine delays in Europe and problems with distribution in the U.S., neither of which is good for CCL. They plan to put ships in dry dock until November 2021, which is longer than expected - but maybe those plans can change with time. Here's the counter argument to my view:
https://www.fool.com/investing/2021/01/25/why-norwegian-cruise-carnival-corporation-and-roya/
That leaves CCL stock down -57% from a year ago, so I invest on the theory they make a significant recovery from here. In a full recovery they'd gain +132%, and even if they've lost 1/3rd of their revenue permanently (why?), they'd gain +50% from here. Those dry dock plans are 10 months away, which means plenty of time to change them if the company's predictions are proven wrong.
SAGA cruise (aimed at the 50 and over cruiser) has come out and said it'll do cruises only for those with a vaccine. Worth keeping an eye on that and see how it pans out. I could see other cruise lines allocating ships the same way to get up an running.
Yesterday SAGA.L, RCL and CCL dropped 5%, which is more evidence the drop wasn't related to CCL stock. Still, it might take longer for a recovery than I expect, so we'll see.
IDK. According to this source there are 46% more CCL shares outstanding now than there were in Feb. 2020. Additionally, CCL has lots more debt. In that light, investors are pricing a money-bleeding gamble with negative $3B FCF today at close to the same as they were pricing a profitable corporation with no liquidity questions back then.
https://ycharts.com/companies/CCL/shares_outstanding (https://ycharts.com/companies/CCL/shares_outstanding)
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CCL down though with executives selling part of their stock. Are you still optimistic about their recovery?
I view CCL as a Covid stock that responds strongly to vaccine news. Right now there's vaccine delays in Europe and problems with distribution in the U.S., neither of which is good for CCL. They plan to put ships in dry dock until November 2021, which is longer than expected - but maybe those plans can change with time. Here's the counter argument to my view:
https://www.fool.com/investing/2021/01/25/why-norwegian-cruise-carnival-corporation-and-roya/
That leaves CCL stock down -57% from a year ago, so I invest on the theory they make a significant recovery from here. In a full recovery they'd gain +132%, and even if they've lost 1/3rd of their revenue permanently (why?), they'd gain +50% from here. Those dry dock plans are 10 months away, which means plenty of time to change them if the company's predictions are proven wrong.
SAGA cruise (aimed at the 50 and over cruiser) has come out and said it'll do cruises only for those with a vaccine. Worth keeping an eye on that and see how it pans out. I could see other cruise lines allocating ships the same way to get up an running.
Yesterday SAGA.L, RCL and CCL dropped 5%, which is more evidence the drop wasn't related to CCL stock. Still, it might take longer for a recovery than I expect, so we'll see.
IDK. According to this source there are 46% more CCL shares outstanding now than there were in Feb. 2020. Additionally, CCL has lots more debt. In that light, investors are pricing a money-bleeding gamble with negative $3B FCF today at close to the same as they were pricing a profitable corporation with no liquidity questions back then.
https://ycharts.com/companies/CCL/shares_outstanding (https://ycharts.com/companies/CCL/shares_outstanding)
Wow, thanks for referring to that amazing website. Months ago I recall trying to track down the amount of dilution, but giving up after paging through the SEC filings on CCL. That's a much easier way to view it.
I see CCL had about 0.7B shares before Covid-19, and then diluted those owners by increasing the total shares in circulation to 1.1B. That means prior prices should be adjusted to 63% of their original prices when comparing to present share prices. Pre-Covid, that turns $43/sh into $27/sh. So in a full / diluted recovery, the stock gains +41% from here, which is much less interesting.
FrugalFukuoka - Is this the selling by insides you meant, back in November? As the stock surged, CCL dumped shares on the market.
Since this is a thread to track my investing experiment, I try not to go back and edit posts. But my prior post has numbers that seem way too optimistic given the data from ycharts that ChpBstrd provided.
I really, really should have sold some when the vaccine news first appeared! I knew there would be an over-reaction, and CCL stock went up +40% or so that day, with options rising more than double that. Too bad I didn't know about the dilution then, which would be more evidence to sell some of my position.
Worth noting: Macy's did not dilute their stock, and instead issued bonds. I'll be looking at various stocks to see how they measure up in ycharts. Thanks again for the link, ChpBstrd.
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FrugalFukuoka - Is this the selling by insides you meant, back in November? As the stock surged, CCL dumped shares on the market.
Something I read yesterday in below's article. However, as other cruise stocks across the line slumped; might be unrelated as you said.
https://www.barrons.com/articles/carnival-stock-is-slumping-and-executives-are-selling-stock-51611353278
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See if you can spot the outlier in the experiment.
Benchmark (VTI) 54.00%
Experiment 116.00% ( DIN 105.00% / M 168.00% / DXPE 75.00% )
The experiment is currently +62% ahead of it's benchmark, thanks to the middle stock in that group. I'll probably sell some more call options today, since Macy's is fully recovered (+10% in 12 months)
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See if you can spot the outlier in the experiment.
Benchmark (VTI) 54.00%
Experiment 116.00% ( DIN 105.00% / M 168.00% / DXPE 75.00% )
The experiment is currently +62% ahead of it's benchmark, thanks to the middle stock in that group. I'll probably sell some more call options today, since Macy's is fully recovered (+10% in 12 months)
Here's the explanation for Macy's outperformance. It's an extension of the GME short squeeze.
Short Interest:
DIN: 6.21% https://shortsqueeze.com/?symbol=din&submit=Short+Quote™ (https://shortsqueeze.com/?symbol=din&submit=Short+Quote™)
M: 35.28% https://shortsqueeze.com/?symbol=m&submit=Short+Quote (https://shortsqueeze.com/?symbol=m&submit=Short+Quote)
DXPE: 5.12% https://shortsqueeze.com/?symbol=dxpe&submit=Short+Quote™ (https://shortsqueeze.com/?symbol=dxpe&submit=Short+Quote™)
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See if you can spot the outlier in the experiment.
Benchmark (VTI) 54.00%
Experiment 116.00% ( DIN 105.00% / M 168.00% / DXPE 75.00% )
The experiment is currently +62% ahead of it's benchmark, thanks to the middle stock in that group. I'll probably sell some more call options today, since Macy's is fully recovered (+10% in 12 months)
Here's the explanation for Macy's outperformance. It's an extension of the GME short squeeze.
Short Interest:
DIN: 6.21% https://shortsqueeze.com/?symbol=din&submit=Short+Quote™ (https://shortsqueeze.com/?symbol=din&submit=Short+Quote™)
M: 35.28% https://shortsqueeze.com/?symbol=m&submit=Short+Quote (https://shortsqueeze.com/?symbol=m&submit=Short+Quote)
DXPE: 5.12% https://shortsqueeze.com/?symbol=dxpe&submit=Short+Quote™ (https://shortsqueeze.com/?symbol=dxpe&submit=Short+Quote™)
Thanks for the explanation. Macy's higher than last January seemed really weird.
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I thought Macy's spiked on rumors of digital sales being higher than expected... but it's another month until they report earnings. Maybe their 40% short interest is the target. If that's the case, as options pay out for GME, will that attack continue or will some of it spill over to Macy's?
I have some "stink bids" at big jumps from the current prices, but maybe I lack enough imagination... I only go up to +100% of the current call options prices.
Benchmark (VTI) 55.00%
Experiment 114.00% ( DIN 97.00% / M 167.00% / DXPE 77.00% )
The experiment is +59% ahead of it's benchmark currently.
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The ground you staked out has been reached by the tide of the recovery/bubble, it seems. Lifting up the experiment - and maybe your options. Good luck in the continuing adventure.
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Yahoo's outdated information shows 32% short interest. Not sure where I got 40%, but it was probably out of date as well. I'm sure Wednesday's spike of +50% scared some of the short sellers away.
As to the tides, it appears Macy's is approaching low tide, causing the experiment to give up 1/3rd of it's edge and wind up back at +42% ahead of the overall market.
Benchmark (VTI) 51.00%
Experiment 93.00% ( DIN 86.00% / M 126.00% / DXPE 68.00% )
I sold off 40% of my Macy's position this week, with a very tiny slice of that at the Wednesday peak. It was dramatic watching bid and ask prices race upwards, and then step in the middle briefly, getting a +680% profit on the peak trade. I bought call options months ago when Macy's was still near $6.50/sh - I wouldn't try that again at Friday's close of $15/sh.
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The market is catching up, rising +5% to the experiment's +3% since the last update. But the experiment has a large lead of +40% ahead of the market.
Benchmark (VTI) 56.00%
Experiment 96.00% ( DIN 94.00% / M 111.00% / DXPE 84.00% )
I assume Macy's was pushed up by the same forces that bought GME until it reached new heights. As that buying pressure leaves, so does the boost to "M" stock. Looks like the experiment depends on how vaccines roll out, now that there are so many companies producing them (Moderna, Pfizer, AstraZenica, Johnson & Johnson). The vaccine Russia rushed out (stage 1 testing only) has gone through stage 3 testing now, and proven highly effective. They use a trick where the two doses are different, on the theory the body reacts more strongly to the variety of similar attacks.
I just checked on y-charts, and Macy's, Dine Brands and DXP Enterprises all have about the same number of shares now as they did 1 year ago. That means the peak from before Covid is likely their actual peak, and it still makes sense to hold them until recovery.
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Nice jumps for Macy's and Dine Brands since Tuesday, with the experiment +51% ahead of it's benchmark.
Benchmark (VTI) 57.00%
Experiment 108.00% ( DIN 105.00% / M 127.00% / DXPE 91.00% )
The Russian vaccine is really good news, because it also adds evidence that two different vaccine shots could provide higher effectiveness than the same type twice. It's not certain yet, but it's evidence in that direction.
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Back on Jan 22 in this thread, I said growth rates of new Covid cases were in free fall, and that the market was wrong. Soon after, I quoted Dr Fauci agreeing that cases seemed to be plateauing. To update that with more commonly used statistics, the 7-day average: 200k/day in mid-Jan, 150k/day Feb 1, and 125k/day as of Feb 6. Hospitalizations have even dropped significantly.
https://covidtracking.com/data/charts/us-currently-hospitalized
Benchmark (VTI) 59.00%
Experiment 109.00% ( DIN 106.00% / M 126.00% / DXPE 93.00% )
The experiment remains +50% ahead of the total U.S. stock market.
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https://ycharts.com/companies/CCL/shares_outstanding (https://ycharts.com/companies/CCL/shares_outstanding)
@ChpBstrd - I'm confused by share dilution and market prices. DIN is -14% with no share dilution, while RRGB is -17% when ignoring dilution, and fully recovered (+9%) considering the additional shares. I'm assuming the market cap of the company recovers, so if there's more shares, the recovery involves a lower stock price. I wonder if I missed something.
The market hasn't had normal revenue data for a year now, so maybe they can't compare to normal stock values yet. If I'm right, when RRGB has a quarter of normal earnings, the stock price will take a dive.
Based on Y-charts data, I've been selling some of my highest risk portfolio. Spirit Airlines is 88% recovered, and I'm worried about industry bankruptcy risk, so I've begun selling. With RRGB's 109% recovery, I've started selling since the goal isn't to capture upside so much as the recovery. If I drift away from the recovery as my goal, I no longer have any definition of when to sell, which makes the timing even more difficult.
the recovery is a market timing decision, with stocks possibly never recovering fully (like mall REITs that lost value every year for the past several years).
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https://ycharts.com/companies/CCL/shares_outstanding (https://ycharts.com/companies/CCL/shares_outstanding)
@ChpBstrd - I'm confused by share dilution and market prices. DIN is -14% with no share dilution, while RRGB is -17% when ignoring dilution, and fully recovered (+9%) considering the additional shares. I'm assuming the market cap of the company recovers, so if there's more shares, the recovery involves a lower stock price. I wonder if I missed something.
The market hasn't had normal revenue data for a year now, so maybe they can't compare to normal stock values yet. If I'm right, when RRGB has a quarter of normal earnings, the stock price will take a dive.
Based on Y-charts data, I've been selling some of my highest risk portfolio. Spirit Airlines is 88% recovered, and I'm worried about industry bankruptcy risk, so I've begun selling. With RRGB's 109% recovery, I've started selling since the goal isn't to capture upside so much as the recovery. If I drift away from the recovery as my goal, I no longer have any definition of when to sell, which makes the timing even more difficult.
the recovery is a market timing decision, with stocks possibly never recovering fully (like mall REITs that lost value every year for the past several years).
I'm satisfied with the explanation that the market is unreasonable. Maybe blame momentum investors?
Fun quote of the day:
airline bankruptcies historically can occur years after a financial crisis. Delta and Northwest didn't file until 2005, years after 9/11. American didn't file until 2011, well after the Great Recession.
https://www.cnn.com/2021/02/07/business/airlines-cash/index.html (https://www.cnn.com/2021/02/07/business/airlines-cash/index.html)
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For RRGB, a 17% share dilution happened sometime between June 8 - July 12. In May the stock ranged from $10.56 to $19.69 (mid $15.13), versus August $10.82 to $15.08 (mid $12.95). It's reassuring the stock traded about 17% lower after a 17% share dilution.
I might as well revisit my decision to switch from DIN stock to RRGB call options, using the past 6 months as a measuring stick. DIN is up +42% in 6 months, while RRGB is up +187%. Taking some calls I didn't own, $10 RRGB calls expiring Jan 2022, those cost $4.39 six months back, and recently sold for $18.66, a 4.25x multiple, or +325% return. Looks like that decision is no contest.
Speaking of DIN...
Benchmark (VTI) 60.00%
Experiment 110.00% (DIN 99.00% / M 135.00% / DXPE 97.00%)
Someday soon, every stock in the experiment might reach +100% return since the experiment began ~10-11 months ago. In the meantime, together they are beating the market by +50%.
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Covid cases are dropping, and an estimated 1/4th of Americans have immunity through prior illness or vaccination. Not sure why the experiment is still losing ground against it's benchmark, but it's now just +45% ahead.
Benchmark (VTI) 61.00%
Experiment 106.00% (DIN 98.00% / M 123.00% / DXPE 97.00%)
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Before either DIN or DXPE drop, I wanted to capture the moment when all 3 stocks had doubled:
Benchmark (VTI) 62.00%
Experiment 109.00% (DIN 100.00% / M 127.00% / DXPE 100.00%)
The experiment is ahead of the market by +47%.
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Covid cases are dropping, and an estimated 1/4th of Americans have immunity through prior illness or vaccination. Not sure why the experiment is still losing ground against it's benchmark, but it's now just +45% ahead.
Benchmark (VTI) 61.00%
Experiment 106.00% (DIN 98.00% / M 123.00% / DXPE 97.00%)
Well, they're not trading on fundamentals. Must be momentum investors.
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Benchmark (VTI) 61.00%
Experiment 106.00% (DIN 98.00% / M 123.00% / DXPE 97.00%)
Well, they're not trading on fundamentals. Must be momentum investors.
Macy's caught momentum from the WSB crowd, but that's gone now. Macy's float is within 1% of it's 2019 level, where prices ranged from $24.76 (Apr) to $15.83 (Dec). So there's an argument to be made for Macy's getting near $25/sh.
I'm experimenting with GameStop - maybe I can track that while waiting for DXPE/M/DIN to recover. At some point GME stock should revert to it's former prices, and lose 70 to 90% of it's value. I've sold GME calls expiring in Mar - Apr with an $800 strike, and calls expiring in 2022 & 2023 with a $950 strike price.
Mar 12: sold $60, now $6, profit 90%
Mar 19: sold $78, now $47, profit 40%
Apr 16: sold $130, now $108, profit 17%
2002: sold $6800, now $244, profit 96%
Yesterday I added the following
GME, 2023, $950 strike: sold $467, now $482, loss 3%
I'm monitoring margin requirements, which are terrible for that Mar 12 call. It has $6 of profit left, but lowers my margin available by $520. I've entered margin required for each short position, and that's first to be closed out (buy to close) if I need to increase liquidity.
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Based on 2019 prices and tripling of the outstanding shares, AMC should be between $2.50 and $5/sh. Yesterday, I also sold AMC calls expiring in 2023.
AMC $22 strike (4x now), sold $200, now 203, 2% loss
AMC $27 strike (5x now), sold $182, now $180, 1% profit
AMC $40 strike (7x now), sold $130, now $150, -21% loss
The $22 to $40 strikes range from 4x to 7x the current price of AMC, at $5.65. Had I known the popularity of the $40 strikes, I would not have bothered with the others. I'm considering closing some of my $22 and $27 strikes in order to sell more $40 strikes.
AMC and GME are both competitions: the hedge funds are defending the efficient market. If something is overpriced, it can be sold for a profit, correcting the inefficiency. WSB and some secret hedge fund are pushing up the price, in an effort to break the market makers in AMC call options. In selling call options myself, I'm seeing the odds stacked heavily against WSB and fans.
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In my account, IBKR is still showing an estimated value of $6 for my (short) Mar 12 GME call, but all other sources show $28. That's also the range offered in the options market, so I'll be treating IBKR's estimate as incorrect and ignoring it.
Meanwhile, the AMC calls I sold have turned profitable, but are illiquid. I tried selling at a price above the last trade, and nothing happened. There's a wide bid-ask spread for the $22 and $27 calls which makes those positions difficult to close.
AMC $22 call now 15% profit (sold $200 -> can buy at $170)
AMC $27 call now -1% loss (sold $181 -> can buy at $183)
AMC $40 call now 8% profit (sold $129 -> can buy at $119)
For each of these, I sold the highest strike price ($800 in 2021, $950 in 2022-2023)
GME calls Mar 12, now 54% profit (sold $60 -> can buy to close at $28)
GME calls Mar 19, now 49% profit (sold $78 -> can buy at $40)
GME calls Apr 16, now 38% profit (sold $130 -> can buy at $81)
GME calls 2022 Jan, now 96% profit (sold $6800 -> can buy at $247) *oldest*
GME calls 2023 Jan, now 10% profit (sold $467 -> can buy at $420) *newest*
My risk level is not appropriate for most people. The option with the highest profit represents me predicting the GameStop buying attack had failed - on the Monday after it made the news, Feb 1. Between the Feb 1 close and Feb 2 open, GameStop stock dropped 37%. During Feb 4 trading, GME dropped another 41%. That's why the price of the Feb 1 call is so much higher than all the others - it was sold facing down GME stock at $250/sh.
So, that's what I'm doing to keep me distracted from the original experiment I started in 2020. Now severe weather is pushing stocks lower, so the experiment lost some ground to the market, but remains +45% ahead.
Benchmark (VTI) 61.00%
Experiment 106.00% (DIN 97.00% / M 121.00% / DXPE 102.00%)
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For my call selling experiment, I've picked 4 calls to track.
| The Fad Fund | price | orig price | gain / loss |
| AMC $22 call 2023 | $175.00 | -$199.56 | 12.31% |
| GME $800 Mar 12 | $25.00 | -$60.41 | 58.62% |
| GME $800 July 16 | $188.00 | -$190.00 | 1.05% |
| GME $950.00 2022 | $223.00 | -$6,799.12 | 96.72% |
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Slightly more compact format this time, summarizing on one line with details below. The stock market is up +59%, and experiment up +121%, or +62% ahead of the market.
Benchmark (VTI) 59.00% vs Experiment 121.00%
DIN 118.00% / M 100.00% / DXPE 115.00%
The U.S. is vaccinating at a rate of 1.6 million/day, and prioritizing those most at risk. Hopefully within months, that makes the pandemic less deadly. And eventually, vaccinations allow normalacy.
Last year news media polled people about vaccines that hadn't been announced yet, and a staggering number of people were unsure about taking vaccines. I predicted it would come down dramatically, and it has. I mentioned that health care workers would be a priority, which means people's doctors would get vaccinated. I think that has a big impact: a person who you trusted with your health before the pandemic tells you they had a vaccine shot, and that you should get one as well.
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| The Fad Fund | price | orig price | gain / loss |
| AMC $22 call 2023 | $200.00 | -$199.56 | -0.22% |
| GME $800 call Mar 12 | $17.00 | -$60.41 | 71.86% |
| GME $800 call July 16 | $235.00 | -$197.50 | -18.99% |
| GME $950.00 call 2022 | $261.00 | -$6,799.12 | 96.16% |
I read that WallStreetBets might go after GME again at some point, which might explain why the July calls spiked upwards (while GME stock dropped, which is odd). I was -23% on those calls, but I sold some more to bring it down to -19% loss at this point (to buy the calls back, I'd have to pay 119% of the premium I received).
AMC spiked higher on good news of NYC reopening movie theaters in the first week of March. I suspect it's a mix of people thinking AMC is halfway to recovery ($7 now vs almost $16 in Apr 2019), and WSB investing.
Those investors are in for a shock: AMC has tripled their outstanding shares. If AMC recovered to their 2019 market cap, the stock would trade at $2.50 to $5/sh! So people buying AMC at $7/sh on good news will realize their mistake some point when earnings go back to normal. (That ignores new streaming subscribers, who might prefer a month of movies instead of the price of one movie ticker).
Overall I prefer selling GME calls rather than AMC. With GME at $43/sh, it's an 18x jump from my strike price of $800/sh. With AMC, it's now 3x away from my $22 strike. It's dangerous to not admit mistakes in investing, so if the losses pile up far enough I'll close my AMC positions at a significant percentage loss (but small for my portfolio and it's gains, which is why I can take the risk).
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Since this thread is meant as a record, I don't edit prior entries, but Macy's percentage was rounded off to the nearest 100% instead of the nearest 1% in this entry:
Benchmark (VTI) 59.00% vs Experiment 121.00%
DIN 118.00% / M 100.00% / DXPE 115.00%
The other entries are -3 and -6 below the experiment, so I infer Macy's was +9 above, or at 130%. (130 + 118 + 115)/3 = 121. The other numbers are all correctly rounded off to the nearest 1%.
The 3 fund experiment is +69% ahead of the total stock market today.
Benchmark (VTI) 60.00% vs Experiment 129.00%
DIN 119.00% / M 142.00% / DXPE 127.00%
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I closed those earlier GME positions at big losses, which I discussed in the "How to profit off GME" thread. Here's where they ended up:
| The Fad Fund | price | orig price | gain / loss |
| AMC $22 call 2023 | $458.00 | -$199.56 | -129.50% |
| GME $800 call Mar 12 | $1,926.00 | -$144.63 | -1231.67% |
| GME $800 call July 16 | $5,000.00 | -$229.90 | -2074.86% |
| GME $950.00 call 2022 | $4,713.00 | -$6,799.12 | 30.68% |
The profitable trade was based on data and risk assessment. The others assumed risk assessment was a checkbox that had already been checked, instead of re-evaluating the additional investments/speculations/bets. When conditions changed, I should have closed my position instead of adding to it.
Back to the earlier experiment:
Benchmark (VTI) 57.00% vs Experiment 128.00%
DIN 123.00% / M 138.00% / DXPE 123.00%
Now beating the market by +71%, I'm expecting the $1.9 trillion bill in Congress will depend what happens next. If there's problems, the stocks could take a hit while pricing in new uncertainty. If it passes through budget reconciliation, the experiment should get another boost.
Outside the experiment, I have calls that expire this month, and plan on selling those if/when the stimulus bill passes.
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What are you thoughts on the COVID trend?
Vaccination-wise it seems there is room for optimism with a vaccination available for every American by June (?) or so. On the other hand there is some news we could see a 4th wave due to the new variants..
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What are you thoughts on the COVID trend?
Vaccination-wise it seems there is room for optimism with a vaccination available for every American by June (?) or so. On the other hand there is some news we could see a 4th wave due to the new variants..
When I started the experiment I was actively studying and learning about it. But I no longer spend a lot of time following up on research and making new predictions.
My understanding is that vaccines can be rated with 3 different percentages: chance of catching Covid-19 at all, chance of being hospitalized, and chance of dying from Covid-19. The vaccines are very effective in those last two categories, despite mentions of the vaccines being less effective at preventing Covid-19 completely. Also, the early vaccines were tested before variants emerged, which makes it harder to compare.
I know that vaccine makers have a much shorter cycle to update their vaccines, so they could respond faster to variants if current vaccines aren't enough. I don't know if the U.S. variants have been studied enough. I know existing vaccines are highly effective at preventing hospitalization and death even with the UK and South African variant.
Since Sars-Cov-2 hasn't mutated enough to defeat existing vaccines, I tend to believe that's what will play out over the next few months. And since the most vulnerable people are being vaccinated first, the rates of hospitalization (and death) should fall even before then.
So I hope after a few months, things are closer to recovery. As to the experiment, I'm not sure what that means for Macy's, for example. Compared to Dec 2019, Macy's is almost recovered. Compared to Apr 2019, it has +63% further to go. And that ignores customers who switched from Macy's to Amazon, and might not return to Macy's.
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Wow, I guess the experiment had an up day then a down day... the market has had two down days, so things haven't changed much. The experiment will turn 1 year old later this month, and is +123% for the year while the market is +53%.
Benchmark (VTI) 53.00% vs Experiment 123.00%
DIN 114.00% / M 122.00% / DXPE 134.00%
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How close are you to your criteria for completing the experiment?
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How close are you to your criteria for completing the experiment?
I need to fill in my spreadsheets for DIN and DXPE - their share prices and number of shares for the past couple years. Then I'll know how close each stock is to it's former market cap. There's also a large variation: if Macy's recovers to Apr 2019, it's +65% away... but recovering to Dec 2019, it's just +5% away. So right now, I'm not sure.
This past week, the overall market took deeper losses than the experiment. While VTI fell 4% from Feb 25, the experiment is at the same level. So now the experiment is +73% ahead of the stock market:
Benchmark (VTI) 56.00% vs Experiment 129.00%
DIN 127.00% / M 127.00% / DXPE 134.00%
Democrats in the Senate have agreed on changes to the 1.9T stimulus bill, so this week could see that pass the Senate and then the House. I don't know how much of an impact interest rates will have - it's expected the stimulus will push those higher. There's also treasury auctions this week with possibly too few buyers, which could push yields higher... and impact interest rates. Probably a bad week for long-term bonds ahead.
I expect the recovery stocks to do well, despite the interest rate changes, but I'm not sure. Also, I don't know what event in the months ahead would signal a complete recovery. If vaccinations occur gradually, when has the recovery completed?
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How close are you to your criteria for completing the experiment?
I need to fill in my spreadsheets for DIN and DXPE - their share prices and number of shares for the past couple years. Then I'll know how close each stock is to it's former market cap. There's also a large variation: if Macy's recovers to Apr 2019, it's +65% away... but recovering to Dec 2019, it's just +5% away. So right now, I'm not sure.
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I expect the recovery stocks to do well, despite the interest rate changes, but I'm not sure. Also, I don't know what event in the months ahead would signal a complete recovery. If vaccinations occur gradually, when has the recovery completed?
^Good question! Idk.
I have a question myself. Why would Apr 2019 be the reference point?
Maybe I've forgotten, but I thought the experiment's logic was based on recovery to pre-COVID valuation levels. Wouldn't sometime in Feb 2020 be the appropriate reference? (not intending to argue, honestly baffled.)
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I have a question myself. Why would Apr 2019 be the reference point?
Maybe I've forgotten, but I thought the experiment's logic was based on recovery to pre-COVID valuation levels. Wouldn't sometime in Feb 2020 be the appropriate reference? (not intending to argue, honestly baffled.)
It's so I can capture seasonal variations without too much typing. I wanted to know the stock price from the prior year at several points, and to save typing, I picked Apr/Aug/Dec. For every stock, I average the lowest and highest price of the month, which tends to get me close to the average price overall. And then I lookup shares outstanding over time, and enter that. For one stock, it's calculating the average 7 times, and then entering 7 numbers.
I used to track a recovery against Feb 2020 prices. Then I learned how many stocks diluted their shares, so the multiple data points is also to establish a baseline for market cap (# shares x share price). But I might add Feb back to that data... I also want to roughly capture when I think a recovery will happen this year, so I can compare against 2 years prior. So I might add more data for that.
I currently have a theory that most people, like me in late 2020, still view the recovery as a stock price recovery. But it's not: it's a recovery to the company's former market cap. For companies that were at $20/sh, if they printed shares until there were 2x as many, their recovery price is actually $10/sh... same market cap. So I might want to look at Feb 2020 (and 2019) to see if the market cap calculation changes dramatically.
It's nothing factual - I wanted to limit my typing. So rather than enter various months of 2019 and 2020, I picked 3 months (Apr/Aug/Dec). Hopefully that's a balance between seasonal variations and typing.
I formerly used Feb 2020 as a reference point for recovery.
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Wow, now beating the market +84%.
Benchmark (VTI) 57.00% vs Experiment 141.00%
DIN 136.00% / M 147.00% / DXPE 139.00%
@BicycleB - I've entered DXPE and DIN into my recovery spreadsheet, and DIN looks ready to sell. It's somewhere between 10% from recovery, and 10% past recovery. Macy's is 4% past it's Dec 2019 level, and DXPE is 4% past it's Aug 2019 level. But comparing to Apr 2019, they have 25% and 50% to go, respectively.
I expect the 1.9T relief/stimulus bill to pass the House this week, despite attempts to stall. So that should give a boost to recovery stocks, and make people question where inflation is headed.
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In the Matrix, Neo opens his coat to reveal dozens of weapons. To quote the security guard in that scene, "Holy s**t!"
The experiment has reached +92% above the U.S. stock market:
Benchmark (VTI) 61.00% vs Experiment 153.00%
DIN 129.00% / M 181.00% / DXPE 147.00%
I'm currently comparing their recovery to April 2019, so all 3 could have more room to recover. But it's getting close.
After the Covid relief bill payments go out, I don't know what event signals the recovery. The U.S. has fully vaccinated 13% of Americans, so watching that percentage go up is one indicator.
Personally, I think it's foolish to stop wearing masks. But looking at Texas' Covid cases, they are currently far better off than California, so maybe they can afford to experiment. Texas being one of the most populous states, I'll want to see how they do after lifting all government restrictions on masks and indoor gatherings.
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I'm in Texas. Check the numbers in 3 weeks and see how you feel about lifting the mask mandate.
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Texas governor Abbot was dead wrong last year.
https://www.kxan.com/state-of-texas/state-of-texas-new-questions-as-gov-greg-abbott-ends-mask-mandate/
"Abbott put the third phase of reopening Texas into effect immediately on June 3, 2020. Businesses were allowed to expand to 50% capacity. Restaurants could expand to 75% capacity and have parties of up to 10 people starting June 12, 2020.
...
After the third phase, the mayors in Austin, Houston, San Antonio, Dallas, Fort Worth, El Paso, Arlington, Plano and Grand Prairie signed a letter to request the power to order mask mandates for their cities.
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On July 2, 2020, Abbott ordered a statewide mask mandate in counties with 20 or more active cases of COVID."
Last year he lifted the mandate, and a month later capitulated and re-instated it. The week before he capitulated, the median number of cases per day was 5787. Looking at the past 7 days right now, the median number of new cases per day is 5518. The data suggests a repeat the last time Abbot made this mistake.
The difference is vaccinations, where Texas (9%) lags the national average (13%). I'm not aware of any expert recommending a full reopening once 9% of the population is vaccinated. Neither data nor experts point to a good outcome.
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Here in Houston, every business I've been to is still requiring masks as local policy.
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That is what I am saying. While the vaccinations going out changes the equation from last year, we still need another 60ish days to get enough vaccines into Texans to start removing the restrictions. Everywhere I've gone still has signs requiring masks, which I appreciate, but this is clearly happening because Abbott is trying to build goodwill with the base following the fallout from the winter storms last months.
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That's good to know - I wasn't aware how many businesses are ignoring the government's lifting of the mandate. It sounds like the burden is being shifted from the government onto the private sector (or public sector, in the case of schools?).
Unlike the experiment in this thread, my largest single stock holding is Occidental Petroleum (OXY), which is headquartered in Houston. They've done really well so far, and I hope their recovery can continue.
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Here in Houston, every business I've been to is still requiring masks as local policy.
Remember the good ole days when distrust of government involved wanting to do the wrong thing because the government was telling us to do the right thing? I'm showing my age here.
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It's been almost a year since I started tracking these 3 stocks:
... I'll reset the clock, and I still expect them to beat the market:
DIN at 37.05 / 37.05 up +0%
M at 6.66 / 6.66 up +0% (it's an evil experiment, I'll grant you that)
DXPE at 13.78 / 13.78 up +0%
VTI at 128.60 / 128.60 up +0% (benchmark)
And today's values:
Dine Brands Global (DIN) $88.30
Macy's Inc (M) $21.03
DXP Enterprises (DXPE) $32.94
Which leaves the experiment beating the stock market by +103%! While Vanguard Total Stock Market returned +61% near it's low (Mar 25), the equal weighted stocks of the experiment are up +164% since Mar 25, 2020.
Benchmark (VTI) 61.00% vs Experiment 164.00%
DIN 138.00% / M 216.00% / DXPE 139.00%
Considering when I should end the experiment, I'm thinking either:
(1) By time, end it after 52 weeks, on March 25 2021 (10 days away)
(2) When I sell my last DXPE shares and Macy's call options
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I'd enjoy seeing the result at both times fwiw. Overall, thanks for the thread.
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I agree with the above, I'd like to see both if you're up for it.
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Agreed w BicycleB, thanks for the thread! Great discussion, simple to follow, and entertaining through the whole mad year.
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Sure, why not. I'll note the performance at the 52 week point, and end it when my Macy's and DXPE holdings hit zero. I sold another chunk of my Macy's call options on Monday, so I've got about 1/4th of the original calls remaining.
Benchmark (VTI) 62.00% vs Experiment 155.00%
DIN 133.00% / M 202.00% / DXPE 131.00%
Since the last update, Macy's stock dropped from $21.03 to it's current $20.13, or a 4.3% drop. But the experiment is being measured from the initial investment of $6.66/share, so losing $0.90 hits the experiment's performance by -13.5% (relative to the original purchase). That's how Macy's dropped from +216% to +202% so quickly - it's relative to the investment a year ago.
I've seen something similar but more extreme with OXY call options. Some days, I'll lose an amount equal to my starting investment! But it's because the stock drop has a leveraged impact on call options, and my calls were bought at a fraction of current prices. So the overall performance since purchase has very wide swings.
I'm not exactly sure what's going on with the stock market yesterday - it looks like a market expecting lockdowns. Looking at Covid-19 data for the U.S., I'm not seeing it yet, despite Dr Fauci's warning. I know Italy has gone back into lockdown, and there's a risk that happens elsewhere.
The Fed will discuss their outlook on Wednesday, which is highly anticipated. It sounds like markets are ready to misinterpret what Fed Chair Powell says, and surge higher or drop lower. I expect cautious optimism, pointing out unemployment is still high, and that inflation needs to run above 2% for a time.
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Investors seem nervous about rising interest rates. Days ago, the Fed announced their estimates: 2.0% inflation by year's end, and 6.5% GDP growth (!). Both the market and experiment lost ground, but the experiment's stocks fell further:
Benchmark (VTI) 59.00% vs Experiment 150.00%
DIN 134.00% / M 181.00% / DXPE 134.00%
The market is trailing the experiment by 91%. By definition, the market has a beta of 1.0, and on Yahoo Finance the experiment averages 2.29 Beta. Even if you multiply the market's gains by 2.29 (+115%), it trails the market. By that measure, the experiment is ahead of the market on a risk-adjusted basis.
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That's exactly what I was wondering about! Without knowing how to ask. Good deal.
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Here's the experiment's performance as of this weekend:
Benchmark (VTI) 60.00% vs Experiment 152.00%
DIN 142.00% / M 181.00% / DXPE 132.00%
Ahead +92% with this Thursday being the 1 year mark. By the way, be careful looking at 52 week performance right now - it ignores the drops in March 2020, but keeps the recovery gains. I've stopped viewing 1 year performance, and have been looking at 2 year performance to avoid that bias.
I've downloaded the latest Covid-19 data from John Hopkins University, and it looks like California and Texas cases are dropping lower (by percentage, comparing Thurs to prior Thurs). New York seems to be at a plateau, so I'm not sure what happens next. A few states are getting worse, but overall I don't see a lot of hot spots.
A poll from earlier this month found 30% refusing vaccines, 45% willing to get vaccinated, and 22% already vaccinated. That could be another signal to sell off recovery stocks - if almost everyone willing to be vaccinated has gotten vaccinated. So if that 30% doesn't drop, maybe when we're 60% vaccinated it's time to sell. If that drops to 10%, maybe at 80% vaccinated it's time to sell.
https://www.npr.org/sections/coronavirus-live-updates/2021/03/12/976172586/little-difference-in-vaccine-hesitancy-among-white-and-black-americans-poll-find
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My favorite perspective of the day, from a member of Africa's CDC: Covid-19 has killed 2.6 million people. The vaccines have killed nobody. Get a vaccine. :)
Europe's vaccination effort is going slowly, and many countries have stalled AstroZenica vaccinations over blood clot fears. Italy and most of France are back under lockdowns, which could be spreading to Germany soon. That could be impacting U.S. markets, or worse, could be foreshadowing - the U.S. is typically a few weeks behind Europe. In this case, vaccination speed makes a big difference, with 2/3rds of Americans over 65 already vaccinated. Looking at my Covid-19 cases growth data, I see a plateau with a slow downtrend (not the number of cases, but the growth rate). I think it will turn out better than expected.
Benchmark (VTI) 60.00% vs Experiment 139.00%
DIN 140.00% / M 162.00% / DXPE 117.00%
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If I started the experiment last March 25th, maybe I should measure one year through March 24, 2021? At any rate, partway through the trading day, the experiment leads the market by +75%.
Benchmark (VTI) 57.00% vs Experiment 132.00%
DIN 134.00% / M 144.00% / DXPE 117.00%
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I believe this experiment started a year ago, March 25 2020. So here's how it's gone over the past 12 months:
Benchmark (VTI) 58.00% vs Experiment 135.00%
DIN 139.00% / M 147.00% / DXPE 119.00%
After 1 year, the experiment is ahead by +77%: +135% versus +58% from the March 25th low.
I actually added to my Macy's position this week as part of my prediction that the U.S. was not going to see a Covid-19 surge like in Europe. The data shows exponential growth plateaued, and declining slightly. The U.S. is far ahead of Europe on vaccinations, which are being given to the most vulnerable people first.
I still hold Macy's call options and DXPE shares, so I'll keep the experiment going until I unload both of those positions.
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The U.S. stock market seems to reflect a number of different pressures recently, not just Covid-19. Unlike last year, it seems like recovery, oil and inflation can all operate separately now. So retail might drop while banks and oil companies rise, which is something I saw earlier this week.
The experiment is +72% ahead of it's U.S. total market benchmark.
Benchmark (VTI) 63.00% vs Experiment 135.00%
DIN 147.00% / M 136.00% / DXPE 121.00%
Using 2019 prices to predict a recovery, my median estimate for Macy's is 17% away from full recovery. For DXPE, 27% away... and DINE is 109% recovered from it's Dec 2019 price (I sampled April/Aug/Dec 2019 only, because it's a manual process of entering the share float).
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Interesting post, thanks.
Will you do another experiment for April 2021 to April 2022?
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Interesting post, thanks.
Will you do another experiment for April 2021 to April 2022?
In Q2-Q4 2020 and Q1 2021, returns matched the amount of risk taken. The stupider the bet, the returnier it was. Doomed companies like GME, money hemmoraging airlines and cruise lines, and all-but-out-of-business restaurant stocks living off of stock dilution - they were generally home runs. Bonds stank.
If the more risk = more return function continues to be the rule, then the past outperformance of risky stocks will tell us something about how to invest. However, the rules change sometimes. At some point more risk will = lower returns.
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In Q2-Q4 2020 and Q1 2021, returns matched the amount of risk taken. The stupider the bet, the returnier it was. Doomed companies like GME, money hemmoraging airlines and cruise lines, and all-but-out-of-business restaurant stocks living off of stock dilution - they were generally home runs. Bonds stank.
I wouldn't say this experiment falls into the "stupider the bet" category. In Q2 2020 it was already clear Congress would support struggling businesses, and the Fed would stabilize and backstop the bond market. Hemorrhaging is a blood loss so significant it rapidly leads to death... yet airlines and cruise lines did not go under despite a year of what you call hemorrhaging.
When I started the experiment, I had two primary theories:
(1) companies that lost 2/3rds of their value could triple in a recovery. That means even if half the companies went bankrupt, investing in them would still be profitable.
==> Ultimately, my only bankruptcies were 2 micro-cap oil stocks. A third micro-cap oil stock recovered enough to pay for both bankruptcies and still be very profitable. But I also invested in a larger oil company, and an oil ETF.
(2) in an election year, Congress wouldn't end their careers by refusing to spend other people's money - to provide relief to struggling companies.
==> Congress did provide relief, and the Fed backstopped the bond market - including junk bonds from retail and airline companies.
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Interesting post, thanks.
Will you do another experiment for April 2021 to April 2022?
This experiment runs until Covid-19 recovery, which I assume is a few months away. I didn't initially set 1 year as a goal, even though it makes a nice milestone.
My advantage was just predicting that "stocks recover", and soon that advantage will be gone. After the experiment, I hope to return to indexing.
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The EU determined AstraZenica's vaccine needs a warning label for "very, very rare" risk of blood clots (10 in a million, I think). I don't know what age cutoff will be selected... certainly young people won't use it, but maybe anyone under 60. It looks like their vaccine will play a much smaller role in the recovery.
Brazil's emergency rooms are filling up rapidly, and their President believes in keeping the economy open at all costs. That's a lot of people spreading Covid, in a country that has already created one Sars-cov-2 variant.
That plus lockdowns in Europe (maybe India, soon) suggests it will take longer for a recovery than previously thought. I'm certainly seeing recovery stocks struggle. The experiment has dropped to +68% ahead of the market.
Benchmark (VTI) 65.00% vs Experiment 133.00%
DIN 146.00% / M 135.00% / DXPE 118.00%
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Perhaps a second experiment is in order. Using the following data...
https://ourworldindata.org/grapher/share-people-vaccinated-covid (https://ourworldindata.org/grapher/share-people-vaccinated-covid)
...compare the performance of country-specific ETFs from the slowest vaccinators vs. the fastest.
Brazil (EWZ), Russia (RSX), Indonesia (EIDO), and India (INDA) would make up the slow team.
Israel (EIS), the UK (EWU), Chile (ECH), and the US (SPY) would comprise the fast team.
Yahoo finance offers good comparative charts.
https://tinyurl.com/zkfh92mk (https://tinyurl.com/zkfh92mk)
At first glance, it looks like Chile is an outlier, with a large negative 2-year return close to Brazil's, but with 6-month returns beating everybody else. The UK is also sucking wind, despite being in a very good place vaccination-wise. Blame the Brexit disaster. Israel's stock market has been on the same pace as the US's, and maybe their growth will come faster than expected because they are over 60% vaccinated.
Meanwhile Russia and Indonesia seem richly priced compared to their weak vaccination results. The new variants are set to wallop them and maybe close their economies.
The US is on a pace to vaccinate 10% of its population every month, suggesting the herd immunity level of, let's say, 70% is about four months away, i.e. early August. Many places in the world might not reach that point for another year, and could be expected to suffer the economic consequences. That's particularly true if interest rates rise.
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So...you're thinking buy long calls on the fast team's indexes, and puts on the slow team's?
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So...you're thinking buy long calls on the fast team's indexes, and puts on the slow team's?
That would be one way to play it, although I wonder if all these ETFs have enough options liquidity to support a real strategy.
Another way would be to simply go long the countries whose markets have not fully recovered compared to the progress they're making with vaccination, and avoid the others. Chile, the UK, and Israel look good according to this approach; Russia, Indonesia, and India look bad.
The US and other countries may be better off than they look. If 30% of the US population has had previous exposure to Covid in the past 12 mos, and an overlapping 33% is vaccinated, then one would expect only (1-.3)*(1-.33)= 47% of the population remains vulnerable to the bug. In practice everyone I know who ever got symptomatic Covid got in line to get the shot ASAP.
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Interesting post, thanks.
Will you do another experiment for April 2021 to April 2022?
In Q2-Q4 2020 and Q1 2021, returns matched the amount of risk taken. The stupider the bet, the returnier it was. Doomed companies like GME, money hemmoraging airlines and cruise lines, and all-but-out-of-business restaurant stocks living off of stock dilution - they were generally home runs. Bonds stank.
If the more risk = more return function continues to be the rule, then the past outperformance of risky stocks will tell us something about how to invest. However, the rules change sometimes. At some point more risk will = lower returns.
I think this sums it up quite nicely. The initial experiment was quite interesting but picking cigarette buds vs. the general market crosses too many comparison lines (size, value, Portfolio diversification) to really deliver any sort of insight with regard to Alpha, I would think.
Not to say that I don't enjoy some stock picking here and there, but I would pick more long-term companies that can make a real difference:)
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Jacob F - The stocks in the experiment were all "small/value" stocks when I bought them. The quote you claim "sums it up" leaves out most of the impacted sectors. It's not just the narrow focus on travel in ChpBstrd's post - there's retail, restaurants and entertainment. Are you fine if all of those sectors collapse? And even then, without Congress and the Fed stepping in, that creates a similar situation to the Great Depression. So I disagree that post "sums it up" or even covers the most significant areas that were impacted.
ChpBstrd - I'd encourage you to track a new experiment against the S&P 500. If you use Google Sheets, you can get prices updated automatically. Then divide by the original purchase price, subtract 1, and you have performance. I started doing it by hand, but I much prefer an automated calculation of how my experiment is doing.
I'm still waiting for Macy's and DXP Enterprises to recover (Dine Brands is already there). Looks like a rally for the experiment, up +75% over the market. Earlier this week it was +68%, and last week +72%. I expect things to get worse before recovery, but 1 in 5 Americans are now vaccinated, so who knows.
Benchmark (VTI) 67.00% vs Experiment 142.00%
DIN 154.00% / M 151.00% / DXPE 121.00%
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Jacob F - The stocks in the experiment were all "small/value" stocks when I bought them. The quote you claim "sums it up" leaves out most of the impacted sectors. It's not just the narrow focus on travel in ChpBstrd's post - there's retail, restaurants and entertainment. Are you fine if all of those sectors collapse? And even then, without Congress and the Fed stepping in, that creates a similar situation to the Great Depression. So I disagree that post "sums it up" or even covers the most significant areas that were impacted.
ChpBstrd - I'd encourage you to track a new experiment against the S&P 500. If you use Google Sheets, you can get prices updated automatically. Then divide by the original purchase price, subtract 1, and you have performance. I started doing it by hand, but I much prefer an automated calculation of how my experiment is doing.
I'm still waiting for Macy's and DXP Enterprises to recover (Dine Brands is already there). Looks like a rally for the experiment, up +75% over the market. Earlier this week it was +68%, and last week +72%. I expect things to get worse before recovery, but 1 in 5 Americans are now vaccinated, so who knows.
Benchmark (VTI) 67.00% vs Experiment 142.00%
DIN 154.00% / M 151.00% / DXPE 121.00%
Hi MustacheAndaHalf, I just think the current experiment portfolio does not have a similar risk attached to it than the S&P500. Therefore a comparison based on actual yield only just doesn't cover the full performance (yield compared to risk).
Using a sharpe ration or a jensen alpha would make sense though, but might have to get adjusted based on a three-factor or four factor (incl Momentum) to really cover all bases.
I agree of course that it was good and necessary for the government to step in. Good thing the Federal Reserve and other folks learned their lessons from the past.
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Hi MustacheAndaHalf, I just think the current experiment portfolio does not have a similar risk attached to it than the S&P500. Therefore a comparison based on actual yield only just doesn't cover the full performance (yield compared to risk).
Using a sharpe ration or a jensen alpha would make sense though, but might have to get adjusted based on a three-factor or four factor (incl Momentum) to really cover all bases.
I acknowledge the experiment is riskier than the S&P 500, but none of the things you describe are priced on the stock market. I'm not looking to prove or disprove a theoretical model, but to compare investment performance to a benchmark.
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On the topic of risk, here's the beta of each stock in the experiment:
Macy's (+160%, beta 2.15) ... divided by beta, 74.4%
DXP Enterprises (+123%, beta 2.61) ... divided by beta, 47.1%
Dine Brands (+154%, beta 2.15) ... divided by beta 71.6%
==> Experiment adjusted for 2.15-2.61 beta, +64.4%
Since the experiment began a year ago, it's gained +146% versus the market's +68%.
Benchmark (VTI) 68.00% vs Experiment 146.00%
DIN 154.00% / M 160.00% / DXPE 123.00%
The risk of blood clots with AstraZenica's vaccine (1 in 100k) hopefully won't cause equal fear over J&J's vaccine (1 in a million). But right now, Pfizer and Moderna are looking much better than their competitors.
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The experiment has dropped 18% since a week ago, while the market dropped just 2%. That leaves it +62% ahead of the market.
Benchmark (VTI) 66.00% vs Experiment 128.00%
DIN 142.00% / M 136.00% / DXPE 107.00%
I'm not exactly sure what explains the volatility right now. If it was inflation fears, I would expect government bond yields going up (keeping pace with inflation). If it's reopening being delayed ... the U.S. has consistently increased the number of vaccines administered per day, now closing in on 5 million/day (but not there yet).
I suspect it's the fear and suspicion around all the non-mRNA vaccines. Pfizer and Moderna's vaccines remain untouched by fears of blood clots, but AstraZenica and J&J vaccines are still being measured (and suspended in some cases until then). And then the top Chinese health official admitted their SinoVac vaccines "don't have very high protection rates", which may have added to concerns over vaccines.
https://abcnews.go.com/Health/wireStory/official-chinese-vaccines-effectiveness-low-77002863
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This has me perplexed as well. The market, at large, is selling off. But why? why such a red day? Why such a red week? No real answeres, just the computers doing their thing, I guess.
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The COVID picture is getting a lot worse in India, South America, and parts of Europe. Much of the world faces lockdown.
https://www.aljazeera.com/news/2021/4/10/fresh-virus-lockdowns-around-the-world-as-vaccine-efforts-stumble (https://www.aljazeera.com/news/2021/4/10/fresh-virus-lockdowns-around-the-world-as-vaccine-efforts-stumble)
Treasury rates have been falling since about 4/12 (so much for the inflation scare all over the media).
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The COVID picture is getting a lot worse in India, South America, and parts of Europe. Much of the world faces lockdown.
https://www.aljazeera.com/news/2021/4/10/fresh-virus-lockdowns-around-the-world-as-vaccine-efforts-stumble (https://www.aljazeera.com/news/2021/4/10/fresh-virus-lockdowns-around-the-world-as-vaccine-efforts-stumble)
Treasury rates have been falling since about 4/12 (so much for the inflation scare all over the media).
Did I miss my opportunity to buy bonds??
Dang, blink and you miss it!
At least this thread is educational. :)
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Worth noting that the Covax program depends mostly on AstraZenica, so if AstraZenica has serious problems, that translates directly to a delay for poorer countries getting vaccinated. That draws out the pandemic and gives opportunities for Covid-19 variants to overcome existing vaccine/antibody protection.. potentially.
The COVID picture is getting a lot worse in India, South America, and parts of Europe. Much of the world faces lockdown.
https://www.aljazeera.com/news/2021/4/10/fresh-virus-lockdowns-around-the-world-as-vaccine-efforts-stumble (https://www.aljazeera.com/news/2021/4/10/fresh-virus-lockdowns-around-the-world-as-vaccine-efforts-stumble)
From that article:
"Every weekend, from Saturday until the end of April, Maharashtra’s 125 million people will be confined to their homes unless travelling or shopping for food or medicine"
India as a whole isn't reflected in the intensity of Covid-19 in that one state, which is 10% of India's population. To put it in perspective, India has 3x more cases than France, but 20x more population. When ranking countries by cases/1M population, India ranks in the lower half of the world, at #121 or so.
https://www.worldometers.info/coronavirus/#countries
(You need to click the column to sort by, like "Tot Cases / 1M pop")
The media do a poor job of putting things in perspective, so they say things like the U.S. is the "most affected country" while ignoring 7 countries ahead of the U.S. on a per capita count (not that the U.S. shouldn't pride itself on doing slightly better than Czechia or Luxembourg).
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The experiment is 60% ahead, but not looking good on a risk adjusted basis.
Benchmark (VTI) 66.00% vs Experiment 126.00%
DIN 140.00% / M 139.00% / DXPE 99.00%
My recovery estimates (that stocks recover to the same market cap) suggest Macy's median recovery of +16%, while DXPE might have +30% to go. DIN stock has already recovered, but the experiment is an "all or none" sort of deal, so it wasn't sold off here.
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In the past trading day until now, the experiment gained +9% while the market gained +2%. Looks like another reopening day, with the experiment now +69% ahead.
Benchmark (VTI) 68.00% vs Experiment 137.00%
DIN 146.00% / M 155.00% / DXPE 110.00%
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The rest of Friday's trading added +1% to both experiment and it's benchmark (VTI, Vanguard Total Stock Market). I assume re-enabling J&J will help the reopening in the U.S., especially for hard to reach areas that favor a single dose vaccine.
Benchmark (VTI) 69.00% vs Experiment 138.00%
DIN 146.00% / M 154.00% / DXPE 113.00%
I understand India has some cities that have been hit very hard - any news site will give you those details. They will say 347k is the most cases in the world... after all, France only had 32k cases that day. What they won't do is divide. In India, 1 in 4,000 people got sick Friday... in France, 1 in 2,000 got sick. Per capita, France suffered worse than India on Friday, which goes completely unmentioned. So that's one flaw with the media's obsession for big numbers, and reluctance to do math.
https://www.worldometers.info/coronavirus/country/france/#graph-deaths-daily
https://www.worldometers.info/coronavirus/country/india/#graph-cases-daily
India is certainly spiking and could pass France. But right now, cases divided by population shows France is in worse shape than India.
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(I won't edit any of my posts, since this thread is intended as a record of my experiment. But I think "worse shape" ignores various factors, and I wish I had concluded with "France has more cases per capita than India".)
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(I won't edit any of my posts, since this thread is intended as a record of my experiment. But I think "worse shape" ignores various factors, and I wish I had concluded with "France has more cases per capita than India".)
Fair comment. Maybe you already have noted the articles saying things like "India's hospitals are overwhelmed." Not sure if that's nationwide or if France is free from overwhelmed hospitals, just assuming that if hospitals are swamped, it might have a chilling effect on a nation's economy. Is that what you're thinking now too?
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One thing it leaves out is France having more hospital capacity than India, so with rising cases in both countries, India will fill up it's hospitals first. I forget the exact numbers, but France's per capita hospital beds are an order of magnitude higher than India's. So with India at capacity, and France with twice as many cases (per capita), France still has 5x to go.
France is also heading lower while India is spiking higher, so India will probably remain in worse shape despite fewer cases per capita. Yet every media outlet says the same thing "record number of cases", and ignores that India has a population of 1.4 billion people. From last March to now, I have yet to see the media attempt math.
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The experiment has gained +137% since it started, and the stock market +69%, leaving the experiment +68% ahead.
Benchmark (VTI) 69.00% vs Experiment 137.00%
DIN 145.00% / M 150.00% / DXPE 116.00%
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Yeah, as far as India is concerned, it's not the per capita counts as much as the lack of hospital beds and, worse, oxygen. there just isn't enough for all the people who need it. And, of course, there are nicer areas that can handle the influx and poorer areas that can't.
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From what I've read, India is still in the "government denial" stage, like the U.S. early in the pandemic or Brazil - still. Multiple articles claim the governor of the richest area of India is sending police to hospitals to arrest people who claim they have no beds or are out of oxygen. Which is an insane denial of reality, but then India's Prime Minister held huge political rallies that are certainly looking unwise in hindsight. It will be interesting to see how much they censor reality, while claiming to be a democracy.
Which is a bit of a tangent, but one of my personal portfolio's Covid stocks is actually a company in India. Maybe I should be selling some now, to buy back later - India seems to be getting worse before it gets better. Other countries, while helping, are also imposing restrictions on travelers from India.
Back to the 3 U.S. stocks in the experiment: up +67%. Which is surprising, since Macy's was up +5% in the pre-market ... but now I see it's down -1%.
Benchmark (VTI) 70.00% vs Experiment 137.00%
DIN 144.00% / M 157.00% / DXPE 109.00%
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Humanitarian concerns aside, I wonder when the pandemic will be reflected in the Indian stock market? With a PE ratio of about 33, this market is not cheap, and is reliant upon forecasted future growth (forward PE is 21.5). Yet INDA continues to climb higher despite the unfolding disaster. Not even a blip. It's up 1% today on the latest news from the massacre.
We learned in the US that it doesn't matter how many hundreds of thousands of people die, how many small businesses collapse, or how many hospitals are overwhelmed. The market's value is set by stimulus measures alone. Are investors taking their cheap margin in the US and buying the SENSEX? Is the pandemic in India not affecting anyone's forward earnings projections? Given that millions of Indians will die, are some investors seeing this as a good thing for earnings growth (e.g. increasing the likelihood Modi is no longer PM, stimulating spending due to inheritance from the dead, or reducing inflationary pressures)?
I'd be reluctant to go short or long INDA, but I might be tempted by a short condor spread to bet on increased volatility. Either the pandemic catches up to Indian stocks or they go to the moon on the back of stimulus measures while millions suffer and die.
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Humanitarian concerns aside, I wonder when the pandemic will be reflected in the Indian stock market? With a PE ratio of about 33, this market is not cheap, and is reliant upon forecasted future growth (forward PE is 21.5). Yet INDA continues to climb higher despite the unfolding disaster. Not even a blip. It's up 1% today on the latest news from the massacre.
We learned in the US that it doesn't matter how many hundreds of thousands of people die, how many small businesses collapse, or how many hospitals are overwhelmed. The market's value is set by stimulus measures alone. Are investors taking their cheap margin in the US and buying the SENSEX? Is the pandemic in India not affecting anyone's forward earnings projections? Given that millions of Indians will die, are some investors seeing this as a good thing for earnings growth (e.g. increasing the likelihood Modi is no longer PM, stimulating spending due to inheritance from the dead, or reducing inflationary pressures)?
I'd be reluctant to go short or long INDA, but I might be tempted by a short condor spread to bet on increased volatility. Either the pandemic catches up to Indian stocks or they go to the moon on the back of stimulus measures while millions suffer and die.
The U.S. is approaching 600k deaths with 25% of the population. So could India's stock market do well despite 2.5 million deaths? That's an order of magnitude away from India's 200k reported deaths.
But India is widely considered to be under-reporting Covid deaths. They don't have a national system in place... people rejected from hospitals aren't counted... people who die at home aren't counted. So their 200k deaths is a questionable figure. Even doubling it, that would be like 100k deaths in the U.S., which was passed long ago.
During the U.S. lockdowns, tech giants soared because people depended on them. It still amazing that 4 companies are 20% of the S&P 500's total market cap. But that also means while people are miserable during a lockdown, some companies do very well, and their stock goes up. The same could be true in India.
Last year I invested in short-term put options on various Covid sensitive stocks. I nailed the timing of the outbreak, which was just exponential math. But governors denied reality, and people went along with it - I could not predict people's reaction. So rather than short India, I would wait for an apparent low point and buy.
By the way, I owned the 2x leveraged India ETF (INDL) for part of last year, but decided there were better investments elsewhere and shifted my money out.
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Looks like it's the experiment's day to shine a little bit:
Benchmark (VTI) 70.00% vs Experiment 142.00%
DIN 162.00% / M 154.00% / DXPE 111.00%
Now +72% ahead on optimism... that, based on experience, I don't expect to last. U.S. President Biden predicts July 4th for reopening (based on vaccination progress, mostly) and NY Mayer de Blasio claimed 100% open for NY on July 1st. So maybe in 2 months, the reopening stocks will take hold.
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Stocks and bonds are again diverging.
10y Treasury on 4/2: 1.72%
10y Treasury on 4/28: 1.63%
2y Treasury on 4/2: 0.19%
2y Treasury on 4/28: 0.17%
3mo Treasury on 4/2: 0.02%
3mo Treasury on 4/28: 0.01%
So it appears some market participants are flying to safety while others are piling into risk. In 2020, the stock market was right and the bond market was wrong. That was unusual. Can the stock market be right 2 years in a row? I'm betting yes.
I'm also betting inflation won't be an issue. Inventories are back up to 2018 levels and climbing and the personal savings rate is still double our typical levels.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield)
https://fred.stlouisfed.org/series/BUSINV (https://fred.stlouisfed.org/series/BUSINV)
https://fred.stlouisfed.org/series/PSAVERT (https://fred.stlouisfed.org/series/PSAVERT)
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I also see that in fund inflows for BND vs VTI
https://etfdb.com/etf/BND/#fund-flows
https://etfdb.com/etf/VTI/#fund-flows
But I expect investors to panic out of bonds when inflation kicks in. I don't know if inflation will be a reopening event that calms down, or if it will last longer. But I don't expect investors to have patience to find out.
Benchmark (VTI) 70.00% vs Experiment 143.00%
DIN 164.00% / M 152.00% / DXPE 112.00%
I could wait until President Biden's reopening date of July 4th to see how well stocks do, which assumes Covid sensitive stocks will beat the market over the next 2 months. Europe seems willing to allow vaccinated American tourists to visit, so that reopening will probably include international travel and cruises.
Here's how I see the upcoming events:
"July 4" : the U.S. reopens - including tourism to Europe
summer : movies / travel / sports see higher than expected revenues
fall : new revenues are big, but smaller when divided by new, higher share counts
winter : revenues revert, and many companies haven't bought back shares
With that guesstimate in mind, I would need to wait for summer and see if stock prices spike as preliminary data indicates greater than expected travel and economic activity. And then I need to sell before those numbers get divided by much larger numbers of shares (for some, not all, companies).
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I agree with your assessment except for one thing: I don't think we'll see inflation.
The Fed has basically said they'll do everything they possibly can to shut down inflation and extend the ridiculously low interest rates. As long as that remains true, I don't see how we could see meaningful inflation. Plus, if they change that policy before the media and the culture think things are "normal", there's going to be significant political push back for "stealing money from the poor" even if the inflationary monetary actions don't meaningfully increase spending on household / everyday goods.
There's obviously a lot of factors I'm not even pretending to take into consideration in the above, but the Fed has said they're going to keep doing what they've been doing and there's no reason to think that they'll change in the next 8-12 months.
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The big theme of the last few weeks has been investors trying to anticipate what happens 6-18 months from now with inflation and interest rates. Here are some possibilities:
1) High Inflation, High Interest: Inflation zooms up to 4% or higher upon post-pandemic reopening and pent-up consumer demand. Unemployment dips below 5%. The Fed raises rates by 2% in a series of moves starting in 2022, and dials back QE. Stocks and real estate enter a multi-year bear market by the 2nd half of 2021, in anticipation of the rate increases. In late 2022, a number of funds and financial institutions nearly collapse from losses in the bond markets, and a financial crisis occurs. Whereas "CDO's" was the new term everyone learned in 2008, "bond convexity" is the term everyone learns in 2022.
2) High Inflation, Low Interest: Inflation zooms up as described in #1, but the Fed takes a wait-and-see approach with interest rates, as they've already said they would, because they've spent the past 20+ years missing inflation targets and killing expansions by prematurely raising rates. Some investors begin to fret about a return to the 1970's, and their selling roughly balances the benefit of low interest rates for corporate and margin debt. Stocks and bonds have a choppy but roughly flat couple of years in nominal terms. Real estate and commodities boom. Stock valuations normalize despite the low interest rates, creating attractive arbitrage opportunities between borrowing rates and earnings growth, especially for commodities companies.
(3) Low Inflation, High Interest: The narrative shifts from inflation panic to bubble panic as the Fed makes statements of concern about the threat of asset bubbles in investments and real estate. In a scene reminiscent of the series of rate increases in 1999-2000, the Fed raises rates 1% in a series of moves intended to ensure inflation doesn't get out of control and to deflate asset bubbles. Stocks and real estate enter bear markets, while bonds are modest losers. For the throwback giggles see: https://money.cnn.com/2000/03/21/economy/fomc/ (https://money.cnn.com/2000/03/21/economy/fomc/)
4) Low Inflation, Low Interest: Inflation reaches 3.5% in the summer of 2021, only to retreat back to 2% by the first quarter of 2022. The Fed, true to its verbal commitment, holds rates low during this time and continues QE. It appears the US is back on its decades-long trend line of low inflation and low interest rates, driven by the same disinflationary forces that have held down inflation for over a decade. Stocks and real estate boom as we proceed through another multi-year bull market similar to 2009-2019 or 1992-1999.
My vote is that #4 happens. If I was to rank their chances, I'd pick:
#1: 10%
#2: 25%
#3: 10%
#4: 55%
According to this estimate, I should maybe target the commodities and REIT sectors (particularly mREITs) in order to get the combined odds of #2 + #4, but in reality such a strategy might do worse than the market in the event of #4 and these companies may be too richly valued to do better than bonds in #2. Plus, I'd be increasing my exposure to the high inflation scenarios of #1 and #3, in which leverage and dependency on capital markets would be severely punished.
Conclusion: Sticking to index funds.
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I agree with your assessment except for one thing: I don't think we'll see inflation.
The Fed has basically said they'll do everything they possibly can to shut down inflation and extend the ridiculously low interest rates. As long as that remains true, I don't see how we could see meaningful inflation.
What is your source for that statement?
Inflation has been below the Fed's target of 2%. Last year the Fed announced it will use inflation averaging, where it allows inflation to run above it's target to balance out the previous period of low inflation. Based on what I've read and heard from Fed watchers, I expect the Fed to allow inflation to increase - the direct opposite of your claim.
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I agree with your assessment except for one thing: I don't think we'll see inflation.
The Fed has basically said they'll do everything they possibly can to shut down inflation and extend the ridiculously low interest rates. As long as that remains true, I don't see how we could see meaningful inflation.
What is your source for that statement?
Inflation has been below the Fed's target of 2%. Last year the Fed announced it will use inflation averaging, where it allows inflation to run above it's target to balance out the previous period of low inflation. Based on what I've read and heard from Fed watchers, I expect the Fed to allow inflation to increase - the direct opposite of your claim.
I am basing it on their comments not to increase interest rates and a willingness to keep buying debt through the next year.
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I agree with your assessment except for one thing: I don't think we'll see inflation.
The Fed has basically said they'll do everything they possibly can to shut down inflation and extend the ridiculously low interest rates. As long as that remains true, I don't see how we could see meaningful inflation.
What is your source for that statement?
Inflation has been below the Fed's target of 2%. Last year the Fed announced it will use inflation averaging, where it allows inflation to run above it's target to balance out the previous period of low inflation. Based on what I've read and heard from Fed watchers, I expect the Fed to allow inflation to increase - the direct opposite of your claim.
I am basing it on their comments not to increase interest rates and a willingness to keep buying debt through the next year.
Changing nothing is not "do everything they possibly can to shut down inflation", to quote your prior post.
Here's a quote from the Federal Reserve:
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent."
https://www.federalreserve.gov/newsevents/pressreleases/monetary20210127a.htm
A goal of "inflation moderately above 2 percent for some time" sounds like the opposite of "do everything they possibly can to shut down inflation".
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The experiment made another jump in the past day or so, rising to +83% ahead of it's benchmark. Since everything but DIN is down today, maybe it was yesterday's gains.
Benchmark (VTI) 67.00% vs Experiment 150.00%
DIN 163.00% / M 161.00% / DXPE 124.00%
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Covid sensitive stocks seem to have random up or down days recently. For me, I think it's better to check on stocks less often when that happens. So that might translate into fewer updates, say weekly.
The week ends with gains for VTI, and larger gains for the experiment, up +86% against it's benchmark.
Benchmark (VTI) 70.00% vs Experiment 156.00%
DIN 167.00% / M 165.00% / DXPE 134.00%
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"Update that fully vaccinated people no longer need to wear a mask or physically distance in any setting ..."
https://www.cdc.gov/coronavirus/2019-ncov/vaccines/fully-vaccinated-guidance.html
Which brings things one step closer to reopening. I believe 1/3rd of Americans are fully vaccinated, and about 3/5th have received at least one jab. There's one month wait between first and second jabs, so a month from now about 3/5th of Americans should be fully vaccinated.
Over the past week, both experiment and it's benchmark dropped 2%.
Benchmark (VTI) 68.00% vs Experiment 154.00%
DIN 162.00% / M 171.00% / DXPE 129.00%
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I disagree with claims the reopening trade is over. Take oil company Occidental Petroleum (OXY), which lost 80% of it's value when the pandemic started - a very clear correlation. When vaccines were announced in November, it rocketed back up. OXY is still down -50%, so in a full recovery to 2019 levels it could double.
Airline travel isn't back to normal. Business travel is significant to airline revenues, and yet opinions are split on how much damage Zoom has done to it. But something odd is happening with airlines comparing Jan 1 2020 prices to now:
AAL was $29 ($20 after stock dilution) and is now $22.57
UAL was $90 ($68 after dilution) and is now $55
DAL was $58 (still $58) and is $45 now
LUV was $55 ($47 with dilution) and is $60 now
Some airlines (American, Southwest) are 10% higher than at the start of 2019, while others need a +25% gain to recover. It's an odd situation given the debt airlines have taken on and the lack of normal travel schedules. I don't think it's just the recovery at work.
The experiment remains +82% of it's benchmark. Macy's is sometimes fully recovered, sometimes not - there is a WSB influence in it's stock price, like the March spike above $20/share when I sold a lot of shares.
Benchmark (VTI) 67.00% vs Experiment 149.00%
DIN 150.00% / M 173.00% / DXPE 125.00%
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I disagree with claims the reopening trade is over. Take oil company Occidental Petroleum (OXY), which lost 80% of it's value when the pandemic started - a very clear correlation. When vaccines were announced in November, it rocketed back up. OXY is still down -50%, so in a full recovery to 2019 levels it could double.
Airline travel isn't back to normal. Business travel is significant to airline revenues, and yet opinions are split on how much damage Zoom has done to it. But something odd is happening with airlines comparing Jan 1 2020 prices to now:
AAL was $29 ($20 after stock dilution) and is now $22.57
UAL was $90 ($68 after dilution) and is now $55
DAL was $58 (still $58) and is $45 now
LUV was $55 ($47 with dilution) and is $60 now
Some airlines (American, Southwest) are 10% higher than at the start of 2019, while others need a +25% gain to recover. It's an odd situation given the debt airlines have taken on and the lack of normal travel schedules. I don't think it's just the recovery at work.
The experiment remains +82% of it's benchmark. Macy's is sometimes fully recovered, sometimes not - there is a WSB influence in it's stock price, like the March spike above $20/share when I sold a lot of shares.
Benchmark (VTI) 67.00% vs Experiment 149.00%
DIN 150.00% / M 173.00% / DXPE 125.00%
I think each stock has its explanation. Looking at OXY for example, they issued 33M new shares, blew through piles of cash, and went from a debt/equity ratio of 1.16 at the end of 2019 to 1.84 at the end of 2020. Since 2019, they went from an A credit rating to BB. In a financial sense, they are a very different company now and shareholders can only wish OXY was worth what it was at the end of 2019.
I'm sure the airlines and physical retailers have similar stories.
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I think each stock has its explanation. Looking at OXY for example, they issued 33M new shares, blew through piles of cash, and went from a debt/equity ratio of 1.16 at the end of 2019 to 1.84 at the end of 2020. Since 2019, they went from an A credit rating to BB. In a financial sense, they are a very different company now and shareholders can only wish OXY was worth what it was at the end of 2019.
I'm sure the airlines and physical retailers have similar stories.
How do you explain the United States Oil Fund (USO) being down 55% in 2 years? It can't go bankrupt, or take on debt, or any of the other problems you described And yet it's down a similar amount.
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@ChpBstrd, thanks for the OXY example. It's educational for me because it illustrates how important knowledge of an individual stock can be, rather than assumptions that a particular stock will perform according to general principles.
It's also pertinent because (full disclosure) I own a few OXYWS. Any thoughts about how to value OXYWS vs OXY, and whether OXYWS are already fully valued (or overpriced)?
Other commenters welcome too!
PS. Sorry if this is a thread derail. For me it's related! :)
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I think each stock has its explanation. Looking at OXY for example, they issued 33M new shares, blew through piles of cash, and went from a debt/equity ratio of 1.16 at the end of 2019 to 1.84 at the end of 2020. Since 2019, they went from an A credit rating to BB. In a financial sense, they are a very different company now and shareholders can only wish OXY was worth what it was at the end of 2019.
I'm sure the airlines and physical retailers have similar stories.
How do you explain the United States Oil Fund (USO) being down 55% in 2 years? It can't go bankrupt, or take on debt, or any of the other problems you described And yet it's down a similar amount.
USO is an ETF that trades futures in an attempt to approximate the daily change in the price of light sweet crude. Like VIXY and a number of other daily trackers, the fund's long-term performance will deviate from the underlying index. Looks like it got wiped out pretty hard in early 2020, and has since gone up 44% from the bottom. This is to be expected given what the fund is. It genuinely is worth exactly what it is selling for, just like OXY, because the losses of 2020 did occur and did reduce the value of assets. In the case of USO, it was the value of a constantly-rolling portfolio of futures contracts. For OXY, it was cash, shareholder's equity, and perhaps some real assets. I didn't research if OXY sold assets, but on its balance sheet Net Tangible Assets declined by 47% during 2020.
@BicycleB Re: OXYWS, your warrants will have in intrinsic value of OxyStockPrice - $22 plus an element of time value just like a call option. The time value will deteriorate over time at an accelerating pace. Meanwhile, the intrinsic value will track the value of OXY. You'll need to use an online option price calculator to estimate the fair value you should be willing to accept. Looks like liquidity is so low most sites do not quote those warrants.
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Although traded on the stock market, Oxy-wt is a derivative investment - a call option. Keep in mind you're buying the right to purchase OXY stock at $22/share in Aug 2027. It sells for $10.50/sh now, so the break even point is $32.50/sh in 6 years. If Occidental Petroleum stock averages +7%/year for 6 years, you'll break even.
Oxy calls are probably my largest holding, at over 5% of my NW. So I think there's room for recovery in front of Occidental Petroleum, but their debt could very well be why they are discounted relative to other oil producers. (Price per output is another metric, which shows OXY is cheap - if it can pay it's debts). It would have been more accurate to replace DIN stock with OXY in the experiment last year, when I sold DIN. Oh well.
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CNBC says "reopening stocks continue to rally", which I think fits my view:
https://www.cnbc.com/2021/05/24/stock-market-futures-open-to-close-news.html
An example is Footlocker's CEO, who said as schools reopen that could drive sales of shoes. The same thing applies for many retailers in the face of uncertainty over which schools will be open. That might be why Macy's is up +3.5% today while the S&P 500 is currently flat.
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Biased update - I'm suddenly posting a midweek update on the experiment, right after M stock gained +3.5%. It will be interesting to see how it compares with the end of this week.
The experiment is +82% ahead of it's benchmark. Better than a month ago, but worse than a couple weeks ago. And despite Macy's jump today, +82% is the same as where last week ended.
Benchmark (VTI) 69.00% vs Experiment 151.00%
DIN 150.00% / M 179.00% / DXPE 123.00%
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Between my "biased update" and the weekend, both benchmark and experiment rose +1%, so the +82% gap between experiment and benchmark remains.
Benchmark (VTI) 70.00% vs Experiment 152.00%
DIN 156.00% / M 174.00% / DXPE 124.00%
I'm still seeing lots of volatility in recovery stocks, which is an indication they are not settled yet. My new nemesis is "Investco Mortgage Capital" (IVR). I need to double-check, but I think the IVR calls I bought last year are currently losing money, while most recovery stocks have more than doubled. On the opposite end, my oil stock investing has done amazingly well, making up for it. I figured "stocks recover", which is why I bought those stocks plus the three in this experiment.
I currently hold DXPE shares and calls on Macy's, but sold DIN stock long ago.
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I agree with you on IVR. I wasn't expecting a full recovery, but I figured they would be up quite a bit by now - especially since they've pivoted so hard into traditional mortgages.
No calls, just regular shares for me on this one. But they need to get aggressive over the next quarter. Increase the dividend or aggressively grow the portfolio to get that book value up. Seems like now is the time for mortgage companies to be going after it - especially ones who sold off so much at the beginning of COVID.
Since I don't have options on this one, it's pretty easy for me at this point - either they start doing something interesting or I'm probably going to sell off next quarter.
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When I started the experiment, I bought stocks (later call options) that were beaten up, expecting that stocks recover. And I've seen most stocks have recovered - but IVR is within 1% of it's March 2020 price, after the stock fell off a cliff. Would I buy IVR calls now, knowing what I know? My answer is no, so it's time to unwind it as I close other positions.
President Biden's goal is reaching 70% by July 4th, putting the U.S. in the range of herd immunity. It would be nice if the recovery had an official date, but there's uncertainty involved. Herd immunity might require a higher percentage... vaccinations are slowing... variants are evolving in unvaccinated populations.
Experiment drops to +78% ahead of the U.S. Total Stock Market (VTI). That's about where the experiment was in mid-April.
Benchmark (VTI) 71.00% vs Experiment 149.00%
DIN 146.00% / M 169.00% / DXPE 130.00%
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Macy's is up +7% today, bringing it close to tripling since the experiment started. That's probably why the 3 stocks in the experiment are +93% ahead of the market since this began.
Benchmark (VTI) 71.00% vs Experiment 164.00%
DIN 160.00% / M 198.00% / DXPE 135.00%
Whenever Macy's stock surges, I tend to sell some of my call options. I'm getting close to selling the rest of them, leaving me with just DXPE shares from this experiment.
The stock I complained earlier about surged today, so I sold about 1/10th of my IVR call options. And the stock is still moving up (+26% so far), so if you'll excuse me I need to do some more selling.
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Ha! I came here to talk about that exact thing!! IVR exploded yesterday. I think it’s getting meme’d.
Like you said, time to sell a bit!
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In late August last year, I bought a lot of 2022 Macy's calls (for under $2/sh), and sold my Macy's stock. Those calls were tied to the recovery, and I finished selling them this past week (for over $11/sh, on average). That was my recovery investment, which is part of what inspired this experiment.
I've sold my Macy's 2022 calls and my DIN stock. The only stock I hold that overlaps the experiment is DXPE, a supply chain company. The economy lurching back life has caused supply chain problems, but as those get worked out, I would assume DXPE recovers. When I sell my DXPE stock, I plan to end the experiment.
But until then, the equal weight combination of Macy's, DXP Enterprises and Dine Brands has beat Vanguard Total Stock Market by +88% since the experiment started.
Benchmark (VTI) 72.00% vs Experiment 160.00%
DIN 151.00% / M 192.00% / DXPE 136.00%
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Good deal! Congrats on closing those positions, and thanks for the update.
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Recently the UK pushed back it's reopening date because of the new "delta variant" of Sars-cov-2. The new variant is much more contagious (+50% possibly) and causes much higher rates of hospitalization (possibly double). The experts I've heard suggest at least 70% of people must be fully vaccinated for herd immunity - where the coronavirus can't easily find new hosts. But that does not consider the new, more contagious variant - and no country has reached 70% anyways.
The experiment fell back to +83% ahead of the market, so the reopening continues. DXPE is currently $32/share. If it hits $37/sh, I'd call it fully recovered. So sometime near that point, I'll probably sell my DXPE (and end the experiment).
Benchmark (VTI) 71.00% vs Experiment 154.00%
DIN 147.00% / M 180.00% / DXPE 134.00%
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The experiment lost 16% in a couple days, right after the FOMC (Federal Open Market Committee) meeting, leaving it +67% ahead of it's benchmark.
Benchmark (VTI) 69.00% vs Experiment 136.00%
DIN 132.00% / M 166.00% / DXPE 111.00%
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This past week I sold off 1/3rd of my DXPE shares, bringing me closer to the end of this experiment.
Apparently June 19 was a blip, as the experiment is back to +85% ahead:
Benchmark (VTI) 73.00% vs Experiment 158.00%
DIN 140.00% / M 195.00% / DXPE 139.00%
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Looks like it's too soon for the experiment to end, as fears over the Delta variant of Sars-cov-2 have impacted Covid sensitive stocks. Since my June 27 post, the experiment has dropped 18%, leaving it +66% ahead of it's benchmark.
Benchmark (VTI) 74.00% vs Experiment 140.00%
DIN 125.00% / M 162.00% / DXPE 134.00%
Lucky for me, DXPE dropped the least of the 3 stocks in the experiment. Most of the loss was caused by Macy's falling 33%, which accounts for 11% of the drop for the experiment.
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The experiment has fallen back to where it was in the first week of March 2021. The U.S. currently has the most cases in the world by far - more than the next 12 countries combined.
https://www.worldometers.info/coronavirus/#countries
Benchmark (VTI) 73.00% vs Experiment 135.00%
DIN 121.00% / M 154.00% / DXPE 129.00%
I haven't increased my holdings in these companies, but I've made some investments in other Covid sensitive stocks. Like last year, at some point I expect a recovery.
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It looks like the rapid drops of last week have almost been reversed by the gains from this week (so far). The experiment is up +63% against it's S&P 500 benchmark since it started.
Benchmark (VTI) 75.00% vs Experiment 138.00%
DIN 117.00% / M 162.00% / DXPE 136.00%
I'm surprised the last 30% of Americans don't want to get vaccinated. I expected the reluctance to kick in closer to 10% - the people who were against vaccines before the pandemic started.
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I'm surprised the last 30% of Americans don't want to get vaccinated. I expected the reluctance to kick in closer to 10% - the people who were against vaccines before the pandemic started.
Well we certainly can't hold the spreaders of misinformation accountable, or the platforms that profit from the spread of misinformation. That would violate their constitutional right to spread misinformation during a pandemic, causing hundreds of thousands of deaths.
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I'm surprised the last 30% of Americans don't want to get vaccinated.
Well we certainly can't hold the spreaders of misinformation accountable, or the platforms that profit from the spread of misinformation. That would violate their constitutional right to spread misinformation during a pandemic, causing hundreds of thousands of deaths.
Yeah, if you are 100% responsible for one death, it's murder. But if you cause large numbers of people to take on a 5-10% chance of death, it's not a problem.. hmm!
In the meantime, we're in the reopening part 2, with the experiment dropping to +56% ahead of the market. But it might not make sense to invest in these companies. Take DXPE, which maybe goes up +12% from here. It might go up from $32.15 to $36, a gain of $3.85. But the experiment bought DXPE for $13.78/sh, which makes that same $3.85 into a +28% gain. A lower starting price means higher percentage gain relative to the starting price.
Benchmark (VTI) 76.00% vs Experiment 132.00%
DIN 109.00% / M 153.00% / DXPE 133.00%
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Here’s an interesting quantification of how many COVID cases were undercounted. These researchers came up with 60% as the number. This estimate is much lower than the 5X numbers I was thinking.
https://apple.news/A1dkRr6whTa-LE5RXhqhtIg (https://apple.news/A1dkRr6whTa-LE5RXhqhtIg)
This news means we are much farther than I thought from herd immunity, particularly in low vaccination states. If, as the authors said, only 20% of Americans had been infected as of spring 2021, and only 50% vaccinated, then the percentage of people with zero immunity is around 40%. In states with <40% vaccination like mine, that number would be >50%.
With full reopening appearing to be a permanent thing and laws prohibiting masks in schools in several states, we can expect a big spike in August-September this year. I think I’ll dial back my leverage in some accounts from 300% to 100% as I await this opportunity. I’m also reconsidering a bull spread on TLT, because the inflation narrative is about to hit the dustbin of financial news history.
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The stock market reflects the business side of things - production and consumption. I think the reopening of the economy is mostly about consumption. So when you worry about states with lower vaccination rates, how much consumption is impacted?
Take the 5th worst state by vaccination rate, Alabama at 42%. Wikipedia's page for Alabama only has their GDP from 2008, at $170 billion. California is listed as having a GDP almost 20x higher, making California much more significant to the stock market. California has an above average vaccination rate. I think it's important to view the economic impact.
There's also something that isn't clear from a single stat. It's young people, who have less risk of death, who are least willing to get vaccinated. Alabama may average 42%, but those age 65+ are 73% fully vaccinated. Add in 65+ people with one dose, and the elderly have almost double the vaccination rate of the state average. The people most at risk are getting vaccinated at high rates, even in state where the average is low.
https://www.mayoclinic.org/coronavirus-covid-19/vaccine-tracker
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Up +64% against it's benchmark, on the slow road to recovery.
Benchmark (VTI) 78.00% vs Experiment 142.00%
DIN 110.00% / M 179.00% / DXPE 137.00%
I've read that the Delta variant of Sars-cov-2 can by spread by people who are fully vaccinated. There might be no herd immunity, since if 80% are fully vaccinated, they could still pass along the Delta variant to the other 20%. So it sounds like the road to recovery will be even longer than I expected.
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Anecdotal reports suggest the delta variant changes the narrative about kids not being affected. In hard-hit, low-vaccinated Arkansas, reports are emerging that 19% of hospitalizations are now among those under age 18.
https://www.fayettevilleflyer.com/2021/08/03/secretary-of-health-nearly-19-percent-of-active-covid-19-cases-in-arkansas-are-in-children/ (https://www.fayettevilleflyer.com/2021/08/03/secretary-of-health-nearly-19-percent-of-active-covid-19-cases-in-arkansas-are-in-children/)
For reference, census.gov reports that 23.2% of the entire population of AR is under-18. So the hospitalization rate is tracking closely to the overall population there.
Overall I agree that a lot of low vaccination states have low economic relevance (TX and FL excluded) but I wonder if the delta variant has turned into something that will persuade highly vaccinated, economically relevant states to close schools or impose restrictions on dining.
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If the Covid sensitive stocks in the experiment are an indication, things are slowly improving as the experiment reaches +67% ahead of the U.S. stock market.
Benchmark (VTI) 78.00% vs Experiment 145.00%
DIN 105.00% / M 193.00% / DXPE 135.00%
Children go to school because they have to - they don't have a say in the matter. And it would be easy to mandate children lockdown, leaving the (voting) adults free of lockdowns. That seems more likely than a general lockdown - especially for people who have reached the President's 70% target. It looks like there is a road to recovery, provided there aren't more surprises from Sars-cov-2.
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DXPE's recent drop brings the experiment 7% lower by itself (21% loss / 3 stocks). Not a good time for the experiment, as legitimate fears of Delta variant continue. The experiment is just +57% ahead of the total stock market.
Benchmark (VTI) 79.00% vs Experiment 136.00%
DIN 109.00% / M 184.00% / DXPE 114.00%
I had some Jan 2023 Macy's calls that were not related to the experiment - I just planned to get leveraged returns next year. But I figure Macy's at $19.50/sh is probably good enough, and sold them.
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Wow, a week and a half since last update, but the experiment is up significantly thanks to Macy's, beating it's benchmark by 81%.
Benchmark (VTI) 80.00% vs Experiment 161.00%
DIN 111.00% / M 249.00% / DXPE 123.00%
Macy's is at $23/sh now, which I don't expect to last. In the experiment, Macy's is now 3.5x it's original investment, which means losses have 3.5x the impact. The original investment might be $100, but it's now $350. The experiment measures performance relative to the $100 starting amount, while the market measures performance from yesterday's closing price. That's how a $3.50 drop can be 1% drop for the market, and 3.5% relative to the $100 starting investment.
I still hold DXPE stock, so the experiment continues.
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If you look at Macy's YTD chart, you'll see a sharp spike on Mar 15 2021, where it hit $20.76. And now Macy's stock price has spiked again, ending last week at $23/share. There's an article about Macy's adapting Amazon's approach to online sales, which might be fueling the price jump. If Macy's captures market share, maybe that price is justified. But I bought Macy's for the recovery, so I've sold it.
Benchmark (VTI) 81.00% vs Experiment 165.00%
DIN 125.00% / M 245.00% / DXPE 126.00%
Macy's dropped slightly, but DIN and DXPE both rose, leaving the experiment +84% ahead of it's benchmark.
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Employment numbers are reflecting the impact of the Delta variant (of Covid-19).
While the benchmark gained +1% since my last update, all of the individual stocks have dropped. DIN -5%, M -19%, DXPE -15%. The experiment falls back to +70% ahead of the overall U.S. stock market (represented by VTI).
Benchmark (VTI) 82.00% vs Experiment 152.00%
DIN 120.00% / M 226.00% / DXPE 111.00%
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Depending how the Delta variant goes this winter, it might become a completely new experiment.
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Depending how the Delta variant goes this winter, it might become a completely new experiment.
Once I sell my DXPE shares, I will end the experiment.
Speaking of which, DXPE's performance is exactly +100% according to my spreadsheet. So I double checked, and it's true: when the experiment started last year, DXPE was at $13.78 ... and is now at $27.56! So the spreadsheet is correct, even though it's strange to see an exact +100% there.
Benchmark (VTI) 77.00% vs Experiment 154.00%
DIN 122.00% / M 239.00% / DXPE 100.00%
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Experiment up +12% since last update, versus +2% for benchmark. Overall, the experiment is +87% ahead of it's benchmark.
Benchmark (VTI) 79.00% vs Experiment 166.00%
DIN 132.00% / M 256.00% / DXPE 111.00%
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Earlier today the experiment was ahead +100%, but I didn't post quickly enough, and it's now up +97% against the market.
Benchmark (VTI) 76.00% vs Experiment 173.00%
DIN 133.00% / M 271.00% / DXPE 115.00%
I sold off a lot of my call options yesterday, especially oil stocks. I sold all of my XOP calls, and those OXY calls which expire in 4 months. It might not be the exact peak, but I've multiplied that money quite well, and don't need to risk what happens close to expiration.
I've also been trying to sell some of my losing calls, like IVR. IVR has diluted their stock from 165M during March 2020 to 290M shares now, which limits their recovery (not that they've recovered any). So rather than just sell winners, I think I need to slowly recognize my losing calls and sell those off as well.
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DXPE closed Friday at $30.76, leaving it 17% away from a previous market cap (at $36/share), or maybe $38/sh. In that range, I'd sell DXPE and end the experiment. (But that same metric would not predict Macy's at $23/sh).
Benchmark (VTI) 75.00% vs Experiment 167.00%
DIN 134.00% / M 244.00% / DXPE 123.00%
The experiment is +92% ahead.
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While the experiment fell 4% against it's benchmark, I'm personally focused on how DXPE keeps climbing upwards, closer to it's recovery price.
Benchmark (VTI) 77.00% vs Experiment 165.00%
DIN 128.00% / M 240.00% / DXPE 127.00%
After the selling I've done recently of call options in oil stocks, I'm finally half index investments, one quarter cash, and one quarter Covid investments like the experiment (I still hold DXPE shares). It's reassuring returning to indexing.
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Well done, @MustacheAndaHalf!
I've got to hand it to you - Macy's was the pick in your experiment that I gut level detested because I just lifelong have never liked the store. But it did very well, and the overall examples were quite well chosen.
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Well done, @MustacheAndaHalf!
I've got to hand it to you - Macy's was the pick in your experiment that I gut level detested because I just lifelong have never liked the store. But it did very well, and the overall examples were quite well chosen.
I think a big majority of Wall Street analysts are men, so back then I did wonder if they'd overlook a company mostly selling items for women.
Last year I created a spreadsheet of almost 200 stocks by hand. I wanted to pick stocks from different areas, and Macy's was one of the retail picks. Their 0.29 price/book and 1.2 debt/equity factored in more heavily than my view of their stores. If Macy's had much worse numbers, I'd have ignored them.
Your praise also made me curious what my best investment was since March 2020. Last summer, when Callon Petroleum (CPE) had fallen to about $6/share, I bought call options with a $3 strike ("deep in the money"). I sold them when the stock was $56/share for a profit of +1140%.
"The one that got away" was Microvision (MVIS), which sounds great when I mention gaining +730%. Right now the stock is up 50x from my $0.22 purchase price, so I missed out on another +4200% gain. Too bad I was investing for the recovery! (A reddit forum figured out an MVIS secret: they were essential to one of Microsoft's major defense contracts, but must have had an NDA, since they avoided mentioning Microsoft. But someone saw a pattern in the patents filed by Microsoft and Microvision, and figured it out)
One of the most amazing investments was a loss of 40%. I owned shares in a small oil company, and they declared bankruptcy. I was about to lose that entire investment, or at least the -80% it had fallen. Then something very, very strange happened. Apparently new investors thought the stock looked cheap, and began buying. They pushed the price back up to 60% of the original, and I decided that was the peak, and sold for a 40% loss.
Back to Macy's, my best profit was on Macy's $8 strike call options, back when Macy's was $7/share. I sold those for a +480% profit - and in this case, that was also my largest Macy's holding.
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My "recovery" tracking for DXPE looks a bit biased. Two out of three 2019 dates I used are local peaks (I used the same dates for all stocks). If I take the highest and lowest prices of 2019, and discount by stock dilution, I get $33.24/share. I probably should have sold this past summer, when it hit $34/sh repeatedly.
So I expect to sell DXPE when it makes it's next move upwards, and then end the experiment. Currently M/DIN/DXPE are beating the U.S. stock market by +89% since the start of the experiment near the end of March, 2020.
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Meaty post. Thanks, congrats.
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Congrats on CPE. That's impressive. Those small caps in the Permian have been doing fantastic lately. An 1140% gain is insane, especially over that short time frame.
What was the other small oil company?
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A correction: I only had about 100 stocks in my spreadsheet. The second half of my spreadsheet was a copy generated by sorting (by performance, to see which had been beaten up the worst). Some stocks like DIN recovered quickly, and I needed another stock in the same area. Those replacement picks didn't make it into the spreadsheet.
Congrats on CPE. That's impressive. Those small caps in the Permian have been doing fantastic lately. An 1140% gain is insane, especially over that short time frame.
What was the other small oil company?
There were actually 3 small oil companies, with only CPE avoiding bankruptcy. The other two were Valaris and Oasos Petroleum (where I escaped with a 40% loss).
Yahoo Finance's graph of OAS is misleading. They show the stock closing at $0.11 on Nov 19, and closing at $29.32/share the next day. It didn't happen - new shares were issued, and bondholders received it all. Nov 20 was the day new shares traded on the market, replacing the old shares.
https://finance.yahoo.com/quote/OAS?p=OAS
The most surprising investment news for me was reading about Warren Buffet selling his airline holdings. And the added irony was him saying things like "never bet against America" while he sold U.S. companies and stayed in cash - he was a net seller. Not what I was expecting from the man famous for the phrase "be greedy when others are fearful, and fearful when others are greedy".
I think it worked because my thesis was incredibly simple: "stocks recover". Hard to argue with that. And if I buy two stocks at -67% discounts, I can afford one going bankrupt and one tripling in a recovery (3x / 2 = 1.5 = +50% profit divided over the two investments).
Moral hazard would be companies ignoring the risks of bankruptcy, because they expect to be bailed out. I reasoned a bailout was very likely in an election year (2020) where a significant chunk of the economy might go under. Would Congress have allowed all airlines, retail stores and restaurants to collapse?
I predicted vaccines wouldn't arrive in time, like past outbreaks. But this was a worldwide pandemic, and valuable enough to test messenger RNA vaccines (Pfizer/BNT, Moderna). Early November, when Pfizer's vaccine was ready, my stocks and calls went insane. I saw double digit gains of +40% ... but then Carnival Cruises (CCL) call options soared +110%, and took the prize for that day. I doubt I'll ever see news have that kind of impact on my investments again.
Part of the reason I don't expect those gains again is that I'm switching back to indexing, which is half my portfolio now. I invested for a recovery, and as that recovery arrives, I'm selling beaten up stocks and buying index ETFs. But I guess I have a higher risk tolerance now - I hold call options on SPY and EFA.
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Macy's is up significantly since my Oct 8 post, with DXPE up a bit. Overall +91% ahead of the Total Stock Market since the experiment started over 1.5 years ago.
Benchmark (VTI) 79.00% vs Experiment 170.00%
DIN 116.00% / M 261.00% / DXPE 134.00%
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If anyone gets bored watching Bitcoin, Macy's went up +17% yesterday. My first guess was a short squeeze, which happened earlier this year. But apparently Sacs Fifth Avenue planned to spin off it's e-commerce business for $6 billion... which made Macy's e-commerce look undervalued, pushing Macy's skyward. Macy's has dropped almost 5% so far today, but it is still up 3x since the experiment started. Above $25/sh would be a good time to sell, but I've already sold all of my Macy's callls.
Benchmark (VTI) 81.00% vs Experiment 189.00%
DIN 128.00% / M 304.00% / DXPE 136.00%
The experiment is up +108% mostly thanks to Macy's.
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The experiment ends the week +104% ahead of the stock market, measuring since the experiment began 1.5 years ago. DXPE is hovering just under the point where I'd like to sell it.
Months ago I sold Macy's when it went into the $20-$22 range, which was likely some form of short squeeze. But over the past 1.5 years, Macy's has built up online business, which stock analysts felt was undervalued. So now Macy's is $26.59 per share, which I could never have imagined before I sold my call options.
Benchmark (VTI) 82.00% vs Experiment 186.00%
DIN 122.00% / M 299.00% / DXPE 137.00%
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The experiment is +102% ahead of the stock market, with DXPE below $33/share. I plan on ending the experiment when DXPE reaches the $34-$36/sh range, so not yet.
Benchmark (VTI) 84.00% vs Experiment 186.00%
DIN 126.00% / M 294.00% / DXPE 139.00%
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THE EXPERIMENT IS OVER!!
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Benchmark (VTI) 89.00% vs Experiment 228.00%
DIN 156.00% / M 368.00% / DXPE 160.00%
Today DXPE surged to $35.85, where I sold my shares. Today's big news is that Pfizer has an 89% successful treatment for Covid-19. I think that sent a lot of Covid sensitive stocks higher, including the 3 stocks in this experiment.
My stock picks beat Vanguard Total Stock market by +139%. Like the experiment, I've also been unloading my calls and stocks at ridiculous prices. Here's the starting and ending values for the experiment and it's benchmark:
DIN $37.05 --> $95.00 which is 2.564, less the starting 1: +156.4%
M $6.66 --> $31.16 which gives 4.678, less the starting 1: +367.8%
DXPE $13.78 --> $35.85 , divided is 2.602, less starting 1: +160.2%
VTI $128.60 --> $243.11, divided is 1.890, less starting 1: +89%
The stock market went up +89%, but my experiment went up +228%. And I seem to be lucky - I invested much more in Macy's than the other two.
It's also nice to end the experiment on an upbeat note like a very strong treatment for Covid-19 by Pfizer.
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Congrats. And thanks for posting the whole thing!
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I have really enjoyed following the experiment. Congrats on the HUGE returns!
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Glad you liked it. I REALLY liked it, although frankly I was stunned watching these recoveries take place. I spent most of 2020 waiting for the market to admit it was wrong about the prices of stocks I picked.
People can look back earlier in this thread to see when I picked DIN, M, and DXPE stocks. You can visit morningstar to see their performance:
https://www.morningstar.com/stocks/xnys/m/trailing-returns
https://www.morningstar.com/stocks/xnas/dxpe/trailing-returns
https://www.morningstar.com/stocks/xnys/din/trailing-returns
Macy's is +304% in 12 months, while Dine Brands is up just 29% in that time. I actually sold DINE last year. The 1yr and 3yr don't tell the whole story. Look at the 5 year chart of M stock, and you can see Macy's drop below $5/share:
https://finance.yahoo.com/quote/M/
I strived to never edit a post with data, so those posts could serve as a record.
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One thing that didn't happen: bankruptcies in my picks. In my actual portfolio, I picked 3 small oil stocks, and 2 of them went bankrupt. Even there, I did really well, including losing just -60% in one 100% bankruptcy. But that didn't matter, because CPE was the 3rd stock that survived. Days ago it had +900% performance over 12 months, but now it shows "only" +780% in that time:
https://www.morningstar.com/stocks/xnys/cpe/trailing-returns
I recently read a Motley Fool article that warned your biggest failure isn't even the stocks that lose 90%. Their example starts with $10,000 and you lose $9,000. But that same $10,000 might go up 3x, and you sell at $30,000. If that stock triples again, that's missing out on $60,000. That rang true for me, last year.
I bought micro-cap stock MicroVision (MVIS) for $0.194/share. I sold it for 7.34x as much! Unfortunately, MVIS is currently 46x my purchase price. Oops. I guess it's better to have won +634% than to have never won at all, but it's maybe a lesson to wait and see how the rumors turn out.
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I recently read a Motley Fool article that warned your biggest failure isn't even the stocks that lose 90%. Their example starts with $10,000 and you lose $9,000. But that same $10,000 might go up 3x, and you sell at $30,000. If that stock triples again, that's missing out on $60,000. That rang true for me, last year.
I think that sell discipline is the single hardest part of stock picking. Say you do some good research and actually find some undervalued micro-caps. So you buy them and they go up. Now what?
PS - Good job!
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Thanks M&1/2!
I had a great time following this through shutdowns, quarantines, work from home and transition back into the office.
Candidly, I bought $100 of each to follow along and this experiment has educated me on researching and analyzing individual companies. I really appreciate the candor and thoroughness.
Cheers!
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MetalCap - I wondered if anyone did anything in response to this Experiment, thanks for sharing that. I hope that $300 tripled like the experiment!
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There's some back story that made this experiment possible. I was a passive index investor for decades before 2020. I believed markets react to new information, so it's useless for me to predict markets in advance. There were some anomalies on certain days or times of year, but after discovery those went away.
Back in Feb 2020, I was following Covid-19 closely. I noticed the number of cases in China seemed to follow a pattern, and I used that pattern to predict 10,000 cases days later. Imagine my shock as a passive investor when the market reacted! The media had breaking news, China hits 10,000 cases. I had predicted the future days in advance, and for whatever reason, the media and investors hadn't caught on.
In March 2020, bad W.H.O. data lulled me into thinking the U.S. had zero new cases on the weekend of Mar 7-8. But the Fed wasn't fooled, and it was so urgent they met 3 days early. Interest rates to 0%, quantitative easing available - they signaled a red alert. The market panicked on Mar 9, with me joining them in the selling. According to infectious disease experts at the time, the situation was going to get much worse. I wasn't panicking at what was known, I was selling to avoid what was going to happen next.
The next day, Mar 10, the market revealed it's obliviousness. Overnight, some resolution in the oil price war made investors breathe easy, and markets went up 3 or 4%. This was another sign of insanity to me - Covid-19 went from 1,000 to 5,000 cases in every country, no matter what they did. And Covid-19 had a foothold in the U.S., and markets priced it as a 3-4% loss?
I sold about 1/8th of my equities (keeping 60% passive). Being new to active investing, I put that money in long-term bonds and gold - both of which dropped. Now I know cash is king in a crash. I created a spreadsheet to predict Covid-19 cases, and watched hours of CNBC and Bloomberg to see what investors were thinking. I pretty much had a part time job tracking Covid-19 and the markets.
The next week, I watched the New York Times confuse the market, claiming that U.S. Covid-19 testing was far behind. But they wrote the article days earlier, from data compiled weeks earlier. That same week, Deborah Birx of the White House Covid-19 Task Force warned people that cases would go up because testing was increasing exponentially. Well, who was right?
I checked raw sources, and testing was increasing exponentially - with a much higher exponent than Covid-19 was spreading. I was comparing exponentials, and the media hadn't even used exponentials yet. I called the bottom Mar 19-20 (Th/Fri), and pushed to 100% equities. On Monday, Mar 23, markets dropped 2% ... and bottomed out. To be fair, Congress played a big role here as well (*).
That weekend I realized individual stocks were an even greater opportunity, but with risk. Stocks that had fallen to 1/3rd of their prior values would triple if they recovered. Even if half went bankrupt, there was a +50% return to be made. I screened lots of stocks, trying to avoid the company with the worst debt in each category. Once I finished buying, I revealed 3 of my picks and started this experiment.
(*) One follow up note on Congress' role - I felt it very likely they would act. They could watch entire sectors (hotel, retail, restaurant, airlines) all go bankrupt and unemployment skyrocket... and then get voted out in ignominy, with no cushy lobbying or speaking fees. Or... they could spend other people's money. Career suicide, or something they do all the time... I counted on the self-interest of Congress.