Author Topic: An experiment  (Read 40735 times)

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #300 on: April 02, 2021, 08:57:56 PM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #301 on: April 02, 2021, 11:02:57 PM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #302 on: April 02, 2021, 11:17:16 PM »
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.




MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #303 on: April 08, 2021, 09:00:50 AM »
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%

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #304 on: April 08, 2021, 11:20:36 AM »
Perhaps a second experiment is in order. Using the following data...

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

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.

BicycleB

  • Magnum Stache
  • ******
  • Posts: 4634
  • Location: Land of Lincoln
  • Older than the internet, but not wiser... yet
Re: An experiment
« Reply #305 on: April 08, 2021, 12:12:54 PM »
So...you're thinking buy long calls on the fast team's indexes, and puts on the slow team's?

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #306 on: April 08, 2021, 01:54:27 PM »
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.

Jacob F

  • 5 O'Clock Shadow
  • *
  • Posts: 43
  • Age: 36
  • Location: Greensboro NC
Re: An experiment
« Reply #307 on: April 09, 2021, 10:46:13 AM »
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:)

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #308 on: April 09, 2021, 10:38:16 PM »
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%

Jacob F

  • 5 O'Clock Shadow
  • *
  • Posts: 43
  • Age: 36
  • Location: Greensboro NC
Re: An experiment
« Reply #309 on: April 12, 2021, 06:11:43 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #310 on: April 14, 2021, 09:16:31 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #311 on: April 14, 2021, 09:24:36 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #312 on: April 20, 2021, 10:36:37 AM »
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

alcon835

  • Pencil Stache
  • ****
  • Posts: 653
Re: An experiment
« Reply #313 on: April 20, 2021, 12:32:20 PM »
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. 

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #314 on: April 20, 2021, 02:17:21 PM »
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

Treasury rates have been falling since about 4/12 (so much for the inflation scare all over the media).

BicycleB

  • Magnum Stache
  • ******
  • Posts: 4634
  • Location: Land of Lincoln
  • Older than the internet, but not wiser... yet
Re: An experiment
« Reply #315 on: April 20, 2021, 02:59:39 PM »
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

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. :)
« Last Edit: April 20, 2021, 03:42:34 PM by BicycleB »

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #316 on: April 21, 2021, 07:34:00 AM »
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
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).

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #317 on: April 21, 2021, 07:38:40 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #318 on: April 22, 2021, 08:05:06 AM »
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%

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #319 on: April 24, 2021, 01:45:46 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #320 on: April 24, 2021, 01:47:47 AM »
(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".)

BicycleB

  • Magnum Stache
  • ******
  • Posts: 4634
  • Location: Land of Lincoln
  • Older than the internet, but not wiser... yet
Re: An experiment
« Reply #321 on: April 24, 2021, 09:12:30 PM »
(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?

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #322 on: April 26, 2021, 09:03:22 AM »
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.

---
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%

alcon835

  • Pencil Stache
  • ****
  • Posts: 653
Re: An experiment
« Reply #323 on: April 26, 2021, 12:26:24 PM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #324 on: April 28, 2021, 08:10:04 AM »
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%

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #325 on: April 28, 2021, 10:01:24 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #326 on: April 29, 2021, 09:18:26 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #327 on: April 29, 2021, 09:20:43 AM »
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.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #328 on: April 29, 2021, 09:46:44 AM »
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://fred.stlouisfed.org/series/BUSINV
https://fred.stlouisfed.org/series/PSAVERT

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #329 on: April 30, 2021, 02:08:38 AM »
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).

alcon835

  • Pencil Stache
  • ****
  • Posts: 653
Re: An experiment
« Reply #330 on: April 30, 2021, 08:04:52 AM »
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.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #331 on: April 30, 2021, 09:42:33 AM »
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/

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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #332 on: April 30, 2021, 08:30:32 PM »
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.

alcon835

  • Pencil Stache
  • ****
  • Posts: 653
Re: An experiment
« Reply #333 on: May 01, 2021, 10:04:08 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #334 on: May 03, 2021, 08:42:21 AM »
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".

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #335 on: May 04, 2021, 08:45:41 AM »
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%

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #336 on: May 08, 2021, 10:21:45 AM »
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%

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #337 on: May 15, 2021, 04:28:24 AM »
"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%

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #338 on: May 23, 2021, 04:52:17 AM »
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%

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #339 on: May 24, 2021, 08:14:17 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #340 on: May 24, 2021, 08:39:02 AM »
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.

BicycleB

  • Magnum Stache
  • ******
  • Posts: 4634
  • Location: Land of Lincoln
  • Older than the internet, but not wiser... yet
Re: An experiment
« Reply #341 on: May 24, 2021, 09:32:21 AM »
@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! :)

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4967
  • Location: A poor and backward Southern state known as minimum wage country
Re: An experiment
« Reply #342 on: May 24, 2021, 10:14:16 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #343 on: May 25, 2021, 08:57:51 AM »
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.

---
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #344 on: May 25, 2021, 09:01:52 AM »
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%

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #345 on: May 30, 2021, 07:01:11 AM »
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.

alcon835

  • Pencil Stache
  • ****
  • Posts: 653
Re: An experiment
« Reply #346 on: May 30, 2021, 08:35:34 AM »
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.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #347 on: June 06, 2021, 11:00:13 AM »
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%

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5840
Re: An experiment
« Reply #348 on: June 09, 2021, 10:43:08 AM »
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.

alcon835

  • Pencil Stache
  • ****
  • Posts: 653
Re: An experiment
« Reply #349 on: June 10, 2021, 05:08:25 AM »
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!