Market Reaction to Coronavirus - Any Changes for You?

[Leftie]

Setting aside that that's not how repossession by the Fed works - creating $1.5 trillion in inflation and new spending - I think this whole thing is interesting from a historical perspective. The early markets in England and the U.S. were purely speculative and much more subject to whims and fancies than we're used to. The crash of '29 changed that and the Fed's lack of response forever changed U.S. fiscal policy. The market, prior to the last 2 years of this unprecedented bull run, was very much based on financial fundamentals, with aberrations like the .com bubble (the fallout of which was mostly borne by the tech industry and its investors). Every time the market deviates too far away from fundamentals, something like this happens. As recently as 3 weeks ago, the market was at an all-time high, while EBITDA growth for most companies was in the low single digits (at or barely higher than inflation) and nonexistent for some of the most highly valued companies. You could probably do thousands of dissertations on the cyclical psychology of it all. It's like 80-90% of brokers and investors forget what the recipe is for long-term, stable growth and buy into the fad. The 10-20% that keep their nerve always end up ahead. Always. The market was overdue for a natural correction, but Coronavirus is an unnatural correction and the disorder it's created has stoked chaos in the market because we've never experienced anything like it in the globalized economy.

A big variable that wasn't present as much before as it was in 2008, and still today, is derivatives. It's mind-boggling how much money is tied up in market derivatives, which is why the housing collapse infected the broader economy on a scale it never would have before. With an unnatural shock like Coronavirus, we could easily see another recession if the derivative dominos start to fall as a result of it. That's why it's hugely important for the Fed to intervene like it did today.

Totally agree with your points on market fundamental deviation, and I do believe that the psychology of it all is fascinating. Finance and Tech do tend to "drink their own Kool-Aid" relatively often, but over the past 3 years I've seen an unbelievable amount of it happening (first in venture capital within certain very high-tech segments), and then extended to the greater finance world related to market indices.

I also think that we are already past the "could" and the "if" in your last sentence. Dominos are already starting to wobble, and we are firmly in a bear market.

[Crow Hunter]

I hit a rebalancing band yesterday, so I rebalanced from bonds to stocks. After today, it is very likely that I will be able to Tax Loss Harvest a big chunk of my taxable account. My investing plan says to TLH when my cost basis is red in the morning and is still red at 2:30 pm CST. So if we are red tomorrow, I will do some TLH and move some stuff to compensate in my tax advantaged accounts.

I will continue to keep an eye on my asset allocation to see if I hit another rebalancing band and transition more if I do. Eventually everything will bottom out (or the entire economy will collapse) at that point, hopefully I will have TLH/rebalanced my way into an early retirement in 10 or so years.

Again, assuming my lead, aluminum, copper and plastic assets haven't had to be "rebalanced" due to wholesale collapse/rebirth.

[Life's a Hillary]

Market seems to be rebounding a bit today, guess I’ll stay on the sidelines. Be prepared for more cases showing up this weekend and another bloody Monday. I’ll get back in then if that happens. Meanwhile, I’m very happy with the purchases I’ve made. 10-20 years from now it could be pretty substantial money.

[sundance435]

I’m making no changes, probably look at refinancing our mortgage. Otherwise continue to work, and contribute to my 401K, probably tick up the rate of contribution to 12%-13%.

Yeah, while I cashed out my Roth, I increased 401(k) contribution, but with more emphasis on bonds. I was only at like 10-12% bonds before.

However, I am continuing to invest monthly, including an SEP plan for my foreman. I continue to buy when it's low or when it's high - it's called dollar cost averaging. I never try to time the market.

Better advice than you'd get from an advisor, right there. Dollar cost average is an important metric. I know you know this, but if you're buying on fundamentals, you'll come out ahead, regardless of timing. I look at a company like Berkshire that's shed $40 in the last 2 weeks, despite the fact that it could self-finance operations for years without $1 of revenue, and know that this reaction is based more on emotion and sentiment than anything else. Same for shares of companies with little exposure to the pandemic, like Zoom, Docusign, etc. Broad selloffs are a buying opportunity, but I agree on not trying to time it. I'm fine with missing out on a 19,000 point Dow and buying back in at 22-23,000 if the volatility has calmed.

I also think that we are already past the "could" and the "if" in your last sentence. Dominos are already starting to wobble, and we are firmly in a bear market.

We're in a "technical" bear market, but the reasons for it have never been experienced before. Whether it turns from a technical bear to a recession remains to be seen, though I'd tend to lean towards a technical recession, too. If there's a vaccine in a month to a month and a half, it's entirely likely that the market is sorted out by the end of the year. It wouldn't be back at 29,000, but 25,000 is possible, which is closer to where it should've been before this. First quarter earnings and guidance are going to be worthless. I'm more interested in 3rd and 4th quarter guidance going forward in the 2nd and 3rd quarters.

Market seems to be rebounding a bit today, guess I’ll stay on the sidelines. Be prepared for more cases showing up this weekend and another bloody Monday. I’ll get back in then if that happens. Meanwhile, I’m very happy with the purchases I’ve made. 10-20 years from now it could be pretty substantial money.

Honestly, unless you're buying very fundamentally sound companies with P/E in the range of 10-15 at a discount right now, there's not anything else I'd be buying in any quantity until at least April or May at the earliest. Everything is being driven on day-to-day information, which is in turn fueling longer-term forecasts that are objectively worthless. That has no basis other than my own knowledge and opinion, though.

[Life's a Hillary]

The one single stock I am buying is very fundamentally sound, PE is around 8 right now, dividend is around 5%, and every reason it’s getting taken down is due to market conditions which that have less exposure to than most. The problem is the algorithm traders are selling it due to what they perceive is overexposure when anyone who knows the company knows that it’s a non issue. I fully expect that stock to double in the next year or so. For the rest, I’m in a total market index fund. As long as I’m lowering my basis I will come out of this very happy. I was already happy with my basis and it’s only getting better.

[TexasGunNut]

I was a portfolio manager in 1987. When I took over in July I started trimming positions and raising liquidity to put my stamp on things. By October we were 60% cash or equivalents. When the market tanked we bought heavy into blue chips and stocks with great fundamentals. I was able to buy a small amount of S&P calls as well. Made the top ten in total return for funds that year. Dumb luck on my part but of course I took full credit for predicting the crash and recovery.

Bottom line is that everything that was fundamentally sound before is sound now. Take the long view and buy all you can while it’s on sale.

[Leftie]

We're in a "technical" bear market, but the reasons for it have never been experienced before. Whether it turns from a technical bear to a recession remains to be seen, though I'd tend to lean towards a technical recession, too. If there's a vaccine in a month to a month and a half, it's entirely likely that the market is sorted out by the end of the year. It wouldn't be back at 29,000, but 25,000 is possible, which is closer to where it should've been before this. First quarter earnings and guidance are going to be worthless. I'm more interested in 3rd and 4th quarter guidance going forward in the 2nd and 3rd quarters.

Agree with you about the first quarter earnings and guidance going to be worthless, but with market fluctuation (%-wise and also trading volume wise), I don't think that one thing such as a vaccine in a month to a month and a half will be the panacea for the market that some feel that it will be. I agree that 25,000 is possible by the end of the year (pure speculation), and fully believe that this is a great time to buy securities at a discount, especially if you take a long-term view of the market and invest with solid fundamentals like TexasGunNut mentioned.

On another, much more subjective note, I think that the Coronavirus media craziness isn't over yet, and we will see a bit more market instability before this is over, largely due to the fact that I believe that we are under-reported on virus infection rates, and we will have a minor uptick in deaths in the coming week. I'm not very sure that our market will react well to a potential national emergency declaration either, and a less than perceivably "textbook" (whatever that means for this situation) response.

It's also important to note that this virus impact into Africa, as well as into Latin, Central, and South America hasn't fully been played out, and will also affect markets, albeit not as heavily.

The one single stock I am buying is very fundamentally sound, PE is around 8 right now, dividend is around 5%, and every reason it’s getting taken down is due to market conditions which that have less exposure to than most. The problem is the algorithm traders are selling it due to what they perceive is overexposure when anyone who knows the company knows that it’s a non issue. I fully expect that stock to double in the next year or so. For the rest, I’m in a total market index fund. As long as I’m lowering my basis I will come out of this very happy. I was already happy with my basis and it’s only getting better.

Algorithm traders are a big reason why the market is moving so violently, and even somewhat paradoxically. I've been bitten a little in the short term on stocks that I believe to be fundamentally sound as well, but long-term, I am confident that there is a large profit (and dividend payout) to be made long term. I also still bought them at a discount, so I'm not frustrated with my decision at the time of purchase.

[MegademiC]

Ive gone in on 2 1:4s, and 3 1:6s.
I also have a few very stable 1:2-3s.

Im dumping into some lng companies, cruise lines, and biotech. Thoughts? What are you guys investing in?

This is just fun money- rookie here. Looking for pointers.
I didn get In early (before russia/syria war). So Im down overall... But if things hit lows from the previous 5 years, Ill have a new hobby.

[Life's a Hillary]

If you don’t have a real good feel for a company you should just be buying index funds. I have a select handful that I follow close enough to know if it’s a good buy or not but typically I trade one stock and then index funds. If you really want to buy individual stocks I’d look at strong companies like Apple or Amazon that are getting dragged down with everything else but will certainly return. Apple could be hit harder depending on the China thing but it’s a good long term play either way. Regardless, if you’re taking investing advice on a gun focused message board you might want to rethink that strategy.

[sundance435]

Algorithm traders are a big reason why the market is moving so violently, and even somewhat paradoxically. I've been bitten a little in the short term on stocks that I believe to be fundamentally sound as well, but long-term, I am confident that there is a large profit (and dividend payout) to be made long term. I also still bought them at a discount, so I'm not frustrated with my decision at the time of purchase.

My comment on the vaccine wasn't meant as that it is going to solve everything, but just the news of it will go a long way to stabilizing the global economy. Markets are looking for any glimmer of hope right now. Algorithm trading is the single biggest culprit for these extremely volatile swings. In the long-term, it's probably a benefit to the average, somewhat savvy investor.

Ive gone in on 2 1:4s, and 3 1:6s.
I also have a few very stable 1:2-3s.

Im dumping into some lng companies, cruise lines, and biotech. Thoughts? What are you guys investing in?

This is just fun money- rookie here. Looking for pointers.
I didn get In early (before russia/syria war). So Im down overall... But if things hit lows from the previous 5 years, Ill have a new hobby.

I don't know about cruise lines - some of them could very likely be facing bankruptcy if things remain this way for long. If they announce dividend cuts, their stock prices will probably tank. I think it was Royal Caribbean that was trading at a record before all of this, with a strong dividend history, and it's already shed like 30-50%. Mark Cuban bought Live Nation and Twitter, which are both solid long term bets right now. Basically, I'd be looking at any stock with a trailing P/E between 8-15 and then dive into their financials for things like debt ratio, cash on hand, etc. Blue Chips like Wal Mart and McDonalds are a solid bet right now if they give up the gains of the last year. Neither is close to that right now. So I'm also looking at sound companies that have shed most of their gains from the last year - so far there really aren't that many - most stocks are still up over the last 52 weeks. Everyone is talking about Boeing now that it's finally trading where it should have been months ago. I'm still not sold that they really are "too big to fail" and a lot of people are trading based on that sentiment. Like this virus, we haven't seen the worst yet from Boeing.

If you don’t have a real good feel for a company you should just be buying index funds. I have a select handful that I follow close enough to know if it’s a good buy or not but typically I trade one stock and then index funds. If you really want to buy individual stocks I’d look at strong companies like Apple or Amazon that are getting dragged down with everything else but will certainly return. Apple could be hit harder depending on the China thing but it’s a good long term play either way. Regardless, if you’re taking investing advice on a gun focused message board you might want to rethink that strategy.

Haha - your last sentence is golden. I'm not vain enough to think anyone is going to act on my ramblings alone - at least I sure hope not. Great advice, though - if you're not going to dive into the financials, buy index funds/ETFs. A lot of work goes into quality index funds and ETFs - a lot more than any of us is capable of performing alone. I'm a lazy investor and I only due my due-diligence on a handful of individual stocks. Otherwise, I buy ETFs with good Morningstar and ETF.com ratings. I do think Apple and Amazon are good long-term buys if they give up a little more. I'd like to see them at a 52-week low before I pull the trigger on them. One I'm certain of now is Berkshire. There is no earthly reason it's dropping the way it is with the rest of the market.