The S&P 500 is now down 3.5% year-to-date, while just last week I was writing about how it was up 7.4%. This, my friends, is over a 10% drop in the market in just 9 trading days. Incredible.
There will be a bit more vomiting but things will stabilize once all of the volatility-linked financial instruments continue their algorithmic unwinding. There has been a surprising lack of candidates out there that appear to me to be obvious victims of margin liquidations (unless if you so happened to own XIV!).
Yield-based financial instruments (prefereds, corporate debt) appear to be doing just fine. REITs have shown weakness, but probably due to markets pricing in the increasing rate environment. The Canadian markets haven’t been disproportionately affected – probably because the Canadian markets were never up that big to begin with. I’ve only seen significant damage in fossil fuel companies, but for obvious reasons (the federal and provincial governments are trying everything possible to kill the sector).
One of my talents that sets me apart from most others is my ability to side-step market crashes. I’ve done it in my very early years of investing in 2000, I did so in 2007-2008, 2016, and this week. I’ve had a few false alarms (I am financially paranoid), so I am not claiming perfection. Normally when circumstances become so obvious to invest (like it was in the first quarter of 2016), I do so, and go on margin. Right now, I’m roughly at 30% cash.
I’ve been trying to figure out how to deploy cash. One would think that a 10% market crash in two weeks would unearth some opportunities. If I find things exceptionally cheap, I have no problems dipping 10, 15 or even 20% in margin depending on the valuation parameters. But it’s nowhere close to doing this.
Something I’ve found very frustrating is there’s still nothing on the radar that has really attracted my visceral instincts.
I’d appreciate some suggestions.