Just when I thought I was streaming towards a good first quarter, the bottom falls out of the market! Going from a healthy single digit percent gain to slightly negative is quite disappointing.
I do not know when this market panic is going to end. If the fourth quarter of 2018 analogy applies, we will see around an S&P 2700 level before this all ends, over the course of three months. My intuition says it will be a shorter period of time since the spike down was so heavy.
Central banks that will be injecting yet more capital into the financial system to stabilize things, but we are going to find out the impact of what happens when a country mostly shuts down due to the flu. Imports, exports, supply chains, etc., will all be affected.
The selling that has been going on was indiscriminate. The first real day of the plunge, gold went up while the S&P went down. However, in the second and subsequent days, gold and the S&P equally went down, which suggests that this is a rush for liquidity rather than a rotation for safety.
When you get a rush to liquidity, it can be very profitable to time the bottom, but understanding where that point is another story. When it ends the companies that make money and are relatively unaffected will bounce back, and bounce back hard.
The trick in these times is not to get your account cleared out, whether it is through self-induced panic or getting a margin call. Indeed, this is exactly when you have cash for.
I’ve been picking up mostly O&G…..now waiting for all the pref’s to fall GOC 5yr@1.13….we should see those same opportunities we saw last summer.
“Central banks that will be injecting yet more capital into the financial system to stabilize things”
Looks like this will be Sunday based on reports tonight.
“When you get a rush to liquidity, it can be very profitable to time the bottom”
I 100% agree. At some point though, we pull the trigger and are fully invested or at least significantly moreso. Ideally, this is at the bottom but practically it is likely not. At that point, we are in the same position as the fully (or heavily) invested portfolio manager. Now what?
My experience is that trading “relative value” can be very lucrative. This relates to Sacha’s post on making investment comparisons. For the fully allocated (cashless or cash poor) investor, the only source of cash is selling something or borrowing. For arguments sake, let’s rule out the latter.
So what do you sell? Answer: something with less total return potential than what you might want to buy. When VIX skyrockets, these opportunities appear in spades. This is how I manage my fully invested portfolio. It isn’t as lucrative as timing market bottoms perfectly but it is far better than just hanging on and ignoring the noise.