Covid-19

Markets are forward-looking. But they have also been more optimistic than otherwise for the past 10 years.

Recall that major indicies, excluding China/HK, were still doing okay when the virus was starting its spread, during the month of February. The entire world had one month to understand that the virus' is highly contagious, and may cause serious illness. But most countries saw it only as a China problem, so they didn't care; at least not enough to judiciously guard against it.

Then everyone seemed surprised when major European, and then American, cities were overwhelmed by the virus. And that's when the selling started in March. The decline arrested only when some central bank slashed interest rate to zero, and made themselves buyers and lenders of last resort, reducing the probability that businesses will go kaput.

Now, most of the developed world are near the end -- or for some, already at the end -- of their lock down. The markets are cheering because they think the end of lock down means the start/return of normalcy. Most medical experts seem to think that the virus will remain until a vaccine is developed, produced, and people inoculated. Most of them also seem to think that the vaccine is 12 months away.

What is the impact on SG's economy if her airport and tourism industry have no business for the next 12 months, because borders remain closed? A shut down of such a large part of the economy, for such a long time, has never occurred, except during periods of war. And this does not include the loss of business for most of everyone else due to social distancing and work-from-home rules. Anecdotally, I was told by a recruitment professional that they have almost no new business since the start of CB.

As the lock down gets lifted in major cities around the world well before there is certainty that the virus is eliminated, the number of cases may start rising again. And if the case load is severe, some cities may lock down again. Growth forecasts from most economic models assume that normalcy will return in the second half of the year. But the reality may be worse than expected. And as time passes, some of the poorer financed companies with poor sales will come under greater liquidity stress.

===

I think there will always be opportunities for one to make good purchases. And if you're looking to remain vested till the end of 2030, generally, stocks are certainly looking cheap now. Of course, they can be cheaper in a few months time, if something bad and unexpected happens. But if you're ready to hold stocks for a long time, and you are in an all cash position, now is probably a good time to spend a good amount of that cash. Just save some for the next big dip that may or may not be coming.

Make a lot of sense.
It's difficult to predict the stock price and my guiding principle is simply, I don't have to be precisely right but just need to be about right.

I had 3 top holdings: Micro-Mechanics, Straco and iFast.
What I did was sold more than 2/3 of my Straco  aka kick it out of my core.
At the same time, I had slowly increase my holding in Micro-Mechanics due to the price dip.
iFast moved too fast and I had yet got chance to increase my holding.
Given another chance, I will definitely load up more iFast.

Straco is a good company.
Unfortunately, the scenario that it will get "zero" revenue to me does not make sense to hold on.
As a balancing act, I sold sufficient Straco so that it does not impact my sleep.


What's interesting for me is the impact to society and "norm".
At this moment, I see that essential services is actually an area of opportunities.
Again, I'm not saying one should look at the essential services and start to look for Gem.
Instead, one should look at their favorite company and increase the weightage on those that is resilient in a pandemic.

To me, I think I'm quite lucky to choose Micro-Mechanics and iFast as my core.
Both exhibit patterns that's resilience in a pandemic for different reason.
Micro-Mechanics - essential services
iFast - digital platform

---

Trading.
I had in my early day of C19, brought some Medtecs for trading purposes.
The first 2 rounds was easy $$$.
The 3rd and last rounds was slightly below breakeven.
I did not hold Medtecs and actually decided to sell below buy price and also stop trading Medtecs due to warning from some experience valuebuddies.

I'm thankful and really appreciate the well intention.

Otherwise, I would had busy trading and loss my cool during this unprecedented time.

So, I decided to do what Cyclone did to keep my mind busy during this challenging time.
I read and post sgx announcement in vb.com.


Stay home and stay healthy, everyone.

https://on.mktw.net/2yRv5ky Check out this article from MarketWatch - This one chart makes the case that the worst is over for the stock market and the virus has peaked


Worst is over for stock ?


Sent from my iPhone using Tapatalk Pro

(29-04-2020, 07:10 AM)karlmarx Wrote: I think there will always be opportunities for one to make good purchases. And if you're looking to remain vested till the end of 2030, generally, stocks are certainly looking cheap now. Of course, they can be cheaper in a few months time, if something bad and unexpected happens. But if you're ready to hold stocks for a long time, and you are in an all cash position, now is probably a good time to spend a good amount of that cash. Just save some for the next big dip that may or may not be coming.

Generally, stocks are certainly looking cheap now?
Mind sharing what valuation metrics and which market are you looking at? And what is your benchmark for "cheap"?
 
S&P500 down 15% pre-COVID, Hang Seng down 12% pre-COVID, STI down 20% pre-COVID. If one don't think the S&P 500 is cheap during 2019, one shouldn't think it is cheap now either. Forward P/E and P/S are higher than 2019, normalized P/E and P/S are still high compared to historical recession levels. This is without taking into picture the potential severity, depth and length of this recession, as well as the insolvency issue due to record high corporate and sovereign debts. Then again, there is the Fed backstop to remove debt consideration out of the picture.

While there are undeniable some individual stocks that are cheap now, I still do not think that stocks in general are cheap, especially hot stocks like FAANG and SASS. Look at the poster boys: Tesla and Beyond Meat, and you know that the euphoria is still here. The speculation Biolidics and Q&M is also incredible. In SGX, numerous stocks on my watchlist have recovered to close to pre-COVID levels, some have even reached record highs (justifiably or not). 

Came across an article showing that millennial retail investors have rushed into the market. People are restless at home due to the lockdown and are looking for opportunities. This could be one of the explanation why. 

https://www.cnbc.com/2020/04/28/investin...nturn.html

Some positives amid the doom and gloom. 

Some restaurants are seeing sales returning to pre-COVID levels. But more details/work are required to determine if this true in general.

Quote:It was tough at first, Graves acknowledges. At one point, sales were down as much as 30 percent.

“That’s scary,” Graves says. “Thank God it was only 30 percent. We make small margins on very large volumes.”

Raising Cane’s adjusted its marketing and contacted media outlets to let customers know that restaurants are still able to serve food with enhanced safety measures. The message was heard, and customers began to return as units perfected the shift to drive-thru while maintaining quality.

Sales changed to 25 percent. Then to 20 percent and to 15 percent, and so on. Now, Graves is proud to note that in the past couple of days, Raising Cane’s returned to pre-COVID-19 sales numbers.

“I keep sending messages out to the crew saying little things like thank you for keeping the lights on,” Graves says. “… I always tell them I’m proud of you and I’m privileged to work with you. … We’re known as a friendly crew, but now I’m getting more compliments than I’ve ever had because our crew members have that empathy because they know that maybe every third person that comes through lost their job. So it’s incredible pride.”

https://www.qsrmagazine.com/exclusives/r...e-covid-19

(29-04-2020, 11:16 AM)Curiousparty Wrote: Worst is over for stock ?

IMO, company-by-company basis. Some companies (those that are associated with the digital economy) thrives under, and beyond Covid. While some (travel-related, airlines, restaurant, energy etc.) might be changed forever.

We are at the beginning of the first Post-Covid earnings season. Let's use it to assess the actual economic impact (both the past quarter, and forward guidance) and how market reacts to it.

As for the Covid-19 crisis in general. I think the situation is stabilizing (as testing capacity ramps up, and our understanding of the virus deepens) and the worst might be over. Hence, by extension, we might be past peak-fear; unless there are other hidden clusters somewhere (eg. in India) that are waiting to erupt.

(29-04-2020, 11:46 AM)holymage Wrote: Generally, stocks are certainly looking cheap now?
Mind sharing what valuation metrics and which market are you looking at? And what is your benchmark for "cheap"?

'Cheapness' depends on what you're looking at, your long-term outlook, and as mentioned, your expected investment time horizon.

I look at Asia and my time horizon is 5 years or more. A company/business is cheap to me when I think it can generate a long-term average earnings yield of about 20%. 

I don't look at US or tech stocks, but if you look at some of the old economy business like Exxon, their valuations are far more 'down to earth,' so maybe that's the kind of stocks to look at.

The market is efficient in accounting for recent and near-term events, but it doesn't look very far out (more than a few years). If you have a long-term orientation -- or more importantly, long-term vision (I don't) -- it is not difficult to side-step time bombs, and make some money. Maybe you won't be making big money, but at least you won't be losing big money. 

I believe that a long-term orientation (and hopefully vision) is the strongest advantage a retailer investor has.

Even after the market recovers from a crisis, there will still be opportunities. Popular was selling at 4x ex-cash p/e in 2011 -- two years after the market bottom of 2009 -- and was delisted in 2015, at twice the price of 2011. 

But if you're trying to go all in only at super distressed kind of prices of blue chips, I think that's kind of difficult, though that certainly would be very safe and rewarding.

https://on.mktw.net/3aL7ejW Check out this article from MarketWatch - Gilead Science reports positive data in trial of remdesivir as treatment for COVID-19


Big rally coming soon !


Sent from my iPad using Tapatalk

Now, I have discovered another reason as to why the market is so resilient. Investors are merely thinking about the most obvious surface issue: peaked virus cases, so the worst is over, and so there will be a V-shaped recovery. Seems like most investors failed to consider what Specuvestor and I mentioned: second and third order effects that this crisis has triggered. I just don't believe that businesses (and economies) in reality can be turn off and turn on like a switch. If I were to make a wild guess, I think the day of reckoning may come somewhere late in 2020, when the effect of most government aids fades.

As a kind gesture, here is Google's 1Q2020 earnings results. Revenue YoY +13%. EPS YoY +4%. Given the current circumstances, that is good. But.....

Quote:Ruth Porat, Chief Financial Officer of Alphabet and Google: Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues.

https://abc.xyz/investor/static/pdf/2020...he=4690b9f

I would expect 2Q2020 and 3Q2020 results to be a rude awakening to the bag-holders. Same for Facebook as both companies derives bulk of their revenue from advertisements (tonight is Facebook's earnings call). From my experience, advertising are highly discretionary items, once it is removed, it takes time for a company to reallocate money into that expense item. So I don't expect to see a V-shape recovery in results. From what I know Google and Twitter has withdrew their earnings guidance. In addition, we will be able to see another example of the double edge sword of operating leverage. 

As a disclaimer, the market may again look past poor results and treat it as an outlier.

Karlmarx,

Long-term average earnings yield of about 20% would imply a P/E of 5. That's very very low. I don't think most companies with some growth will be priced at P/E of 5. So your opportunity set will be really limited, and you will most likely not own high quality companies, with the exception of some high quality companies in cyclical companies.

Most of US high quality companies, including old economy business are still expensive, with the exception of cyclical and micro-cap companies. I would recommend you to take a look at stock chart and trailing P/E of 3M, Macdonalds, Costco, PepsiCo, Coca Cola etc. It is very easy to assume and give a sweeping statement without taking even a closer look at the companies. 

Not sure if you even took a close look at Exxon when quoting it as an example. But, I did took a quick look some time back. Exxon might seem reasonable on a normalised earnings basis. But if you take into consideration of debt, it is not even cheap on an EV/EBIT basis. The same is happening to a lot of US corporations currently as they leverage to perform share buybacks and issue dividends, to juice management compensation. While I don't think Exxon will go bankrupt, I am uncomfortable with that amount of debt and uncertainty in oil prices which may result in changes in capital structure.

Maybe, and to my surprise, the market is suddenly having a long-term orientation (looking past and writing off 2020-2021 financial results) to justify current valuations hahaha. Guess, I am losing my advantage.