Market Panics in hindsight - John Huber @Saber capital

[ksir]

In a gloom and doom, this writing from John Huber is a hope-springs-eternal, the caveat is always the same, the long time horizon:

http://sabercapitalmgt.com/market-panics-in-hindsight/


I don’t know if this current coronavirus panic accelerates before it subsides, but I do know it will subside. And at some point when enough time passes (often not much time is required), we’ll all agree that this was a great time to buy stocks.

Some investors are in fact panic selling out of fear, others are more rationally selling because they don’t want to own a business that will have a bad year. And this creates opportunities for those who want to buy a stake in companies as a long-term part-owner.

Steve Jobs used to tell people to go for a walk and “zoom out”, to change your perspective and to look at the big picture. Sometimes it helps to zoom out and detach yourself from the current situation.


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[karlmarx]

I mostly agree with his points.

But the caveat is that more businesses fail than those which succeed. We tend not to remember this, because, like our memory of past market panics, it fades with time.

So while having a long-term horizon is an edge, the business/stock which you own is just as important in determining your returns.

And I believe such articles are written with the objective of getting his clients to put more money into his fund.

Most investors know that sharp market sell-offs are great buying opportunities. The problem is, most of them have no/little money to buy when the discounts are most acute. Because, well, they are long-term looking, which means being vested most of the time, which means not holding onto much cash.

But if you have money pouring in for you to make picks each time the market is down, yeah, its a pretty easy gig.

[weijian]

And I believe such articles are written with the objective of getting his clients to put more money into his fund.

That is probably more true, if the objective is to prevent his clients from taking money out of his fund.

[specuvestor]

Such “historians” generally forget to mention the policy response as one of the reason for the short duration of the mini panic. Great Depression was caused primarily by a wrong policy response from a misguided free market belief without understanding the contagion effect of fear psychology. Buffett also mentioned George Bush remark “this sucker is going down” as an apt and true depiction of what was happening and hence the urgency of response. But when we look back in our couch we think Great Recession was best buying opportunity and easiest thing to do without understanding the risk of execution. Hind side is always 20/20 because you know what’s the subsequent execution.

So people sell because we want to avoid the risk of execution that is out of our control. Ironically that leads to 3rd order contagion if policy makers are not able to arrest it. Same thing we seeing now the fear of contagion from toilet papers to flight to UST safety.

End of day actually most people know it is about who lasts rather than who is right. But on aggregate like the paradox of thrift, it is paradoxically unhealthy for the community.

[opmi]

Investors has different responses in panic when they are in different financial situations:

Cash up - Relax one corner. May even be grinning smugly. "I told you so" Loaded and ready to shoot.
Fully invested - A bit scared when blue chips (with high ROE, high ROIC, super moat with >20 years consistent div payouts) also dropped
Margin Financed - Very scared, when margin ratio dropping like a stone. Suddenly bao jiat small caps no liquidity. Want to sell also cannot. Broker stopped financing your counters and margin call you.

The human mind is deceitful. It will screw with you at points of vulnerability. e.g. taking care of family, baby coming, 3 mortgages, job not secure, wife scold, investor scold, career at risk etc
Your mind will create cognitive dissonance/psychic pain.

Until you cannot tahan, but to respond to it. By selling to raise cash or reduce margin loan or closing positions to feel safe.

Then panic passed, on hindsight, your inv thesis never changed. Only thing is that your mind just screwed you.

BTW No money to buy in the panic - switch from low conviction to high conviction shares AND/OR margin up (30% financed wont die one unless you are a bobo investor)

[money]

Investors has different responses in panic when they are in different financial situations:

Cash up - Relax one corner. May even be grinning smugly. "I told you so"  Loaded and ready to shoot.
Fully invested - A bit scared when blue chips (with high ROE, high ROIC, super moat with >20 years consistent div payouts) also dropped
Margin Financed - Very scared, when margin ratio dropping like a stone. Suddenly bao jiat small caps no liquidity. Want to sell also cannot. Broker stopped financing your counters and margin call you.

The human mind is deceitful. It will screw with you at points of vulnerability. e.g. taking care of family, baby coming, 3 mortgages, job not secure, wife scold, investor scold, career at risk etc
Your mind will create cognitive dissonance/psychic pain.

Until you cannot tahan, but to respond to it. By selling to raise cash or reduce margin loan or closing positions to feel safe.

Then panic passed, on hindsight, your inv thesis never changed. Only thing is that your mind just screwed you.

BTW No money to buy in the panic - switch from low conviction to high conviction shares AND/OR margin up (30% financed wont die one unless you are a bobo investor)

Nice one here. Dont mind explain this last sentence:

 "BTW No money to buy in the panic - switch from low conviction to high conviction shares AND/OR margin up (30% financed wont die one unless you are a bobo investor"

[opmi]

"BTW No money to buy in the panic - switch from low conviction to high conviction shares AND/OR margin up (30% financed wont die one unless you are a bobo investor"

which part?? hahah

Switch - sell low conviction shares to buy high conviction shares. Assuming both types are all whacked down in a panic. More logical to hold more high conviction shares.
Also mean you are concentrating your portfolio. Some people dont like it.

Margin up - get margin financing to buy more in crisis. borrow 30% of your portfolio value to buy shares. At 30% financed, price drop 50% also cannot get margin call. UNLESS broker stopped financing your shares then margin call immediately.

bobo investor - like the bobo shooter in NS, invest in 'wrong' shares. ("wrong" - subjective hahaha)

[money]

ok ok haha thanks. I agree with you. But i think the borrowing to finance up is dangerous.

Something i will be heng enough to get it right, then i will smile even when i sleep. i will be thinking money is so easy to earn. But there will also be times when i am suay, i get it wrong, wow it is basically game over. i have to slog hard at my daily job and start all over again, that will be too painful for me

[weijian]

BTW No money to buy in the panic - switch from low conviction to high conviction shares AND/OR margin up (30% financed wont die one unless you are a bobo investor)

I didn't know that one can have "low conviction" stocks in their own portfolio!

But of course, when times are good and investors say "I am ready to take on risk" - it is simply a disguise for "i am ready to make money".
It is only when the bear markets come, and it exposes all our insecurities and flaws.

[Dosser]

The John Huber article is american centric. I, for one, can remember just where I was on 27th October 1997, having recently moved back to Singapore, and like many Valuebuddies I still bear the scars of the following dot.com bust, SARS and the GFC. SARS may have been a mini-panic in US, and soon forgotten, but here and in Hong Kong it was much more than a quickly forgotten mini-panic. In some ways that may benefit us now, as it has been instructive to see how the populations of both places responded fairly quickly to COVID-19, going into a similar response as to SARS. The US did not have the same experience and the signs are that they are going to suffer badly as a result.

The article talks about how the market has always gone up after a mini-panic, so holding long term has made sense. That is the case for the DJI: in November 1996 it was at about 6,500; now, even after the recent falls, it is at 25,000, or a 300% increase. Compare that with the STI: 2456 in November 1996; now 2,800, or a 14% gain. 14% total gain over 24 years!!! Stock picking and market timing are more important to making money in the Singapore market than has been the case for the US, where just holding a decent basket of ETFs has been a sound strategy.

This current market turmoil caught me by surprise, and I didn't do any heavy selling until 3 weeks ago, when it first started to become apparent that there was a significant risk that COVID-19 would spread well beyond the old SARS heartlands of China, Hong Kong and Singapore. In retrospect, i wish i had sold even more, but at least there is a decent cash pile waiting for reinvestment. No idea when. At the moment the focus is on COVID-19 + the Saudi-Russia spat, but the financial consequences are going to be severe, and are not at all obvious at the moment. The direct impact on the tourist, retail and hospitality industries in Hong Kong and Singapore is obvious just from wandering around the streets. While the potential impact on the European banks, the US shale oil industry, or lowish grade corporate debt is starting to be discussed, the direction of travel is uncertain. All I know is that there is a potential for further turmoil, which always has an effect on the Singapore market, and keeping a lot of dry powder seems like a good idea.