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Continuing to Wait

I wrote a few weeks ago that I was sitting on the sidelines.  That continues to be (mostly) the case today.  It has not been without some pain however – the market went up for the first two weeks of February and I’ll be honest, it was getting very frustrating as it just didn’t make sense to me.  Fortunately I stuck to my resolve and stood mostly pat, watching stocks go up while my portfolio did a whole lot of nothing.

Now though, the tides have turned.  The market seems to be waking up to what this virus will mean for economic activity.  My portfolio has done well and is at a new high, up about 2% for the month, while the S&P has fallen 7-8%.

Though the market has fallen pretty far pretty fast, I’m still reluctant to do much other than make small trades here and there for a bounce.  I did take off some of my short positions – 20% of the index shorts (I think I will take off another 20% today or tomorrow as we can’t just keep going straight down) and roughly 1/2 of my airline and oil shorts.  I may regret reducing the oil and airline shorts if the market continues to fall given that they are obvious collateral damage of the virus spread.  I did take on a few small, big-cap tech shorts, like Apple and Skyworks when things seemed to be getting particularly silly.  But I’m wary of how oversold we are and wary of some sort of stimulus package that seems inevitable (there was a call for it in the WSJ this morning).

I did sell some stocks that had what I would call unappealing news.  When Smith-Micro came out and said that they had acquired a competing company that was a provider to T-Mobile I sold the stock, thinking that this probably meant that there would be no T-Mobile deal coming in the short run.  When Big Five Sports announced bad guidance for the first quarter (due to weather) I sold out of that stock as well, thinking that being a retail chain with poor guidance in the midst of this virus was probably not a good combination.

I also sold some stocks on good news – in this case mostly the gold ones.  It felt to me like gold was getting a little frothy earlier this week and so I have lightened up significantly on almost all of my gold positions – Gran Colombia, Wesdome and the like.  I’m also wary that there are headwinds here for gold – first that India and China make up the bulk of jewelry demand, which is going to get hit by the virus and B. that if the shit really hits the fan gold doesn’t tend to do that well.  The only gold stock I didn’t sell was Roxgold, which is simply because the damn stock won’t go up!  I also added a small position in a new miner – Teranga Gold.

The other thing that I have done is take positions in some bond indexes.  This seems like another way to play the virus and what is likely to be the inevitable slowdown that will materialize.  Unlike shorts, I’m not sure that bonds will drop as the central banks inevitably respond, so it might be a bit safer avenue.  I bought TLT, ZAG and XSB.

Two stocks that I have decided to keep positions in are Evolent Health and Digital Turbine.  Both had good quarters in my opinion.  With Digital Turbine I really like the acquisition of Mobile Posse and insiders have been buying stock since the release of the quarters results.  Evolent’s revenue guidance for 2020 was very good, and while their EBITDA guidance was light, that would seem to be because of the ramp in costs from the growth.  The stock is still held hostage to Passport though, which should resolve in the new couple of months.

Finally, Schmitt Industries had some (maybe?) good news when they announced the delay of their de-listing transaction as the evaluated a new opportunity.  I’m hopeful but guarded about what the opportunity might be.

Looking ahead, I’m of the mind that when I do get back into the market I will look for larger companies to buy.  It just seems like every time there is a big sell-off, its always the big companies hat recover fastest.  There are a lot of big-cap names that are beginning to get whacked but good.  So I’m trying to figure out some simple ideas here that will work once the turn begins.

4 Comments Post a comment
  1. ijw z #

    Probably software companies with a lot of SaaS revenue that are not heavily priced for growth. Usually those subscriptions just keep running. Only growth slows down.

    I got lucky that I sold a bunch of stocks because I wanted to move some cash to another broker.

    Better lucky than good I guess!

    February 27, 2020
    • There was a real vision interview where the guy was saying that saas is trading on long term interest rates now.

      February 28, 2020
  2. lsigurd wins again! great call!

    February 27, 2020
  3. ijw z #

    I think a good argument could be made that virus fears are overblown here. For one the net number of infected has been declining in China for over a week now, even with China going back to work, and the total confirmed cases have a heavy bias in them. If you have mild cases you probably don’t go to hospital.

    That is if you trust data. Maybe they are still rapidly rising. But then they would still probably be on lock down, since I doubt that the top of communist party does not have really figures.

    And then the death rate for regular flu is 8.5% if you just count people hospitalized. And that is with a vaccine. So currently they are comparing (nr people dead/number of people confirmed to have covid-19) vs (nr people dead/number of people estimated to have influenza (regular flu)).

    Some Influenza statistics:

    And the number of people confirmed to have covid-19 is mostly measured in hospitals, and not randomly in the population. Since most measuring equipment is probably concentrated in clinics and hospitals.

    So loads more could have had it with little to no symptoms.

    Some further evidence of my hypothesis where something similar was found out about h1n1:

    Which originally had a estimated death rate of 2-5%.

    That does not mean there will be no significant economic damage. And I am not yet actually putting my money where my mouth is here yet 🙂 . Just something to consider.

    February 28, 2020

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