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What to do now?

Portfolio Performance

Thoughts and Review

“Everyone has a plan until they get punched in the face.”  – Mike Tyson

Leading up to this correction or panic or collapse or whatever this is becoming, my only plan was – ‘Do not get punched in the face.’

So far I haven’t gotten punched in the face.  I hope that I can continue to say this after today.

I’m purposely trying to write this before the open of the market because I suspect once the market opens I will have different thoughts.  Depending on when I publish, I might even write a second half post-mortem.  With the S&P poised to open -7% I suspect that market moves will be impacting my mindset today.

Going into the open, I think I’m okay.  I’ve tried to do everything to protect my portfolio – as I wrote at the beginning of February, I have reduced all but my most core positions, hedging with inverse ETFs, shorted oils and airlines (can’t do that in the practice portfolio but I’ve noted it on a bunch of past posts).  Keeping positions that have lots of cash (ie. my largest long has a market capitalization that is ~95% backed by cash on the balance sheet).  And maybe most importantly – being a Canadian invested in US dollar assets (the Canadian dollar is down 1.5% this morning).

If there was one smart thing I did last week, it was that I sold my FXC.  That is a USD/Loonie currency hedge.  I was about 50% hedged on my US dollars and now I’m not.  While I did not expect OPEC to crumble this weekend, it seemed like this market would likely not be friendly to the Canadian dollar.  This was really a bit of a lucky move but its going to pay off today.

If there is an Achilles heel to what I have left, it would be my gold stocks.  I own a few and they do not seem to care much what gold does right now.  I am reluctant to sell them because they remain very cheap, gold is holding up, and gold and gold stocks have proven in the past to be the first movers when the smoke starts to clear.

I remain hopeful that one of these days the gold stocks will start the day down and rise (they kind of did this on Friday) – which would finally demonstrate and end to the selling pressure which I believe is based mainly on fear.  I mean, the main reason I’ve heard to be worried about gold stocks is because they might have to shut down their mines if the virus gets really bad.  My response to this is that if its gotten that bad that remote mines are shutting down, then we are in big, big trouble.

I was going to write a what now part to this post, but to be honest, I’m still not sure.   I will cover some energy shorts soon, and maybe sell some inverse ETFs.  I’m still inclined to buy large caps like Facebook and Google but honestly, this is so far beyond my pay grade I’m tempted to just continue to sit it out.

One thing that surprises me is how stressful this is even though I’ve tried to do everything to limit exposure.  I’m still not sleeping great, still anxious.  Its crazy.  I remember in 2008 a friend of mine, who was smartly hedged (I was not), saying it was wearing him down.  I didn’t understand that and now I do.

Portfolio Composition

Click here and here for the last ten weeks of trades.

5 Comments Post a comment
  1. I’m doing it with gritted teeth but I think you got to cover some and buy something here. I am by no means going all in, but small buys and taking off more of the index hedges seems like the right thing to do, as painful as it might be in the short-run.

    March 9, 2020
  2. mlbdraftfan5 #

    thanks for the update i really look forward to these.

    March 13, 2020
  3. ijw z #

    Some thoughts (I saw you didn’t let my last comment go through, perhaps it was too optimistic? I am a natural optimist though):

    -case # is useless statistic at this point. % testing positive is somewhat useful.

    -Swine flu CFR was overestimated by WHO by a factor of 13-33x initially:

    Click to access 1.Briand_epi_7th_July_2009_(rev_6July_09).pdf

    Swine flu started in early april and ended up having a CFR of 0.03% (1/3 that of a regular influenza outbreak).

    -Anti body testing is where it is at. This will probably start to happen later this year.

    -High early estimates of R0 was likely overestimated as well, as when you start large scale testing the official number of cases ramp up very quickly (but is basically measuring early testing speed). Currently it is at 1.5-2.5 according to WHO. The R0 of Swine flu ended up below initial estimates as well.

    -Death numbers are much more accurate and are worth watching. Currently between 20-25% of tests in Italy come out positive (and this % is going up), so likely it is very widespread there. I am watching death #’s like a hawk, if that starts to slow down you can get a better estimate of true CFR:

    -The cruise ship and Korea are still by far the best ones. No fudged numbers like China. And large scale testing (on entire population in ship, and on large population compared to sick people in Korea). Currently ~1-3% is testing positive in Korea. Critical case rate is <1%. They also show that with medical care CFR is likely under 1% (adjust for fact that there were almost no children in both samples).

    -The cruise ship also seems to indicate this is not as infectious (certainly no R0 far above 2), but this is more speculative. Only 20% was infected after more than 2 weeks on the ship and a pretty flawed quarantine (according to 1 Japanese virologist).

    -First confirmed case in US jan 20th, first confirmed case jan 31st in Italy. Make of that what you will.

    -Antibody testing should be watched like a hawk IMO. That will show the true numbers. With flu tests, false negative rates start to go up rapidly after 3-4 days of first getting symptoms. So if you test people 2-3 weeks after they got mild symptoms, they are likely increasingly more inaccurate.

    -The R0 determines % needed to get herd immunity. For the Spanish Flu this was around 30-35% of population infected.

    -Herd immunity likely lasts at least a couple years with corona viruses . At least enough to get a vaccine or treatment

    -Ways to treat this besides vaccines are to make severe symptoms less severe. Currently 7 existing drugs that seem at least somewhat promising being tested:

    Chloroquine the most promising (potentially reduces time in hospital drastically for severe cases).

    -In the US despite nearly 1% of the population dying from Spanish Flu, real GDP barely ticked down (economy is pretty different in many ways now, but it is an indication). Economic dip did seem to come with a one year lag though.

    -Areas that are not contained will likely not need further shut downs. They get herd immunity quicker. Area's that do will likely have further shut downs (second large outbreak in China likely probably?). Something to keep in mind with regard to economic consequences.

    -Strong evidence that warm weather slows the spread (see Malaysia, Indonesia, Thailand and Vietnam). They had sick people coming in in January, with dense populations, poor containment and health care systems. They should be worse off than Italy, but they have barely any cases or deaths. And no sign of overflowing hospitals. Note that most of Iran has a European climate.

    -More thoughts on comparison Spanish Flu and Covid-19:

    Again I am a optimist so take this with a grain of salt. I guess with all the pessimists out there, someone needs to point out some of the positives 🙂 . That said, I am not buying travel stocks yet. Still pretty nerve wrecking all this.

    March 16, 2020
    • I’m not intentionally not approving your comments. Blog maintenance is just not a priority for me at the moment.

      March 17, 2020
  4. Rich #

    I’ve followed your blog a long time and have always found it to have valuable perspective. Given how everything is connected these days, the firehose of information that we get every day, and the speed things are going, I’ve found it very difficult to make a move. Some stocks that I’ve liked but inexplicably dropped 30%, I’ve found myself unable to really take advantage due to worries that there’s some large event I’m missing.

    Wednesday last week, all the mREITs dropped about 50% (including NRZ), and mostly gained it back in the new couple of days, but the speed at which things move is really incredible. Despite being defensive as well, and relatively well positioned, I’ve also found it hard to sleep. I think there’s just too much to think about, but just wanted to let you know that I really appreciate your blog.

    March 21, 2020

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