I’ve Sold 9 of the last 2 Crises – So why stop now?

First of all, my primary reason for writing this post is that I really like the title. I was thinking about Evergrande last week and it just popped into my head and so now I have to write something to go along with it.

I wanted to get this out on the weekend but I didn’t really know how to say it. Then Monday happened and I didn’t want to say something bearish with the market down so much. But now we have had a nice turnaround-Tuesday and my thoughts have stewed enough to percolate so it seems like as good of a time as any.

The story behind the title is that I always sell first and ask questions later. I’ve written about it before. This time I am writing about how most of the time I am wrong to do so.

This was not always my instinct. When I was a novice investor I had a conditioning that I think all human beings have – the want to hold on to hope.

Unfortunately, when you are investing, and in particular when you are investing in small cap shitcos for the most part, hope is more your enemy then your friend.

My experience is that if you hold on to hope you will be more often than not disappointed. The reality is that 9 times out of 10 (that is not a scientific estimate) you can buy back at roughly the same price anyway a few weeks later.

So whenever I smell even the hint of a crisis I go into defense mode.

As the title suggests, usually this is wrong. The crisis blows over as nothing.

But every once in a while, it becomes a full-blow 10%+ correction. Which can be a 20%+ correction for the crappy little stocks I own.

But more importantly – every once in a blue moon, it becomes a real bear market.

When I am wrong, I miss out on the fire sale selloff and usually the first few days of market recovery.

That is too bad. But when I am right, particularly when it is that blue moon event, it more than makes up for it.

Consider my posts from back in February 2020 (including my comments at the time). Just think – in February 2020 I did not really know if this ensuing “pandemic” was going to amount to anything!!! I was selling and shorting and at the same time cautiously admitting I might be horribly wrong for stepping aside and if the market took off I was “okay with that”.

LOL!

I didn’t have a freaking clue what was about to hit the market. In fact even though everyone says otherwise now, I doubt that more than a few did. Those that suspected were more like I was – feeling uncomfortable but not all that sure how things would play out.

But because I followed my rules and “sold the crises” – which meant buying inverse ETFs, selling some shorts where I think they might be particularly vulnerable to the crisis flavor of the day, and buying a little bit of VIX for leverage – I can happily recollect that my portfolio was up 3% on the year when the market hit its low of 2,100 and change – even as my remaining small cap positions were obliterated.

Now of course that first move up from 2,100 to 2,500 was not something I participated in. C’est la vie. I lost no sleep from my portfolio through a horrible time for everyone and that is worth way more than a few points of performance.

So is Evergrande the next Lehmans? Eh. Probably not. But it could be the next 10% correction if the cards fall right. There is a lot of debt off the balance sheet, there is apparently some $500 billion in new build buybacks that they are on the hook for, and there are some strange ties to private equity and even to tether which just seem odd.

And there is also another one of my axioms, which is that no one really knows what the F&*$ is going on in China.

Last week I started to take precautions. I peeled back some risk in stocks I have less conviction in, added a couple short China ETFs (just the 1x CHAD and YXI), and added a little VXX.

I’m still far from “short” the market, but it was enough that during yesterday’s bloodbath I was pretty much flat on the day, which is basically my goal during periods of turbulence.

If the market takes off from here, the playbook says that I will underperform for 5 or so days. I will pull my hair out during that time as I see indexes rise, the VIX fall, but all the stupid little microcaps I own do nothing. Oh well, I am getting used to that, it is just the circle of life.

It is imperative, maybe as much because of my own particular psychology as anything, that I prepare for the worst each time, even as I know it is a poor-odds bet.

To each his own. This is what works for me.