Ok yeah. We’re not talking about the same animal. Month/year trading is not my game.
Ok BS. I see where you’re comig from. I don’t agree with it at all but I understand that some people do. I’m just wondering about your take on the markets in general. Do you believe you can call the markets’ moves so that your value-added is more than the time spent analyzing the markets? (Nothing to do w/ DAL and the rest. I don’t give a flying F about them 
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I generally do feel that way and my employer seems to share the sentiment.
Fair enough. Maybe you’re among the 1% who really see what’s up and what’s going on but until I’m sure that’s the case, I’ll rely on probabilities, play the long game, and be happy with the avg. return!
What your employer said is not a very good argument. My employer thought I could manage his risk exposure… until corona busted in the door. Black swans and all those shenanigans.
Hmm, who knows, sounds like a personal problem.
But how do you judge/evaluate major mispricings? If you go south on one of those, they will wreak havoc in your portfolio for a long time. A right call is great but a bad call is terrible!
Well, my background and I have a very strong track record is in below investment grade and distressed credit analysis. So I’m usually investing around that skill set, areas where I have a leg up on traditional equity analysts and the headlines scare out the retail presence. For major mispricings, I think you’re overthinking it.
When stocks are on sale at 50% off what people are happy buying them for a month ago then either the world is permanently over or you’re buying. What you’re really buying is everyone else’s liquidity crunch. When whole funds are being forced to mass liquidate because of risk thresholds you’re simply being Buffet and supply cash where cash is scarce, you don’t even have to be that good at it. With a firm like DRI, 70% off, you either think that DRI is done forever or are too uncomfortable with the credit work or you see some obvious value. The margin of error on the valuation on calls like that is massive, you do have to get the credit part right though.
The impact to a portfolio is not really what you’re making it out to be. When it’s down 50%, you’ve just removed 50% of downside on new investment. For individual credit picks, that are half off, you can even call a few wrong and still wind up massively ahead.
Where people get in trouble is the need to constantly be trading, I think. I’ll happily go a year with no trades in my PA riding beta and as we reach new high’s I’ll start drawing cash back. Then when there’s an epic wipeout, I’ll be more active.
Consider DIS, I bought DIS of all things on Monday and made 24% on an A rated name with serious asset value at half off. Do you think that all of that DIS asset base was suddenly worth 50% less? What about NTR? It was throwing off 7% dividend yield with crazy coverage. Are people not growing food in the future?
One thing I’ve found is helpful for retail investors during wipe outs is to step away from some of the broader analysis and just look at strong BBB rated companies in more defensive industries with 6-7% dividend yields and good FCF coverage of their dividend, like 3x. Something like CF or NTR a few days ago and say, ok, tune out the price action, are you happy with investments that yield 6% a year (maybe more) for the foreseeable future on your investment in cash dividends? Most say yes. Answer: BUY
The thing you’ve done here is to hold the starting level as some kind of a bench mark that marks a fairly valued market. But pretty much anyone in the business knows that the valuations and the long term out loook we saw in 12/2019 or 01/2020 were pretty terrible. I’m not saying there isn’t some pockets of extreme upside that hasn’t been realized, I’m just saying it’s hard to find. If you can do it, good for you. But I know I can’t locate those pockets on inefficiencies!
So what if some credit picks are 50% off? They’re so for a reason. It’s not like this corona thing is a once in a decade circus that you can just brush off like it’s nothing.
But it really is, the same reason 2009 was brushed off a year later, or 2001, or 1992 or 1987. It’s a very myopic POV. It’s also fair to say the starting point is a far benchmark. There are two reasons 1) it’s money buying a finite amount of cash flow or assets. As we pump up QE etc, it only boosts money in the market. People can pull back temporarily but eventually, the money returns to allocations and like water filling a cup, you will return to that prior stasis. The other 2) is that people are buying long term cash flows. Long term cash flows really weren’t substantially altered by this unless you think the world as we know it is done.
Assets go on sale for reasons that have nothing to do with value all the time. The point of the credit analysis is to separate the wheat from the chaff. See the Mr. Market example. In the present crisis and most crisis, there is a grasp for cash drawn downs that artificially lowers prices, people couldn’t buy if they wanted to. That’s a great time to have cash.
The pace of the drop has been historic but the drop itself is not. Markets have been crashing more frequently in the last 2 decades. 50 percent in 2008. And 55 percent in 2000. And who could forget the 85 percent drop in the Great Depression. Any bear market has a huge credit crisis and this is no different. Low rates have caused this crazy amount of debt to finance some stupid acquisition. Look at dis with its fox acquisition. They saddled themselves with 30b in debt prior this crisis. So now they have 50b and their fcf has gone to from 10b to 1b. Since when is it reasonable to take on that much debt? Look at Viacom cbs, granted they were already garbage going in. But Disney has always been resilient in the last 10 years except the last 1 since they are trying to be netflix. But overall they took on this debt at a poor time. And they are not alone.
Disney is definitely the best looking content provider though among all of them! So I’ll give you that. Best theme parks and networks, and movie studios.
Lol, I actually did buy some KHC too Monday, lower conviction call though, just going to hold for a year or so and see what happens.
But anyhow, I never called the magnitude historic, although it is in line, I am saying the pace was, so if you do the whole drop I don’t know why the fact that it’s only been a few weeks matters.
Haha. Sorry for the edit. Khc has choppy financials and Disney has been a smooth operator. It was an unfair comparison on my part. Also khc has debt levels that have gone full retard.
It’s been historic imo because it was self inflicted so there is an argument that things will get better a lot sooner. But I doubt it. There has to be some form of frictional costs from all this. We need a vaccine because the panic for the public is real.
Economic shutdown is like water boarding. If you do it for a short time and it doesn’t matter, it is much like a baptism. Do it longer and it can be torture. Do it for too long and the person can die. That’s what companies are facing and some can hold their breath far longer than others because they are not encumbered with debt.
Also there are a lot of companies with junk debt. With spreads widening that prolly has the greatest opportunities. I bet david tepper is salivating at all this.
from cooperman, thought you might enjoy. i disagree with his adobe and amazon comment. those 2 are grossly overvalued. i also dont like his comment on margin. there is a time and a place i just dont think its right now.
Billionaire Leon Cooperman: I’m optimistic the stock market has bottomed on coronavirus fears
- “If the economic shutdown goes beyond April into the third quarter, I would be less optimistic,” longtime investor Leon Cooperman told CNBC on Friday.
- “I think it’s gone as far as it should go,” the Omega Advisors founder said of the market drop.
- “The market is in the zone of fair valuation,” he added, and investors should stay “very defensive” until more is known about the trajectory of the coronavirus in the U.S.
The investor, who made his fortune picking individual stocks, said he sees an S&P range of 2,200 to 2,800 this year.
“I feel very strongly that individual stocks are much more attractive than [buying] the S&P 500,” Cooperman continued. He said he has added to his Alphabet holdings in recent weeks.
“We’re looking to add to Facebook and Adobe. We own Amazon. We look to add to that on weakness,” he said.
“I found the rally off the bottom in the few couple days impressive. I think it’s gone as far as it should go,” Cooperman said. “The market is in the zone of fair valuation. Until we get more of a handle on the virus, I would think that one should be very defensive.”
Earlier this month, he said investors who are trying to manage the stock market’s coronavirus-driven volatility needed to be patient. Don’t buy on margin, “just know what you own and be patient,” Cooperman told CNBC on March 1.
Cooperman offered similar advice Friday, telling investors “that this is not your last chance” to buy.
“I would not want to borrow money. I would want to be a cash-basis investor. I would want to stick with quality in the market,” he said.
Dumped my 50% SPY on the open near breakeven, so 50% invested, but didn’t want want to trigger tax on the individual positions. Will go back in on levered and absolve my single levered SPY mistake over the next week or two.
Yes. I mean my track record says I achieve alpha in distressed and HY.
I my PA for recordable time, I have. These aren’t really beta strategies, particularly as they relate to single name selection.
@Black_Swan I don’t mean to doubt you, but do you attempt to adjust for the other factors like beta? Or are you just comparing vs the index? I’ve never worked on the buy side, but my friends have led me to believe it’s actually tough to really know how you are performing given the other factors, shorts, etc. But glad your employer believes you are 