What I'm buying today - A cherry picking, market timing thread

Manage
48

I would bet money that the average investor will do much worse than indexes by becoming a discretionary trader in a time of absolute market stress.

They will buy on spikes and sell on dips… and double up winning positions while trimming losing ones.

It’s too hard for most people — don’t know when to sell…lose conviction when positions lose… and research is fairly mixed if anyone can do it well over long periods, and if so it’s likely very, very small numbers of people who invest 10,000 plus hours at it… band still have long periods of underperformance.

For anyone confident they can navigate this market better than passive asset allocators, why not create a discretionary portfolio challenge for p123 users — Starting now — with all of them kept public and shared — tracking trades in real time — and we’ll all watch and learn as we see the gains (and losses) roll in?

My bet is mechanical systems and passive asset allocators will still basically win this time around… except for a small number of outliers with few positions who may or not be able to replicate success.

If u want a factor tilt — small or quality or value… or price persistence — probably better off building a system for it, Or buying an etf, rather than being a reactionary trader.

Remember John Paulson got housing bubble right and had most profitable trade in history… but he was then wrong for a long time and lost a ton of investors money. His biggest positions were in gold and gold miners waiting for inflation after the last 2008-2009 Injection of money into the system.

I have been part of conference calls with him and his team many times, and he’s very smart.

Maybe this time it will happen… maybe not.

49

From WP article about Italy. This will be very difficult.

“The restrictions came upon us slowly but steadily. Within two weeks, our old lives were gone. First the schools closed, then came social distancing. Then the government locked down the hardest-hit areas: no more going in and out of certain provinces; limited movements within the “red zones.” Then the whole country shut down. Most stores closed their doors. People who could were asked to telework; those who could not, and did not have a job related to the continuation of essential services, were placed on part-time schedules or unpaid leave. When we went out, we had to carry a pass explaining our reasons for being outside to show to the law enforcement officers patrolling the streets. The priority became keeping everyone inside, at all times.”

Walter

50

A pretty good podcast with two older traders talking about emotional investing vs. systems in times of market stress…

https://lindzanity.libsyn.com/lindzanity-panic-with-friends-1-with-jim-oshaughnessy

Putting it into perspective somewhat. Just first 30 min or so…

51

If you have a long investment horizon ahead of you, this is a really good learning opportunity to take stock of your REAL appetite risk and stomach for drawdowns going forward. It’s easy when it’s hypothetical when things are good, but now it’s actually being stress tested with real world dollars. No shame in crying mercy and bailing out, everyone’s tolerance is different, but it has to be soberly accounted going forward when you evaluating your future asset allocations. I’m taking note, because I’m probably going to experience a few more “once in a lifetime” events in my investment lifetime. I’ve already been through 3 “once in a lifetime events”.

52

I don’t know what you’re trying to say. Anybody who subscribes to p123 is, by definition, not the average investor.

Oh pleeease! There’s more to life and investing than running a footrace against the S&P 500. At times like this, risk management is far more important than return. Speaking for myself, I kicked the living sh** out of the S&P 500 because I came into this with a very strong cash-fixed income allocation. Of course that means that prior to this, the S&P 500 was kicking the sh** out of me.

So how do we identify winners and losers? Anybody can claim victory and anybody can be a loser simply by defining start and end dates that give the answer one wants.

Mechanical? No such thing. Humans are always responsible for the systems they design, and as we’ll see going forward, for the protocols that use to develop them. And anyone who thinks it’s a good idea to passively stick with what’s been tried and tested from 1999-2020 . . . Good luck with that!

This is not about being quant, being system oriented, etc. There are good quants and bad quants. There are good statisticians and bad statisticians. There are good mathematicians and bad mathematicians. There are good system developers and bad system developers.

This thread is about “What I’m buying today - A cherry picking, market timing thread”

Instead of trying sh** all over it, can I suggest you launch another thread addressed to the topic of systems and, perhaps discuss the differences between good systems investors and bad systems investors, and leave those of us who are interested in the topic of the thread to continue on without spitballs being tossed from the outside.

53

Antm — anthem is very interesting right now. Strong value, not clear revenue growth or sales will be hit much — May even grow… and can likely pass on any cost increases to consumers with rate increases.

Medifast is also interesting buy right now.

Green dot (gdot) is also interesting… insiders still own 8% of company and buying more, strong financial position. Strong sales growth in past… good space. Lots of cash, good margins.

rMr group also interesting… strong financials… stable with good dividend. Property managment strides with good margins and lots of cash on hand.

Probably like anthem the best at first look.

But need to have a pretty long term horizon still… not technically selected, based on fundamentals.

I still think it’s best to start putting any new cash to work around 4/1 and put it to work in equal monthly installments over coming 4-6 months… will take a while for market to absorb all this as new data emerges…

Several good articles here on market impacts of pandemics in history:
https://investoramnesia.com/2020/03/01/pandemics-markets/

Can click on headlines and read articles.

The challenge with timing discretionary trades on single positions or maker as a whole is having clear entry and exit points. A trading journal over time can help there. If new, and first downturn very hard to do… even if experienced, pretty hard to do well. Have to write down thesis and when and why initiating position and when and why you’ll exit it… and then really reflect on position sizing… and stick to it.

Good news is that historically these pandemic shocks haven’t always had huge long term economic Impacts… but seem to spike % of people living in poverty… in addition to deaths…bad news is they have very significant financial market impacts generally…larger than seen so far historically.

54

Cognizant technology ctsh also looks interesting now… as do — if you want a real bet — jet blue. You’d have to be willing to hold jet blue a long time and they have to not go bankrupt… but interesting value.

But CTSH is very interesting now… for watch list. Strong company that will last… and find opps in this market to sell more. But will lily get cheaper… maybe start to buy at 20% below current price.

From what I found today, on first pass may like antm and ctsh best… issue is price targets for them… and when to buy. But I like the short list I posted today.

Still also like Humana potentially also. Question becomes entry target prices and times.

55

Tom,

Healthcare and Tech . . . hard to argue with those areas of focus.

Maybe. But things might work out more quickly than you expect. The market has shown it can melt up just as quickly as it can melt down . . . you sit for a month, two, three or so with dead money and then, voila, the stock has blown through you 3- to 5-year targets in 3- to 5-weeks, I’ve seen that plenty of time, and if anything, the tendency has increased as the trading blocks get biggert and bigger and the algorithms get faster and faster.

Yep, harder than ever. Kinda reminds me of a story my late mother told me about how she was driving someplace many years ago and her mother, who had nver driven a car in her life, was sitting in the front passenger seat. My mother had to drive through a very very narrow crooked pathway through a big construction site. After they came out of it, my grandmother, still getting over her fright, asked “How do manage to drive through something like that?” Mt mother’s answer: “Easy. I just close my eyes.”

That’s how you have to approach major crashes. Getting analytical about entry and exit points is all well and good, but sometimes, you just have to close your eyes . . . like today, when a friend who works in JBLU headquarters asked me, tongue in cheek, to buy JBLU today because she needed to sell and needed to get the price up (as if little old me could do that). Just for shits and giggles, I checked the stock: Yowza, what a pummeling (we all know what the next couple of Qtrs are going to look like, probably something that will cause gastroenterologists appreciate the aesthetic qualities of what they see when they gaze into colonoscopy scopes. But I don’t see that airline going away. Checked LUV and DAL too. Decided to close my eyes and nibble. (Actually, I closed my eyes re: entry points. I did, of course, make a quick dash to the p123 panels to check balance sheets, interest coverage, cash, capital needs and general survivability, including, potentially, government help. Not into screens, sims, ranking systems now – I’m all about the panels and especially the balance sheets and cash flow statements. Income statements and estimates? Z-z-z-z-z My estimates across the board compute to “suck like they’ve never sucked before and then some.” ) Badly crashed stocks with survivability! That’s my thing now.

56

It’s time to leave. I have hit my stop loss

57

Speaking only for myself that sh** never gets old. I laugh every time.

In addition to not liking bad math, bad fundamental analysis and bad system developers,……

I am against a lack of flexibility.

I think I agree with Marc when I say: Why would you follow a system when the market regime has changed completely? Because that is what you programmed the machine to tell you to do somewhere in the past—with old information?

You made an immutable, non-negotiable pack with your past self to follow the instructions of a computer for life? I think you didn’t.

I do get that there are some good all-weather systems and I do not want to be inflexible myself. If you have a good all-weather system you should stick with it.

Or maybe you might slightly modify an already great system based on new information—its okay. You can do it if you want.

What does that R mean in the Designer Models? You would not be alone.

People have closed Designer Models that did not perform or if they changed their mind. A lot of people. Maybe they read a new book or the port just did not work. Clearly not verboten. They usually do not explain to you why they closed the port and you do not have to explain anything to them.

I think I am strongly agreeing with Marc but I am ready to go to time out if I misunderstand or do not say it perfectly.

Best,

Jim

58

Marc,

I generally agree Airlines aren’t going anywhere as an industry – and the well capitalized ones will still be here. My 2 would be Jet Blue and Southwest as well.

And consulting / tech / finance / healthcare consulting. They will, if anything, find ways to sell more stuff.

And healthcare. Barring Bernie Sanders winning with an all democratic congress and a huge popular mandate – unlikely we will not have private insurers still.

Time horizon… no one knows – it could be 2 weeks to 2 months to market rally or 2-5 years – we’re all just guessing on that.

But I attached CTSH and Anthem healthcare. They are solid companies / stocks in very good financial position to weather all this. And they both have real business opps to find ways to grow revenues or at least stay flat.

But ultimately – need to do things ‘big enough’ to move the needle. I’m also nibbling – but that’s not really gonna change my investment fortunes / life all that much.

Need enough conviction to do something ‘big’. I’m not there beyond ‘nibbling’ yet.

Screen Shot 2020-03-21 at 11.26.33 AM.png

Screen Shot 2020-03-21 at 11.24.00 AM.png

59

@Jim… sure. But, every time there’s a big DD, people tend to tell themselves it’s a major regime change and start completely redoing asset allocations and system design. Any 95% of the time, it’s not all that different.

So… professional asset allocators have rules generally and ‘committees’ to try and put the brakes on excessive change. They can / may lose their shirts in another depression type event – but vast majority of time outperform people without those brakes. It’s one reason why people generally do better with financial advisors then without.

(Edit)… As far as why I stopped offering systems – a) I was being charged monthly to do so, b) no one was signing up (rightly), c) they weren’t doing all that great. Only 1 performed well – the bond rotation system has averaged about 8% a year since launch. The others all underperformed the market.

The vast majority of my personal money went to professional funds in illiquid spaces, ETF’s in liquid spaces, cash and then a small P123 discretionary bucket with ETF rotation systems and some stock trading.

60

For the moment I am still in cash and government bond ETFs and feeling good about it. At some point (probably won’t make analytical sense when I choose to do so) I will start putting some of the cash to work and might lighten up on the gov’t bond ETFs. Don’t know whether or not corporate bond funds are tenable because of so many unknowns (profitability, bankruptcies, mergers to come, buybacks, …). Funds of highly rated corporate bonds, convertible bonds, and some preferred stocks might need consideration because some companies might use new issues to get needed funds for a while.

For now, I expect to focus on specific industries or sectors that I think will do well going forward, regardless of how they have done in the past. Time for some major regime changes and rethinking, I believe. Agree that tech, medical, and perhaps transport/distribution/delivery areas are good ones to analyze, but not all firms in those areas will win.

Measuring profitability going forward can be difficult and sometimes misleading. Competing firms going after the same market can win or lose sometimes for what seem strange or unexpected reasons. In this time period, think governmental actions and their corporate consequences. I don’t, as a general rule, try to identify downtrodden companies that could rebound sharply because someone with better information than me could have been the reason for the company’s misfortune.

So to me the low hanging fruit should be picking industries and/or sectors rather than individual companies, and I will likely pick ETFs that reflect my hazy crystal ball picture. Good luck everyone, both with investing and the health of you and yours!

61

Tom,

If we talk about people in general, some do not have a good system to begin with. Let me look at the Designer Models and see if that might not be possible sometimes. Not for all—just for some. Possible I think.

Even smart designers seem to be able to create some bad systems that do not need to be followed forever, I think. I have seen more than a few systems closed.

I think telling people to stick with systems no matter what happens may not be good general advice for this reason alone. There are some who will suffer from following (giving) that advice blindly. But….

There is a serious discussion about regime change. Pros handle it in different ways. Can regime change always be built into one model or always be planned for? Most of us do not have the resources of the hedge funds and they do not always handle regime change in an exemplary manner—even the ones that are still here. I going to say all of the ones who were not able ot adapt are gone.
You said you did a few things with the last drawdown that were good. I will leave it to you to elaborate/re-elaborate. I did too.

Maybe someone else can do it, do it better than I did and do it in their own way. I think there are a lot of people that do not need a lecture or even a pep talk from me.

If someone knows for certain that it is best for every person reading this to stick with the system they are using please be my guest and convince them to stick with their systems. I admire you for your psychic abilities. All I said was it is for everyone to decide for themselves based on any new information they may have.

Heck not only do they have new information, I generally do not have enough old information about their system to be telling them what to do.

Frankly, I do not know how anyone can speak about this generally—without specific information about a person and their ports, their leverage, their debt, their retirement horizon…… Plus, this is not over and I am not a fortune teller.

Anyway, I am not going to spend any time helping to formalize the official P123 position on this. I don’t need to be on that committee.

Best,

Jim

62

Jim,

Sorry if I upset you. You’re correct, everyone should do what makes them comfortable and lets them sleep at night.

I hope you stay safe in all this. Same for everyone. I’ve had the flu the past two weeks and been locked out of my office by my landlord, the two softball teams I coach had their seasons cancelled, my kids are at home fighting with each other, and I am wondering what the markets and future hold for us.

So, i came back to p123 forums to talk about markets again and share some ideas. I love the data, screens, sims, series and it’s a valuable tool to me to understand, or try to, the markets.

It also helps me remember all the things I shouldn’t do…things I’ve tried in the past, and not stuck with.

I am not trying to lecture you or anyone in what they should do… I just have a lot of time on my hands. It’s a coping mechanism for me, and sometimes helpful for thinking out loud.

But, I’m gonna try to sign back off.

Best,
Tom

63

Tom,

I am not upset. I am so glad you are posting again. That is actually how I am feeling.

I was probably lecturing, going on to long or making my point too strongly myself and I am sorry about that.

I truly believe you have some of the best posts and I am thankful for them.

What I truly feel strongly about is that we need more diverse opinions on the P123 forum starting with the opinions you have been presenting. I am truly upset if I am defeating my own purpose in this regard.

Best,

Jim

64

YES!!! Those are the sorts of images we need to see included with posts . . . as opposed to the vertical 1999-2019 backtested equity curves. Keep on looking at and thinking about things things like that (BTW, Tom. . . there are some panels that include Interest coverage; you may want to add that to your repertoire.) and when we start normalizing into the next regime, let the ideas you’ve been working with as you study data like that motivate your next generation mod models.

Nibbling is fine. Pros call it “averaging in” and for many, that’s the only way they do things.

65

What I’d find more difficult is the idea that people died needlessly because stringent enough measures weren’t taken. Staying at home for a couple of weeks or a month shouldn’t be seen as a great imposition. From some of the other forums I visit I get the feeling people aren’t taking it that seriously still offering up arguments on how flu is just as bad and how economic hardship combined with possibly increased suicide rates might make it a wash on the lives saved end.

66

Carnival Cruises – CCL
Saudi Sovereign wealth fund / Public investment Fund bought 8% stake this quarter and very cheap. Up 20% today… interesting bet. If they stay solvent till this ends, interesting play.

67

It’s interesting because the Saudis have enough money to save Carnival, so it’s less risky for them than for you and I.