Don’t be ridiculous and keep believing this is an ordinary sell off. We have a full fledged rout underway, now braced with a burgeoning credit crisis in high yield. What’s at the center of these fears is a slowing economy. Bear in mind, the last two recessions were met with dramatic 70% declines in earnings.
At the same time, it’s wholly absurd to believe this is anything like 2008. Okay? Don’t always draw for those straws. Negativity is a cancer and infects the mind and turns people into ideologues. I have my opinions and am preparing for the worst — but price action is everything. This crisis can unfold this week, next month, 1 year, or 5 years from now. We will only know it when the prices show us it’s time to panic.
As of right now, I believe it’s time to entertain the idea that this could get significantly worse. Corporations have borrowed trillions of dollars the past decade, allocating most into share buybacks. This year alone, $200 billion in buybacks were made, effectively leveraging into businesses. The way this unravels is credit markets freeze, corporations forces to raise capital via secondary offerings — dilution CRUSHES the helmets of those long stocks.
But before we start telling that story, let’s figure out how to protect short term and long term accounts — something I am very focused on and will be talking about this week in Capstone.
Here are some quick ADD friendly bullet points.
Old, traditional, companies who pay dividends, like TR and PG, are attractive now — because the Fed might pause. If the Fed stops hiking, old man stocks can elevate because cost of capital will remain cheap, negating the premise for valuation contractions.
Maintain diversified in all sectors, including Utilities. Consider that major drawdowns are rare. In 1929 and 2008, the market dropped by 42% and 34%, respectively. In the 2000 market rout, the market only fell 11%, while the Nasdaq dropped much, much more. Diversification is the only way to invest long term.
Draw from two pools of stocks for your investments: conservative and growth. Whichever is outperforming is where you should stay focused.
Hedge long term accounts with allocations into bonds (TLT) and gold (GLD). I know gold has been shit in recent years, but it has been performing much better and with BTC destroyed, it stands to draw in a lot of lost money looking for safe haven.
Inverse ETFs should be used for swing trades only. DO NOT hold them longer than 1 week — due to time decay. You can always buy them back.
Assume your initial purchase point will be wrong. Start positions small, no greater than 5%, and never exceed 15% of an overall account.
If you have a long term thesis for a stock, consider dollar cost averaging.
If you’re trading position is down 10%, ditch it. If your trading position loses it’s catalyst, you have to sell it. Review positions every single day and ask yourself “would I buy this today?” If the answer is no, you might want to sell it.
I can droll on about these rules you should follow. Some of the more experienced readers here are probably rolling their eyes at some of these — but, believe me, I have a lot of readers new to the market.
The number one rule in any bear market is to survive — live to fight another day. If you’re simply buying and holding — hoping for respite, you’re a victim.
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Most of this year’s buyback borrowing was done against overseas repat cash on hand (AAPL CSCO). No big deal.
Ridiculous. Of course it matters.
dont be a full fledged retard. of course it matters. wtf!
@Fly Do you ever bump the less mainstream (i.e., the “blacker”) rappers like Boosie? Am curious since you have always been listening to rap.
no one listens to Boozie outside of atlanta.
its all about Tekashi 6ix9ine/ Juice WRLD / Xxxtentacion / Gunna / Lil Baby / Lil Mosey / Anderson Paak / Kodak / Lil Uzi / J.I.D. / Trippie Redd / Ski Mask / Lil Pump / Lil Skies / Denzel Curry
False. Boosie is revered in the South and most black cities (Bmore and STL).
Revered because of the way he rides a bike?
Because he beat not only a first-degree murder charge but also kidney cancer… and, more importantly, never bothered to change his style (or “sell out”) for a broader audience.
One simple way to explain it: No one in the hood actually respects the self-proclaimed “hood billionaire” the same way towards Boosie, a true hood legend.
Good reminders. Great philosophy. That’s why I’ve been a reader of this site for 5 years. Cheers, Fly.
Great couple of posts. At this point sentiment has gotten so poor that I wouldn’t be surprised if we rally at some point next week into Christmas. That may be a good opportunity to get long vol and locate some potential shorts.
You think Trump, Jerome and China are going to let this get worse? Nonsense.
CHIYYNA MUST BE STOPPED!
How about international diversification? …and stuff denominated in other than dollars? Burp.
Banger post FLY, thanks!
New investors should bookmark this post.
The only change I would make is on this:
“Draw from two pools of stocks for your investments: conservative and growth. Whichever is outperforming is where you should stay focused.”
For that to be effective, you have to be able to spot the end of the trend quickly: look at FANG. A more prudent investment startegy for beginners is to balance the two, so if one outperforms, you buy more of the other. Now for *trading*, the trend is your friend.
From personal experience, seek your trading entry points conservatively as a loss is worse thsn a gain not made. Define you selling prices (on both sides of the ledger) whenyou palce your trade.
Thanks Fly, your advice is much appreciated.