Random Thoughts in Gloomy Times

“There are decades where nothing happens, and there are weeks where decades happen.”

Our generation has just experienced thousands of deaths and a global shutdown in many countries.

I’m sure books will be written about us. Maybe movies too. When will this end? We don’t know yet but it will.

This is me just writing down a few random thoughts on countries, markets and investing. Writing gives me peace. I suggest you try it out too. If writing publicly is not your thing, try a daily calendar. It’s keeping you sane. Here are 7 things I’m thinking about right now:

1. Countries will learn to deal with pandemics better

China has managed to contain the virus and reports very few new cases. I recently read that Taiwan started getting the infection approximately the same time as Italy (10 days apart).

On Sunday, Taiwan had 153 cases and just 2 deaths. Italy has more than 47,000 cases and 4,000 people have died. Previous experience dealing with viruses matters.

I believe the next time this happens we will be much more prepared. We will also be more understanding when they ask us to drop what we’re doing and stay home for 2 months. What now seems like overreaction will only seem logical under the same circumstances.

Unfortunately, humans learn by doing and only after the damage is done.

2. Paradigm Shift in Working From Home

In the software engineering industry I am in, working from home one day per week is considered business as usual. It wasn’t like that 5 years ago. It’s now seen as no big deal.

There are a few outliers in the “remote working” landscape. Buffer is a tech company proud of being 100% remote with most people working in random places. They have the option to go to an office if they want to. Hey, they even have a formula for calculating your salary depending on where you wanna live!

Buffer team
From the Buffer page

We’re a fully distributed team of 85 people living and working in 15 countries around the world. And we’re working to build the best products to help our customers build their brands and grow their businesses on social media.

We’ve always aimed to do things a little differently at Buffer. Since the early days, we’ve had a focus on building one of the most unique and fulfilling workplaces by rethinking a lot of traditional practices.

Quite cool, eh? It’s not that people want to be 100% remote, but 99% of respondents want to have the option to work remotely some of the time. Including myself. The biggest benefit being the flexible schedule followed by being location independent and spending time with family.

Most companies have limited capacity when it comes to full WFH. I believe this is about to change.

Businesses are currently forced to allow their employees to work from home, whether they want it or not. Not every company can do this and obviously not every profession is WFH-compatible.

I think NHS workers are heroes for taking care of others while risking getting the virus. They were heroes long before the virus, given the stagnant salaries and the effort they put in, having seen a childbirth first hand!

So yeah, I can see more companies improving their infrastructure and using technology to offer more flexibility and why not, increase productivity. You only need to see the share price of Zoom, one of the popular video conferencing tools to understand the current needs. 

Zoom share price 6-month to March 2020

3. Mom and pop investors are doing just fine

Have you not heard the cliche Mom and pop investors selling out? But you know what, they’re not selling. They’re just fine – waiting for the storm to pass. In fact, one of the popular world market trackers (US-based) is VTI which has seen significant inflows since the beginning of the crash. Vanguard confirmed that most clients actually stay the course and top-up their investments as usual.

It’s the institutions doing all the buying and selling and crashing the market. This makes sense as they need to lower the risks. Not everyone is playing the buy and hold game. They cannot afford to hold, you can.

4. The investing damage is not that bad

S&P 500 lost around 30% in USD terms, but a GBP portfolio of a global tracker lost only 20%. A 20% drawdown is not that bad, in fact, it’s expected every few years.

A 60/40 portfolio is hit even less than a 100% equities one, especially when measured in GBP terms. Thanks, British pound for going from 1.31 down to 1.16, GBP/USD. Obviously, if the pound stays so low that’s not good because our ££ will buy less stuff globally, including fewer global shares!

Here’s Vanguard’s Lifestrategy 60/40 priced in GBP:

Vanguard Lifestrategy 60/40 Acc .Source: FT.

The market crash “only” took us back to April 2017. So 3 years of the bull market lost in a few weeks. It’s not the end of the world. Sure it’s a buying opportunity, but not a once-in-a-lifetime buying opportunity like in 2009. I hope I’m wrong and in a few years we look back at this post and laugh all the way to the bank 🙂 

And here’s a 100% stocks one, tracking the global equities in GBP (ticker: VWRL), taking us back to December 2016.

VWRL Dec 2016 - Mar 2020
Total stock market – ticker: VWRL

Everyone will learn about their true risk tolerance. If you haven’t participated in a previous stock market crash then consider this as your tuition fees. If you don’t sleep well or are too anxious, let alone sell your investments, then consider making it more defensive when the war is over, or even now. Crashes like this, 30-50% were always part of the game, are expected and will happen again. It’s the reason we hold bonds.

Also, the “do not sell” advice holds true more than ever in a falling market. However, if you did not know your risk tolerance before, now you do. Maybe buy yourself some sleep by reducing your equity exposure (at a cost). No one is looking.

5. Property > Stocks?

The buy-to-let agent doesn’t knock on your door to ask if you want to sell at 30% discount every day. That’s the beauty of owning investments that are not mark-to-market.

Owning illiquid assets prevents you from selling at a loss. Because:

a) You don’t know what they’re worth at any point in time
b) Selling takes forever (2 months vs 1-min ETF sell)

Obviously, if you need the money as an emergency that’s not a good thing but for anything else, it’s a “behavioural alpha” to use a fancy Wall St term.  

My income from the properties I own in Property Partner landed in full towards the end of Feb. However, the liquidity in the secondary market has dried up and if you want to sell right now, you have to exit at a 20-30% discount. I guess we haven’t seen the worse yet and some people who’ve lost their jobs may stop paying rent. We will have to wait for a week for the quarterly announcements.

I’m also a bit worried as about 25% of my investments are in universities. Guess what will happen if they’re closed for a long time.

6. Gambling corner

Zero or hero? Will Easyjet make you rich or go bust and make you lose everything? This certainly can happen if you invest in individual companies rather than using funds. A few speculations that have suffered lately. I’m writing this on the 22nd of March.

  • Easyjet (-60% from All-Time High on the 20th March)
  • IAG (BA, Iberia) (-67% from ATH)
  • Royal Caribean Cruises (-82%)
  • Carnival plc (-75%)
  • Oil (from $60 a barrel down to $20)
  • MSCI Greece (-50%)
  • FTSE 100 (-32%)
  • BTC (-40% Feb 20th – Mar 20th)

The downside risk of owning individual companies is losing ALL your money. Some of these companies will be rescued by the government, in which case equity holders will still see their shares wiped out.

The upside, of course, is 200-300% returns. I think you should think of it as a gamble. It’s certainly what I am doing.

7. Time to appreciate what we had

  • Being alive and healthy
  • Meeting friends in cafes, pubs, restaurants
  • Having a steady paycheck
  • Watching/playing Live sports
  • Going to the office

We take things for granted. Time to practice gratitude.

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4 thoughts on “Random Thoughts in Gloomy Times”

  1. Michael,

    I had been thinking a while since early January that things were looking very toppy and I wanted to figure out the best way to hedge. After a lot of reading and head scratching I managed to put in some good hedges using Put Spreads on SPY, DIA and QQQ and also VIX options. It was a god send. I managed to save my skin and while I sold the hedges lower than if I had held them on till expiry I did the right thing and closed the hedges as I closed the losing Option and Long Equity positions in the US market. So, all told while I could have made a lot of money by holding on to the long put spreads, I still saved most of my dough and while I am not nibblinb back in the market, I still managed to stay up around +7% YTD on my overall portfolio. So, its good and lesson learned and very timely. Otherwise I would have down big in USD terms.

    All the best and keep up the good work.

    Aditya

    Reply
    • Very well-timed Aditya, well done. How much would this insurance cost you, percentage-wise, if markets didn’t crash? I’m trying to understand if it’s worth doing in the future.

      Reply
      • Hi Michael,

        These are difficult and highly volatile times, so would cost a lot more at this specific moment but when I started initiating the hedges in early February when things were not baked in, I can say that it was roughly 1% of my portfolio value for a two month average window of protection. So, during the normal times, if you did it in a regular manner through the year, I would say that it would cost around 6% of your portfolio for the whole year. I would expect that you could even do some additional down move sort of trades to ensure that you can also gain from the down moves (i.e. hold on to some of the positions to expiry and lose the premium but stand to gain if things keep moving down). I actually would have been up maybe 50% if I held on to the positions but once the market was down 15%, I started closing the hedges as I did not think we will be staring at a 35% peak to trough down move.

        Best,
        Aditya

        Reply
        • Very interesting, thanks. 6% for the year is quite expensive even in calm times but it makes sense – *someone must* take the risk at the end of the day. If you get the timing right it pays off big as you said.

          I’m far from a good market timer, but I’m asking because it may prove useful if one needs to cover a time period without missing out on market action.

          Say you want to close your company and the process will take 3 months. You want to hedge your business investments and stay invested until the process finishes. Basically, the opposite – a call option if I’m not mistaken.

          Reply

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Hi! I’m Michael and I love writing about different ways to earn, save and invest our money. Coffee addict :)

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