Raising Cash Today
“Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows. "
- Jim Rogers
The portfolio is down -4.88% YTD this morning.
Our benchmark index, the S&P 500 is down -16.00% YTD.
Is This The Bottom?
In my last post on March 28th I asked the question, "Is This The Bottom"? In my worst case scenario I gave an S&P 500 range of a decline to 2,100 to 2,150. I've reiterated my calls on the market below. Since then investors have remained, in my opinion, overly optimistic and have rallied the market on any good news, even before the news is verified. Earnings haven't come out yet, and when they do investors had better not be looking at earnings as a metric for which stocks to buy and sell. Everyone should be looking at revenues, because that will tell us who survives and who doesn't.
Worst Case: we might see the S&P 500 decline further to around 2,100 - 2,150
Middle Case: we might see the S&P 500 level out around 2,650 - 2,700
Best Case: YE we might see the S&P 500 eventually rise to around 3,000 - 3,200
"The purpose in making market predictions is to look out the windshield,
and try to see where the ditches are at."
- Clay Baker
What I'm Doing Today
I'm looking for every opportunity to raise more cash as we head into earnings season. Raising cash means selling stocks, in some cases, stocks I really don't want to sell. As these rallies provide opportunities to reduce holdings that carry too much risk I continue to look for high quality holdings to carry the portfolio through the next couple of quarters.
FOXF: One of my personal favorites is Fox Factory Holdings. I have no choice but to trim this position because all activity in their industry has been stopped. I've sold 50% of our position to raise cash and kept the other 50%. I do think that after we get to the other side of the pandemic that people will want to get outdoors and enjoy the activities where Fox Factory is the premier player in their field. If I can add at lower prices I will; but only with more clarity.
AVLR: Avalara is part of the second tier in cloud computing companies. A good company with an excellent product, I really have no complaints about the business. As much as Avalara helps businesses streamline and get more productive, productivity is not a priority right now, survival is. I think come earnings season we might see a dramatic decline in revenues with management warning that the quarter ahead will be worse.
FOXF SOLD 50 @ $46.00
AVLR SOLD 15 @ $75.00
I'm trying very hard to not be another talking head with respect to this virus and the pandemic. I have no expertise here except in my own ability to dig into the data and try to observe some reasonable projection as to when the decline will start, and what the other side may look like. From my view I think meaningful numbers of people will be back to work by June 1, but it will take longer to get everyone back to work.
Make no mistake about what has happened and what the other side looks like. Life will not be the old normal, this changed us. We have to look ahead and embrace what will be the new normal; and that's not necessarily a bad thing. Emotion is usually absent from my investing; but now, I know I'll never be able to express my sadness at the loss of life and the suffering that so many people globally are enduring; for that I apologize.
On the other side of this pandemic businesses will operate differently, we will invest differently, our civil liberties will change, our behaviors will change, the way we use money will change, and possibly our politics will change. Some of these changes will be hard to accept, while others will be for the better. One change we've already experienced is the use of technology for distance learning, group video communication on a scale never before seen and delivery services running at peak levels for everything from fast food to essential items. While many office workers can work remotely from home, these technologies don't help the tile setter or the concrete delivery driver; some jobs require a person to perform a task at the job site. While some surgeons can use a DaVinci system to operate on a patient remotely, an esthetician can't do a facial from home. Where we've relied on China and other countries to make inexpensive products, our supply chains are likely to start moving home. Robotics will play a greater roll in manufacturing, especially in the auto industry. Digital transactions like ApplePay will likely increase as people won't want to handle money or even credit cards.
The most important thing the Federal government can do, no matter how politically toxic some choices are, is keep stable businesses alive so that jobs exist for people to go back to. Businesses that were not viable going into the pandemic, commonly called "Zombie Companies", will be lost. In the long run that will be good for the broad economy. However, the employees of those companies will still need jobs and that's where a new effort will be required.
Low interest rates are a sign of a sick economy and we shouldn't be infusing stimulus at the same time we're lowering rates; unfortunately The Fed has no choice right now. At some point rates must normalize and we all need to get used to what normal rates really are, somewhere around 3.5% - 4.5%; I'm referring to short-term rates set by the Fed, not the rate you and I pay on a loan or a mortgage.
This pandemic has changed us. Plan for that.
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker