Investing Update: How Much Lower Do We Go?
What I'm buying, selling & watching
All of the stock market’s gains for the past 18 months have evaporated. We’re now back to January 2021 levels. All the gains from 2021 have gone away.
The S&P 500 is now down 23% for the year. Putting us officially in a bear market. This is the 13th bear market since World War 2.
This week we saw a four day decline of over 9%. That isn’t a common occurrence as you can see below.
There has also been a destruction of wealth that hasn’t been seen in modern history. This chart shows what the total stock and bond market value has done. As you can see, this selloff has wiped out more wealth than any other time dating back to the mid 1970s.
What everyone is trying to figure out is how much lower does the market have to go down before we see a reversal.
We’ve seen many things move back to pre pandemic levels. I feel that we could see the S&P 500 trade back down to the pre pandemic highs.
In looking at how the stay at home stocks have traded, they skyrocketed up and all are back to their pre pandemic levels and some even lower than that now. All that market value and business they amassed are like it didn’t happen. It’s almost like the pandemic never happened.
Now we’re starting to slowly see that trickle through other areas of the market and certain sectors of the economy. The markets, consumers and the economy are all trying to find stability and what the new post covid normal is.
Does this all make the pre-pandemic high on the S&P 500 of 3386 on 2/19/2020 in play? I believe that may be the next support level and a point we eventually test. It’s only fitting that we come full circle and come back to those levels. Like COVID never happened! How ironic that would be.
It took until 8/18/2020 to get back to or above those levels after the covid crash. I remember this day very clearly as I was on vacation with my wife celebrating our anniversary. I recall thinking how big of a moment that was. That day it closed at 3,389. That was a gigantic leap from the covid low of 2,237 on 3/23/2020.
After I looked into this last weekend and developed my views, it was ironic that this week, Jonah Lupton wrote a tweet with a chart and a trendline on the same viewpoint. He illustrated exactly what I’ve been thinking and looking at below.
The 60/40 Portfolio
Even the traditionally safe and diversified 60/40 portfolio has been crushed. 60% stocks with 40% bonds has seen its second worse year since 1977.
This has been the safer or more conservative way to invest and have an exposure to both stocks and bonds. Seeing the 60/40 portfolio this deep in the red really puts into context how bad things have been. As people age and get closer to retirement this is a mix that many are moved towards. When both stocks and bonds fall hard is when 401Ks and retirement statements look very rough.
52-Week Lows
The new 52-week lows chart below shows how widespread and deep the losses have been. You can see the carnage being done from big banks to entertainment to home builders. Everything is being hit. These are some very large losses for a lot of well known and popular companies.
People Are Ticked
After the higher than anticipated inflation number came out last Friday. The US Consumer sentiment index came out a few hours later for May. The number was an new all-time low of 50. The University of Michigan has been doing this survey since 1952.
It’s obvious people are ticked off. Inflation has been hurting everyone and now they’re also seeing their retirement accounts tumbling as well. To see this chart and realize that it’s at 50 after you consider what has all the country and economy has been through since 1952 is really something. It’s continues to drive lower. Sentiment readings like this makes it very tough for things to turn around on a dime.
Moves I’ve Made
Generac (GNRC) I’ve watched Generac for a while now. Once it hit a price I had wanted to buy it at, I did. Down from the high of $524.31, I bought it at $225 a share. Down 43% from the high. It beat on its last earnings and the slow down in housing is priced into it. I bought about 2/3 of the position size that I would like to have. It may dip below $200 if we see a continued selloff. In that case, I will look to add under $200 and finish my position build out.
Long the leader in generators, I’m really pulled to this company because of their focus on the future of home energy. Everybody you talk to that doesn’t have a whole house generator would like one. That shows the value people place on them. With the changing home landscape and doubling of interest rates I think the selling market of homes will freeze for some time, leading people to continuing spending on their homes.
Generic has moved into smart thermostats with their acquisition of ecobee. Their generator offerings are moving forward in technology. Like monitoring and controling it with your smartphone. Subscription servicing to make sure you’re up to date and ready in the event of a storm is appealing. They’ve expanded and built out their dealer network. This stock always ticks up with the hurricane and general storm season upcoming. Alternative and clean energy will start to grow and this is a company that can be leader in that.
Disney (DIS) Disney has been in the news a lot lately and it’s not for good reasons. They’ve had an ongoing political battle, they’ve let go one of their top executives and then the board had to publicly voice their support for CEO Bob Chapek. On top of that, how people view and value this stock has changed. I thought it was change but it hasn’t and I don’t think it will anytime soon. They’re priced as a streaming service. The stock reacts to subscriber numbers for Disney plus. Personally I’m not a big fan of streaming. So to me, the story of Disney has changed. I really wouldn’t be surprised if Bob Iger returned to lead Disney. Similar to what has happened at Starbucks with Howard Schultz.
Starting the year I really liked Disney but so much changed. I decided if it dipped down to a certain level I would sell it, lock in my gains and move on. It hit $105 a share and it sold. It was one of my longest held stocks.I did very well on it but things changed and it was time to move.
What I’m Watching
There is no doubt we are in the eye of a bear market storm. The rallies don’t hold and we continue to head lower. My opinion is that this continues. Nobody truly knows what will happen. This is a unique environment that has never been seen before. An ongoing war, high inflation, all-time low unemployment, hot housing, rising interest rates, record consumer spending and so on. Then you add in globalization and the new technologies. There are times in history with some similarities, but no period is exactly the same.
At some point it will turn. Again nobody knows when that will be. As I write this, I’m looking to add more shares to my current holdings at certain price points. So I’m not done buying. This goes for high quality individual stocks as well the S&P 500 index.
Yes, I continue to catch the proverbial falling knife. I may be buying early and stocks may go even lower. But I’m not investing with the goal of obtaining big returns this week, this month, next month, or even the next year. I’m not required to return a certain percentage for a fund. I’m investing my own funds that will be invested for 30 plus years. Why wouldn’t I keep buying as things get cheaper? Some might disagree with my approach, but it’s my approach.
This too shall pass and we will at some point in the coming months or year(s) see new all-time highs. The more shares you accumulate at lower prices the better returns you’ll experience down the road. We’ll look back on this period like we have all the bear markets and crashes in history as those all being great buying opportunities. In the moment of these uncertain times it’s hard to buy with all the fear and negativity. I’ve been through these stretches before and I’m going to rely on what I’ve done in the past. I’m just continuing to stay focused on the long term by stay fully invested and continuing to buy.
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion.