The New York Times has a plaintive story entitled

I Became a Disciplined Investor Over 40 Years. The Virus Broke Me in 40 Days.

Today's virus stock-market crash IMHO is an opportunity of a lifetime, and a special one at that, for long-term investors to not just survive the crash but significantly increase their net worth BECAUSE of this crash! Let's first look at the writer of this story. I believe he has made a few critical mistakes.

Markets Right Now Update

The market closed Friday down 915 points! So, after this week's rally, where are we? The chart below shows the returns for the major asset classes since the start of the year. As always, rather than show the indexes, which you cannot buy, I prefer to show the index ETFs*, which can be bought by any investor!

Source: Yahoo Finance*

BND=Vanguard Total Bond Fund

QQQ=Invesco QQQ Trust

SPY=SPDR S&P 500 ETF

IWM=iShares Russell 2000 Index

The chart above shows where we are as of yesterday's close. Note the charts above AND below show the change in value of $1000 invested at the beginning of the year. 

Bonds are flat, stocks are down, small stocks (represented by the Russell 2000 ETF IWM) down the most and for good measure, I am adding, below, returns of two commodities important to many people: gold and crude oil.

Source: Barchart.com

GCZ=December 2020 Gold

CLZ=December 2020 Crude Oil

Here's what the numbers look like:

*Note "drawdowns" measure the decline from the market's highs. Maximum drawdown measures the percent drop from high to low, Current drawdown measures the percent decline from high to today's price. 

The IWM had the largest stock market drawdown, -41%, versus the SPY's -34%. Bonds performed well providing the downside protection investors expect. QQQ, surprisingly, had a little LESS risk than the S&P. 

What's interesting to me is that stocks recovered nearly a third of their losses between the lows and yesterday. Note bonds and gold are barely down while crude oil, in the throes of a price war, is down a dismal -43%! 

*One advantage of using Yahoo Finance data is ANYONE, using symbols or search, can download daily historical data for free and see for themselves. I use "Adjusted close" data to include the value of distributions, if any. Finally, I have a problem using proprietary or obscure data. Note any data errors WILL be reflected when the data is used. Barchart.com, in my opinion, is the best source for futures prices that average investors can get. 

Feel free to post comments.

Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

TWENTY YEAR LOWS

I once had a client who's commodity trading strategy was buy only ten and twenty year lows! It was a reckless touch of genius requiring generational patience. It worked with commodities because commodities generally don't go bankrupt.*

Nearby futures contract price per barrel. Source: Barchart.com

As I write, the active month May WTI Crude Oil futures contract is trading at $25.74 a barrel, down $20+ this month alone. The 10 year low WAS $26.05 made February 2016. The 20 year low for nearby crude oil is $17.12 from November 2001. Can crude oil fall another 33% to match its 20 year low?

Crude oil is not alone. It is joined by nine other commodities or commodity sectors of the 40 measured by the Bloomberg Commodity Index. These are: Crude Oil, Agriculture, Corn, Energy, Grains, Petroleum, Softs and Sugar. Four more components are at 10 year lows! Ten and twenty year lows tend to be rare but highly correlated. Commods like to rise and fall together.

Crude oil looks great at its $20 support level. But then again it took over ten years to rise from it.

*While commodities don't go bankrupt, they do become "delisted". Once delisted, owners of futures contracts are left to the whiles and enormous expenses of the physical market.

Feel free to post comments.

Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

Time To Recovery: The Only Metric that Matters!

Long term investors need to know how long is long?  All we know is history, so lets look at it!

Since 1900 the DJIA has had 12 major market breaks (or "bear" markets when over 20%). Every researcher judges breaks differently. The breaks here begin with the 1903 so-called "rich man's panic", the 1907 break "saved" by J. P. Morgan, WWI 1916 break, 1920 postwar break and 1929, of course. 

Then 1961s steel strike, the 1966 "Go Go" break, 1974 Nixon resignation, 1987 program trading, the 2001 "dot com/911" bust, the 2009 financial crisis and our very own 30% coronavirus break which we are in the middle of right now!

Sources: DJIA closing price data from Macrotrends downloaded years ago and Yahoo Finance. 

Market Breaks since 1900: 12
Average Size of Break: 58%
Average Duration of Break: 1.4 years
Average Time to Recovery (peak to peak): 5.6 years

Some Notable Breaks:

Worst Break:
9/3/1929: 381.17 to 7/8/1932: 41.22  down 89%
Duration of Break 2.8 years
Recovery Date: 11/23/1954: 382.74
Time To Recovery: 25.2 years

Best Break over 20% (definition of a bear market)
2/9/1966: 995.15 to 10/7/1966: 744.32 down 29%
Duration of Break: 7 months
Recovery Date: 11/13/1972: 997.07
Time to Recovery: 6.8 years

Dot Com Bust:
1/14/2000: 11723.00 to 9/21/2001: 8235.81 down 35%
Duration of Break: 1.7 years
Recovery Date: 10/3/2006 11727.34
Time to Recovery: 6.7 years

Financial Crisis:
10/9/2007: 14164.53 to 3/9/2009: 6547.05 down 77%
Duration of Break: 1.4 years
Recovery Date: 3/5/2013 14253.77
Time to Recovery: 5.4 years

The shortest time to recovery was 8 months during the 1996 7% market break.

Based on the average market break since 1900 above, what does it mean for today? Let's see. ESTIMATES IN RED.

Coronavirus Break:
2/12/2020: 29551.42 to 9/12/2021: 17139.82  down 40%
Duration of Break: 1.2 years
Recovery Date: 9/12/2025
Time to Recovery (peak to peak): 5.6 years

A case may be made that a pandemic may not last as long as a financial panic. If so, all to the good, otherwise based on 120 years of data, we may have a while before this market recovers.

3/31/20-this post was revised to show peak to peak Time to Recovery versus low to peak. We don't know if we made our lows but we DO know the high.

Feel free to post comments.

Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

The HARD Part of STAYING the Course

RIGHT NOW WE ARE IN THE MIDDLE OF IT!

Source: Yahoo Finance

The DJIA closed down 2,014 points yesterday., It was up 800 earlier today, is giving up its gains and is almost unchanged as I write! Yesterday's 23,851.02 close takes us back to the Dow in Jan 2019! The market bottomed the day after Christmas 2018 hitting a two year low of 21,712.53!  That's still 2000+ points away from today's 24000 or so price level.

The stock market is one of the few machines that can actually go backwards in time. If you missed the rally of 2019, here you have another bite at the apple. BUT, no one knows if there is a better bite around the corner! What we do know is that most of us do not buy on major declines but here is your chance to fix that and BUY STOCK INDEX ETFS NOW!

And if you are already fully invested, its HARD to stay the course and not sell. It may even be a measure of character.

Imagine that the Dow is a stock whose high was 30 and its now 24. Its not all that extraordinary a move and panic may not be warranted. So long-term investors who missed the first move have a second chance. How LOW can it go? Good question and there is no answer except we can look at history and make guesses. A tremendous support level appears to me to be the 18,000 level before the 2016 election. That's a good 6000 points away and would completely evaporate the entire Trump rally.

The stock market never came close to wiping out the rally under Obama. Even the 2011 decline ended up as a blip on a long term 300% rise over 8 years. Perhaps the economic threats of closed borders, tariffs and Trump jingoism, not to mention the coronavirus, are taking its toll.

PS: the market rose 600 points since I started writing this post, DON'T MISS THIS CHANCE TO BUY!

Feel free to post comments.

Disclaimer: Posts are for education only and not investment advice, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.