To document the market crash as it materializes, I’m writing random thoughts and observations in notebook format. Hopefully this will be useful in the years ahead to look back and my thoughts during the actual crash.
Big picture thoughts:
- It’s just incredible how quick moves lower can be. We’ve essentially moved 30% off the highs in three weeks. Look at this chart!
- We’re seeing an absolutely unprecedented economic event with entire countries shutting down to fight the coronavirus. It’s possible we’ll never see a shutdown of economic activity like this in our entire lives. The economic data is going to absolutely crater. The positive is that potentially once the virus is defeated or under control, maybe this activity snaps right back? The longer this goes, the less quick the snapback is likely.
- How do you know when it’s time to move cash in large chunks into equities? There are two schools of thought on when to buy:
- In normal situations, you’d want to buy when the economic data is at its worst. This is moving so quickly, that it might be tough to time this up with actual economic data. Data to watch: will jobless claims start ticking up? Jobless claims haven’t gone up in a decade essentially.
- The other option is that you just start buying and setup a structure of buying. We’re 30% off the highs. Does is it really matter if you don’t nail the bottom? Perhaps the better route here is to establish a 4-6 week buying window where you allocate an even amount weekly for 4-6 weeks.
Personal Investments & Trades
- I was extremely prepared for this. Because I felt like the market was topping as a result of business cycle maybe ending, plus had apprehension in allocating big chunks of cash into the market at all time highs, I was positioned with roughly 30% equities, 30% bonds, 40% cash. Ideal for what’s occurred. Now to call that pure skill is giving me too much credit. The reality is that while the economy was indeed slowing, nobody could have foreseen the true black swan of the coronavirus. Market corrections can happen based on the data and valuation, but market crashes take a trigger. The coronavirus was indeed a trigger.
- What moves have I made so far? With the markets down roughly 30% from highs, the only move I’ve made was I’m completely out of treasuries now (via TLT). Interestingly, TLT was skyrocketing as Treasury yields plummeted, during the the first phase of this crash. That changed, however, as we moved into a phase where volatility increased in Treasuries as well as places like gold. Once the crash really takes hold, the diversification of items tends to lose value as everything gets sold. TLT position absolutely killed it over the last 18 months. For the first time since the fall of 2018, I have no position in TLT.
- My goal is to move cash and bonds allocations to about 90% equities / 10% bonds during this event.