Starting Gate is supposed to take over where the Monthly Performance Summary ends and is the personal opinionated lever that portends coming portfolio roster strategy. Sometimes it actually works.
The questions bouncing around in my mind - such as it might be, are twofold in nature: 1) Are we descending rapidly into a full blown recession; and 2) If so what to do about it. I have been investing for quite some number of years now - think slightly more than double digits, but am sure I have never experienced all the various economic threats that the current economy faces; many of which, appear to be self inflicted wounds.
On the recession thingy, we have one negative quarter of GDP behind us and odds seem fairly in favor of the country being served another. So…when Recessions hit what happens to the markets?
- How far the market might fall in a Recession depends a great deal on valuations at the time. The higher the valuations the more steep the potential decline. So - to get to any sort of reasonable expectation you have to answer whether our companies have been hammered into anything resembling a normal High Growth valuation. Answer that and take a look at historical market performance during recessions and you might come up with a decent answer. So…for little history I looked up an article on Forbes titled: How Stocks Performed During the Past 6 Recessions. Seems pertinent I suppose. So what’d it say:
The Last Two Recessions:
- The 2008 Recession
Start: December 1, 2007
End: May 31, 2009
Stocks were considered overvalued by 2.7% and bottomed at a loss of 53.7%. This was the Housing Bubble Recession.
- The 2001 Recession
Start: March 1, 2001
End: October 31, 2001
This Recession followed the Tech Bubble Burst. At the beginning stocks were considered overvalued by 9.5% and the markets bottomed with a loss of 38%.
For nifty insight into the other 4 Recessions contained in the Forbes article go here:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&…
Then there is this:
“The average Peak to Trough decline in the S&P500 amid recessions is about 32%.”
OK so where do we stand currently YTD?
DOW: Down -13.93%
S&P 500: Down -12.92%
Nasdaq: Down -21.0%
Now…just eyeballing it, and in particular thinking of the Nasdaq here, if you consider that the current Nasdaq slide has positioned its companies - more or less - at about the historical valuation levels - then a recession will most certainly bring more widely scattered pain for investors.
Note: I have no idea if historical Nasdaq valuations are at or near their historical norms and am too lazy to look it up because regardless, I am going to pretty much keep doing what I am doing.
So - even if the economy makes a comeback and we avoid a recession there are other things to consider - Bear markets and Secular Bear Markets. Since we are already in a Bear one might be curious as to the average length of a Bear: that comes in around 9.6 months or so. Ok but what if we are in the dreaded Secular Bear - well, then we’re talking 10 t0 20 years or so. But honestly, just spit balling here but it’s hard to see a Secular Bear anywhere near us just now.
Note: I am an amateur investor who is generally oblivious to these sorts of things and have no more idea of any of this than your local village idiot. So theres that.
So what might the May Starting Gate look like:
- Definitely going to go back to RTHG and focus on just 8-9 companies at this time.
Those companies are:
DDOG
BILL
ZS
MNDY
SNOW
MELI
S
UPST. (Could be a bad idea in a full blown Recession - I dunno)
I am considering adding GOOGL - especially if it sinks lower and will continue to buy and sell TBs as the market allows. I have tried several times to fill out a full portfolio roster of 15 companies but have been early every time. So - I wind up rolling and unrolling funds into the Starters - and thats on top of TBs which all push the allocations to the STARTERS to astronomically ridiculous levels. I’d like to think that the strategy has worked for me but when you’re sitting with a YTD loss of just over 28% there are no Ships Banners to hang in the rafters.
RTHG Strategy - Hunker Down - Eyes to the Front - Control Your Emotions - Mark Your Targets When They Come.
All the Best,