Navigating the downturn

The S&P 500 is down 25% from its January peak. What is your approach to navigating this downturn in the stocks market? Just ride is out? Buy? Sell? Average down? Sell short? There is an approach that will turn out to have worked best, for BRKB stock and for one’s entire portfolio, although that approach will depend on each individual’s situation. Unfortunately I added stocks during the summer lows, but that approach has not worked out well. Now I’m averaging down. I would have been better off if I had not added, or if I had shorted the S&P. I deliberately have a low allocation to stocks, but it’s still painful. We could have another 20% to fall, so the decision as to how to navigate this bear market is still important.



I’m one of those mostly risk-adverse people who have been on the sidelines for the past 2.5 - 3 years waiting for QE to start to unwind.

I’m not jumping in quite yet.

Given all of the uncertainty in global events (war in Ukraine, supply chain issues, energy crisis in EU, inflation across the board, FED raising rates, etc.) I think there is more pain coming. If you look back in the 2000 timeframe, it took the market two years for it to hit the eventual bottom.

We’re only into this for what, 6 months? Maybe less?

Folks are already saying rates will be falling by spring - how would anyone really know that? The Fed will continue to raise rates and continue to roll off their QE bonds until they achieve a neutral rate. This could take a while given the mess that the world seems to be in right now - and who knows what’s around the corner?

My strategy is to wait for a sustained uptrend. Sure, I won’t hit the very bottom, but then again, I’ll be buying in at much lower prices that what we even have today. If there’s anything I’ve learned wrt investing, entry price matters.

Best of luck to you!


There are individual names getting cheap or interesting. For example, Citi, with a tangible book value at year end around $80, trading around $41. Of course you can wait for it to go further down, or start nibbling. Of course you can wait for sustained uptrend, but you sat out the uptrend from 2020, it seems from your posting, so why you think you will invest in the next one?


We’re ~9 months now since the peak in the S&P 500, Jan 3rd. 25% down.

A lot of tech stocks peaked in Nov. 2021, but QQQ matched the November peak again in late December. 34% drop.

It’s true we could be in for a lot more pain, but I sure don’t know.


How do you explain this? The Street must think that there are hidden bombshells waiting to explode? Is it due for a truly ginormous write-down?


I don’t think there are any hidden big write-down’s or other challenges. The bears think Citi franchise is broken, earning below market return on the assets and equity. What I see is, they have $2 T assets, 4% of US deposit market, a great institutional client group, treasury and trade segment is doing pretty well, cards don’t have any serious delinquency, in other words the business is not really broken from what it was last year (when it was trading around .7~.8x TBV). Now along with other banks their statutory reserve needs to be raised, which means for the next 2 quarters they are going to be building the reserve and they increased the reserve for cards , just in case. Now, fast forward, 2 quarters, and US is experiencing only mild recession, Citi will be earning much higher NII (Net interest income), their TT segment will be fine under mild recession, and their reserves, and other expenses (like compliance related expenses) will be coming down, and suddenly Citi will be making $9, $10 and will have $15 B for buybacks. So in the meantime, you get close to 5% dividend while you wait. If the share price recovers to .8x to 1x TBV, that is 100% return. The downside is low, upside is 100% return and you get 5% dividend while you wait. I like the setup.


There must be potential to write off bad loans. They talk of companies that will fail because they can’t pay the higher interest rates. Does Citi hold any of those loans?

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Here is the CFO remarks

JASON GOLDBERG: And then just maybe taking a step back, maybe just talk how you feel about the balance sheet. As we look out at the potential prospects of a recession that people seem to be talking about that banks have yet to really feel.
MARK MASON: Yes. There are 2 things I’d mentioned because I’m struck by the response we got where credit was a factor. And just to speak to it again, and I’ll get to your balance sheet point, but we feel very good about our credit exposure with the $18 billion of reserves, well reserved against our consumer portfolio, 80% investment-grade exposure on the corporate side, $18 million of losses on the corporate side last quarter.
So we feel very, very good about that. And we feel good about it because of the discipline that we’ve exercised in terms of our risk appetite and our risk framework. And I believe that will play out over time and we’ll be able to hopefully address some of the concerns that people continue to have around credit because
we really have revamped the way we think about credit in our framework. In terms of the recession, one of the things we’ve been focusing on is our readiness as it relates to that, and we feel very good about that. We run scenarios all the time in terms of what they might imply. I think the balance sheet is quite strong. Right now, we’ve got nearly $1 trillion in liquidity resources. As I mentioned, we’ve got 80% investment-grade corporate exposure. We’ve got a high FICO score, high prime card portfolio.

We sit at 2.44% of loans in terms of reserves to loans. We feel very good about that.

on NII

But you’ve talked about this new methodology for calculating rate sensitivity that could talk about, I think, a $2.5 billion uplift in NII in your 100 basis point parallel shock scenario. Is that still the right number?

CFO: math still works this way is that with a 100 basis point parallel shift increase
in rates, cross currencies, we’d see about a $2.5 billion lift in the way of NII revenue.


If you buy more of a stock today at a price less than you paid yesterday, your result on that incremental purchase will almost certainly be higher than your prior purchase, and mathematically cannot be worse.

Personally, even though I’m at the lowest percentage of cash I’ve been for years, I cheer when I see that the markets are down, because I get to commit more cash at higher and higher returns.

For what it’s worth, my investing time horizon is years or decades, not days or weeks.

– David


your result on that incremental purchase will almost certainly be higher than your prior purchase, and mathematically cannot be worse.

What do you call a stock that is 90% down? A stock that lost 80% and managed to lose another 50%.