Poll: Is this capitulation/major bottom?

Or will it continue?

  • Far from, -30+% more to come
  • -20% more to come
  • -10% more to come
  • We are nearly there
  • This is roughly the bottom

0 voters

We might be near a short term bottom. A lot will depend on what Fed does and says on Wednesday.

Nobody is smart enough to predict the short term.

Use the opportunity. Don’t overthink. Dollar cost average.

2 Likes

It is not about the short term. According to the current state of my poll the vast majority here (85% currently) thinks much more is to come, -10%/-20%/-30+%.

If that’s what one expects it would be stupid to buy now, in contradiction to your expectation — and according to the other poll the majority actually acts in line with their expectations = waiting. It might be wrong but it definitely is consequent while what you suggest would be inconsequent with such expectations.

It is not about the short term. According to the current state of my poll the vast majority here (85% currently) thinks much more is to come, -10%/-20%/-30+%.

If that’s what one expects it would be stupid to buy now, …

Is it stupid to buy now, or is all the doom and gloom one sign of capitulation?

IP,
admittedly sitting on 60% cash and strongly considering deploying some of it

Poll: Is this capitulation/major bottom?

For Berkshire or the broad market?

My entrails suggest today is not a market bottom for the broad US market.
Not short term, not long term.
That’s because capitulation doesn’t tend to happen all in one day…it typically takes a string of terrible days to trigger that revulsion and cleanse the “buy on dips” reflex.
Of course, we all know the predictive value of entrails. Prices can do anything.

However, whether we know the future or not, Berkshire is quite reasonably priced at $426000/ 284 per B.
It doesn’t really matter if it goes lower for a while…the question is what’s likely to happen after that.
In the last 14.5 years since the credit crunch, valuation multiples around this level have been followed by one year returns averaging about inflation plus 14-19%.
And recall that I generally apply a big haircut to the value of richly value portfolio holdings when calculating my price/value ratios.
So I continue to nibble as it falls.

Jim

18 Likes

Is it stupid to buy now, or is all the doom and gloom one sign of capitulation?

I don’t say it’s stupid to buy now. I have no idea whether it is or not.

I am saying it’s stupid to buy now IF one is of the opinion that this is far from over.

Why is it stupid to buy now if, as Jim says, you could possibly get 14-19% over inflation going forward? I don’t need to time the absolute bottom, so I continue to nibble on the way down.

3 Likes

Why is it stupid to buy now if, as Jim says, you could possibly get 14-19% over inflation going forward? I don’t need to time the absolute bottom, so I continue to nibble on the way down.

Ok, let’s forget about the word “stupid”. Let me try another way to express my thoughts: Do you think it is consequential if one thinks it’s going down A LOT from here to more than nibble right now instead of waiting before firing most of one’s ammunition?

Fair enough. I’m usually guilty of buying too early and running out of much of my ammo when the bottom hits. My reasoning is it’s better for me to secure a decent return rather than waiting for the absolute bottom. In the past I have waited too long for Berkshire to get insanely cheap and missed out on big runs.

4 Likes

Ok, let’s forget about the word “stupid”. Let me try another way to express my thoughts: Do you think it is consequential if one thinks it’s going down A LOT from here to more than nibble right now instead of waiting before firing most of one’s ammunition?

Yes, entry point is important. Who doesn’t like a good sale?

But missing out on a bargain just because the price might go lower is critical to avoid, given the price may shoot up instead. So I currently hesitate to pull the trigger and keep doing research because yes, I think there is more downward action to come, but I find the numbers thinking there is more downward motion in the market’s near future very interesting as a sign of heading towards capitulation. I am usually a bit of a contrarian, so if you are all finally agreeing with me, the inflection point for the market may be near. </tongue in cheek>

Humor aside, we don’t need to kill the market, so even if it goes down further, bounce back is likely over our investing time horizon. Starting a position now is certainly less risky than it was in the recent past. I don’t need bragging rights to getting absolute bottom, but would like to stop the erosion on cash due to inflation.

IP

Do you think it is consequential if one thinks it’s going down A LOT from here to more than nibble right now instead of waiting before firing most of one’s ammunition?

The issue is certainty.

It would definitely be silly to buy now if you were sure that the price was about to go lower.

But nobody can be entirely sure. So, if you want the shares, waiting for a better price means perhaps not getting them at all.
(unless you buy later at a price higher than the current one)

So, it’s a matter of balancing how badly you want to own the shares and how sure you are that the price will be lower in future at some moment that you’re watching.
If you are quite sure the price will fall more, and you only kinda want those shares (or only want them if they are even cheaper), then wait.
If you are not that sure the price will fall more, and you really want those shares (and think the current price is more than fair), then buy.

Jim

4 Likes

Agree. My BRK position is 65% and I continue to nibble at this uncommon discount and opportunity. Impossible to bottom tick imo. Pretty confident WEB is buying here as well on our behalf.

1 Like

I need a “who knows” option.

3 Likes

Even if you thought that “this” is the bottom, how much would you be missing by waiting for some confirmation, such as a good earnings report or two, inflation not increasing, etc.?

Mike

1 Like

In the last 14.5 years since the credit crunch, valuation multiples around this level have been followed by one year returns averaging about inflation plus 14-19%.

To be fair the “inflation plus” was with a low inflationary environment. Do you think that applies if we continue to see, say, 5% inflation?

The 14% to 19% sound quite good added to inflation, but there seems to be a consensus in options trading that those levels are fairly likely already.

3 Likes

In the last 14.5 years since the credit crunch, valuation multiples around this level have been followed by one year returns averaging about inflation plus 14-19%.
…
To be fair the “inflation plus” was with a low inflationary environment. Do you think that applies if we continue to see, say, 5% inflation?

Short answer: yes.

Corporate earnings do react to abrupt changes in inflation, but over slightly longer periods they are on average almost perfectly inflation adjusted.
If all labour and materials and prices and revenues go up 10%, profits go up about 10%.
(it would be exactly 10% but the tax rate and bookkeeping might change a bit at the margin)
It will be a bit better for some firms (especially those with pricing power) and a bit worse for others, but that’s the general rule.
In one study they found that inflation feed-through to corporate profits was measured at 92%.

The exception being the case that inflation is so high the economy breaks.
A broken economy is not good for profits. But your question was about 5%, which isn’t a problem.

We might see a recession catalysed by monetary tightening, but that doesn’t generally change the value of a company.
Recessions happen from time to time, and should be figured into the averages.
Within rounding error, a farm isn’t worth any less in winter than it is in summer. Winters are normal.

For Berkshire, one main effect, other than perhaps a few poor quarters, will likely be a reduction in the apparent value of a share.
Book value for assets which are not marked to market will not be inflation adjusted, even though they might be rising in value in nominal terms.
Offsetting that, the earnings of BNSF will be overstated.
i.e., the headline earnings will be higher than the owner earnings because maintenance capex will exceed deprecation by quite a bit.
That happens to everybody, but BNSF is singled out because it’s asset heavy, and also has a concentration in assets with very long life.

I do pretty much all my analysis with inflation adjustment, whether inflation is high or low.
It’s only real wealth that matters.

Then we’d want to talk about currencies…the US dollar spiked yesterday, for example.
The true cost of everything for sale in the US went up a few percent in the last few days,
measured in purchasing power in terms of the amount of “stuff” in the world you could buy.
And the true purchasing power of US dollar cash went up the same amount. Those don’t really cancel out, in general.

Jim

16 Likes

Why is it stupid to buy now if, as Jim says, you could possibly get 14-19% over inflation going forward? I don’t need to time the absolute bottom, so I continue to nibble on the way down.

This is exactly my view. I have the feeling that the general market will go much lower, and Berkshire’s share price will trudge down about the same amount. But I also have the conviction that expected returns from the current price will be good, and this conviction is supported by logic and experience.

And I know better than to trust my feelings, which have often proved to be unreliable.

dtb

15 Likes

If you use a shipping app to track the supply chain, you may notice a big shift in the nimber of container ships coming to the US, from China.

Big box stores like Target have bulging warehouses that will need discounting.

A friend who has been importing goods from China for decades is still waiting for goods ordered from Chinese suppliers last October.

She always tracks her goods via the shipping app to see where her orders are to predict when they will arrive in STL.

Now she says there are a good amount of container ships leaving China, but they are headed to Australia and eastward.

Very weird… any ideas?

jan

:^/

Now she says there are a good amount of container ships leaving China, but they are headed to Australia and eastward.

There is not much eastward of Australia except New Zealand and water. If is eastward of China, that would be the US??

Craig

1 Like