Ask HN: How should I invest $200K in this market?
Investment horizon: long term to forever
Risk appetite: If I lost this money, my lifestyle would only slightly be impacted.
Risk appetite: If I lost this money, my lifestyle would only slightly be impacted.
83 comments
[ 0.21 ms ] story [ 146 ms ] threadI will ponder a question though, will the flight from markets drive more money into other assets asides cash?
For instance, we are selling a farm property right now (in a small city, not a hot market) and don't yet know if it will be impacted by the overall economic climate. Part of me thinks more people might move their assets into farm/raw/rural land as another "hard" asset during these times. But there's no way to really know without observing.
I'd use [dollar cost averaging](https://en.wikipedia.org/wiki/Dollar_cost_averaging) and invest in a index funds. I would personally try to wait out the freefall so you can start investing closer to the bottom, but you will never know when the bottom is, only when the bottom was, so I wouldn't get too fancy with waiting.
My time horizon is the same as yours.
Permanent Portfolio Allocation: 25% Cash 25% Long Term Bonds 25% Stocks 25% Gold
[1]: https://assetbuilder.com/knowledge-center/articles/the-world... [2]: http://thedisciplinedinvestor.com/blog/dhunplugged/
The best advice is to pick a broad index, S&P 500, and invest the money over a period of time, maybe 6 months. You won't hit a homerun but you'll do better than most.
You could also consider a 70/20/10 portfolio of S&P 500, international equities, and bonds.
1. Not all broad indexes are great buy because lot of companies will do great in this crises but others will suffer long term. Instead of investing only into S&P 500, you might want to also diversify in Europe, Asia Pacific, China markets as well as have ETFs in energy, utilities, finance etc.
2. S&P500 doesn't actually have all that great returns, contrary to usual belief for same risk taking. For example, QQQ has returned ~30% avg/yr while SPY has only ~12%/yr over past 10 years even at lowest points. This is more than double the difference for reasonably similar level of volatility and liquidity!
3. The buy and forget strategy misses out on entirely on "unreasonably low" prices event. For example, massive ETFs like XLE are at all time lowest price and very unreasonably low priced. Investing them in now can boost your returns massively.
The point is that it's near impossible to predict market bottoms, so time-averaging helps with that. If your point is that you should increase investing now, I totally agree, but you should invest the money over a period of weeks/months, not in one lump sum (which I don't think is what you're advocating).
Note I'm not claiming stocks will double or triple, but if that's the starting assumption then there's no need to ask what inflation or deflation will do.
https://portfoliocharts.com/portfolio/portfolio-matrix/
https://portfoliocharts.com/portfolio/risk-and-return/
> Investment horizon: long term to forever
Total market ranks 1 on average return, which arguably matters most assuming OP is gonna wait 30-40 years before using this money.
That said, I noticed that put options for Delta airlines with a strike price of 18 were trading at $4.10 which is $410 per contract, so I wrote (sold) 10 of them. That means that either I’m going to get to keep $4100 in a month or I’m going to get 1000 shares at an effective price of $13.90 per share. If that happens I’ll sell for a profit if I can or otherwise hold for a couple years and hope to profit off the bailout. Worst case is a net loss of $13900, which I can absorb if need be.
The payoff is even if the share price goes to ~ 9 bucks.
Also, price is always leading the news, not the other way around.
And, a lot of fund managers (who already entered the long positions) will go on TV and start suggesting their own version on how to handle the crisis and why this is an opportunity of a lifetime. Assume that everyone is talking the book.
So a bear market is lower lows/lower highs. The SP is still in this bear market. As long as this bear trend continues, do not enter.
However, there will be one day in the future when the market will reach capitulation. The news will be so bad and panic so high, that the market will fall hard, but then you would see very high volume of buyer, and the market would end positively for the day.
At that day you can start to gradually enter.
There, now go invest.
It's too early
Try www.reddit.com/r/wallstreetbets if you really need it
Of course you should probably buy at least some index fund at some point. I also think the tech chip stocks are being pounded: Intel is in the DJIA, and has been brought down a lot I think rather unfairly because of the index. Taiwan Semiconductor is top of class and TSMC has also been pretty pounded. Texas Instruments, Qualcomm, Western Digital. All down, and all have really pretty reasonable dividends. Their moat is the IP as well as the manufacturing facilities. Tech isn't going to just stop, if anything it will end up in everything even more than now.
Be careful on the airlines. They'll get a bailout almost certainly, and maybe will merge down. Warren Buffet, who recently bought a lot of airlines was known for saying:
"Now if I get the urge to invest in airlines, I call an 800 number, and I say: 'Hello, my name is Warren, and I'm an air-o-holic,'" he has said in the past.
He got burned in US Air in 1989. He relapsed in 2016.
What you’re saying is charity right? (Which I’m not against, it’s just I didn’t think you could invest in food banks)
He doesn't need the money, they do.
Square (SQ) as close to $30 or under as you can get. I was buying today below $35. I'll keep buying if it wants to keep going down. At a $14-$15 billion market cap, it was a comical steal to hold long-term. It's a future $100b market cap company.
Pinterest (PINS) here (below ~$12), to be held for a minimum of five years.
Grab some financials, the stronger companies. These are not going to collapse, short of the US collapsing. They're classic too big to let fail. They survived the great recession, the Fed will inject whatever it has to in order to prop them up. I'd suggest a basket of JPM, WFC, BAC, GS, MS.
IBM (IBM). Below $100 ideally. Their future will be brighter with the new management and they're trading for 9-10 times earnings with a good dividend. It was cheap before the crash, it's very cheap now.
Micron (MU), particularly if you can grab it below $30.
Beyond Meat (BYND). I like their valuation at this point, it has been crushed. They've demonstrated strong operational controls on costs and they have plenty of cash. I think they'll be fine coming through this.
I'd like to suggest Cloudflare (NET), I don't love their valuation here though, it hasn't gotten beaten down enough. It was briefly down a few days ago, but it's back up again. If you can get it below ~$15-$16, I like it there for a long-term hold.
Buy some silver (small position), however you prefer to go about that. The recent shock plunge is an opportunity to be taken advantage of. The same is true about a few other commodities. People are in panic mode, dumping most everything.
Luckin Coffee (LK). Big coin flip on the situation in China and the physical space in general with the virus. However, if they survive (presently burning plenty of red ink) they have a decent shot at being the Starbucks of China. They raised some capital in January, they'll certainly need it. It had held up well, but cracked today and dropped 13%, rolling back to November's prices. Stalk it for the low $20s or below.
Medifast (MED). To be held for several years minimum.
In the energy industry, Schlumberger (SLB) maybe. Their valuation has gotten very tempting here. $36 to $12 in a month. I don't like most of the energy industry, including XOM, CVX, much less OXY or APA or CLR. It's an amazing double smashing, from Covid and the oil war.
John Deere (DE) is getting close to interesting. I'd like it below $100. $180 to $106 in the past month, it's getting there. I like them a lot more than companies such as Caterpillar (CAT) or 3M (MMM).
iRobot (IRBT) has my attention here. They got hammered first from the China trade war concerns previously, then later from Covid as China went down. Their most recent quarter had popped the stock, until they got smacked again by Covid. I might like it below $30 at this point, we'll see if it gets there in the coming days or weeks. Plenty of competitive risks with the company, however the value proposition is very interesting now (below one times 2019 sales, 11x operating income).
Companies to avoid: retailers (too much risk, not enough upside); airlines (who knows what's about to happen to them); the classic FAANGS etc (AAPL, NFLX, GOOGL, MSFT, AMZN, FB - they haven't gotten cheap enough yet to warrant buying); avoid Tesla, GM, Ford; I don't like UBER or LYFT here; I don't like PayPal, Visa or Mastercard, they were all stupidly overvalued before and still are; I dislike Shopify, they're worth $60-$80 / share, trading for $336. At current valuations, I'd avoid Intel, AMD, Cisco, Oracle, nVidia and numerous other larger tech companies (not beaten down enough). I don't like most of the classic bluechips at all here, including KO, JNJ, PG, XOM, MCD, CVX, PFE, PEP, MMM, and so on, they're just not cheap enough. Give me MCD at a ~...
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Plus, on Amazon, watch for a spending hammer against AWS and its growth. You might see a severe slowdown for several quarters (eg growth cut in half or worse), which will trivially destroy anything positive out of retail in regards to optimism. Business spending is going to get hit pretty hard for a while.
Costco for example, I wouldn't go anywhere near the stock, despite the way it has held up. Who knows if we're going to see serious supply problems next (which will get them from another angle, rather than demand side as with many businesses in this environment). If we see much of a supply crunch, it'll take back anything positive retailers see short-term from the demand surge.
The market is (properly) worried about a big thrashing to the ad market in the US, due to business going into the freezer. Businesses of all sizes are going to pull their ad spending - some as a part of survival mode (cash conservation) and some as a shift to being more cautious on spending in general for a while - at some point if this continues for very long (I'd expect weaker businesses have already begun pulling their ad spending). It's why Pinterest took a hard dive (ad spend worries), despite people sitting at home in quarantines screwing around online.
Is that fair?
I see it a little differently, that the virus may be temporary but how we live, shop, govern ourselves and conduct business will change permanently as a result.
Some of the changes are accelerating existing trends, moving more online than offline from school to work to food shopping to governance.
This crisis is exposing deep flaws in governance and public services that we won't be able to continue to ignore. Previously fringe ideas in the US such as universal healthcare, universal basic income, universal housing, paid sick leave, etc. are starting to show up in right-wing rhetoric, sometimes even more stridently than from those in the center-left.
If permanent changes like this are in store, the beneficiaries are likely to be those with physical logistics networks like Amazon, Walmart and UPS, cloud computing like Amazon and Microsoft, online services like all of the FAANGs.
I'd also buy biotech, health tech and home healthcare while selling hospitals and insurers.
And I don't see the fossil fuel industry bouncing back from this, and that includes oil and gas as well as internal combustion automotive. When the economy resets lower, I expect clean power to dominate.
I don't believe this will fundamentally change society. I believe it will remain ~99% the same. That conclusion is based on how I see this going. The bailouts and direct cash and stimulus attempts will last ~60-90 days, after which the US and EU can't affford to keep doing it (or at least not for much longer than that). At that point an obvious hard choice will present itself if the virus hasn't largely passed, and the only logical path is to quarantine the smaller group of the population that is most vulnerable, rather than quarantining everybody at a massive ongoing cost (which isn't sustainable anyway). That's also based on my belief that the virus has already hyper spread, over a million Americans have already had it or have it. We should be doing randomized testing of millions of people to check for that (blood tests as well). If it has hyper spread, then the real death rate is far lower and that will adjust how we approach the virus. It is a travesty that we don't have this data right now and or are not aggressively pursuing it at any cost. We will go back to work out of necessity. In the scenario I believe is taking place, we'll eventually figure out the hyper spread context has occurred, the primary question is how quickly we get from here to there. 6-12 months from now we'll be reading lots of articles about how it turns out there were far more infections than we thought. We'll put resources into protecting the vulnerable as much as possible as we transition back to society operating normally, and into expanding ICU related needs to care for those most affected as we go back to routine.
The only way there would be permanent large scale changes, is if millions of people in the US die. There is no scenario where that happens in my opinion. Those extreme forecasts are all based on the case counts being accurate and very high death rates (as in Italy) being accurate (along with an inability to control the virus at all): case counts are not even remotely close to accurate, they're off by a minimum of 10x-20x. Italy hasn't had 35,000 cases, they've had closer to 350k-700k cases as a range. The biggest hit this virus produces to our system, is to the intensive care demands. We will need to invest tens of billions of dollars into that area persistently until the virus is brought under control (whether by herd immunity, seasonal fade, or vaccine later on). We have to maintain ICU services at a very heightened level.
The overwhelming behavior will be to attempt to go back to business as before. Most people will not want to change, unless they're forced to (and they're not going to be forced to in most circumstances).
> This crisis is exposing deep flaws in governance and public services that we won't be able to continue to ignore.
Yes. We'll get guaranteed paid sick leave at a national level from this disaster. It will increase the demand for universal healthcare. I think that will initially take the form of all-guaranteed healthcare, meaning we aren't going to immediately move to a full socialized system, rather we'll focus on making sure everyone has something akin to guaranteed minimum healthcare (they'll focus first on the segment that routinely goes without healthcare). And if they're smart, the Democrats will use this time to push for something that specifically resolves medical bankruptcies (since we're not going full socialized initially, or perhaps not ever; many prominent countries successfully use split systems).
I believe we'll establish a substantial pandemic response system coming out of this, which will coordi...
It has certainly been demolished now.
A friend of mine that I've been exchanging emails about the market with on a daily basis for 20 years - we trade short calls back & forth when something looks interesting (I almost never short stocks; and very rarely use puts; so this is merely a market game between us). I slapped a short call on Boeing at $371, with a cover below $200. That was premised on it being ridiculous that they had held up so well for so long, despite the beating on the 737 Max. At that point I had no idea Covid was coming. So I thought maybe it was worth $150 or $175 with the Max mess (assuming some resolution there eventually). What is it worth now? Shit, who knows. Zero without a bailout is my guess, they're getting tag teamed like the oil market did. So what will the bailout look like. I do believe the government will bail them out, I think that's obvious; so next, then, is what will that look like, how onerous will it be.
Also, I would add:
EA/ATVI/TTWO: They're outperforming relative to the SPY
Innovo/Moderna/etc. : Any of the Cov vaccine companies, a pot pourry of them
OLED/LG: LCD/OLED semiconductors
And, I would disagree:
AMD/INTC/AMAT/KLAC/NVDA/MU: Semiconductors are a solid investment, not beaten down enough because the demand of semiconductors will soar in the future.
Their growth over the past three years disputes the concerns on their growth re physical retail. They're not mirroring damage in physical retail: sales, $1.7b -> $2.2b -> $3.3b -> $4.7b. Their operating profit has gone from -$170m -> -$54m -> -$36m -> +$153m. They have a clean path from here to over $10b-$12b in sales (Covid will roll them backwards and or slow their growth dramatically for a while, which of course is why the stock is being priced as it is).
NVDA with an optimistic 30 to 40 PE is far beyond a reasonable valuation in this climate. Half that range would be reasonable given their growth potential for the next few years and the market conditions now. So far NVDA is only back to Dec & Nov prices.
I love what AMD is doing on the product front and obviously investors are optimistic. Buying them at ~100 times earnings - with modest growth against that valuation - I consider a bad value in this market after the upside run they've had (since ~mar 2018). They still haven't been adjusted with much of a discount (and of course I have no idea if they will be or not at some point), they've merely been priced back to December. A normalization of AMD's valuation to the semi industry requires they earn ~$2 billion in net income at some point to justify their present valuation. They've pulled a lot of future gains forward here.
Long term, it probably doesn’t matter if you buy it $200 or $150.
Do not forget to reinvest the dividends.