Webinar Q&A: Post-COVID is changing investing. Are you ready? 5/19/2020
Are you waiting for another big dip to add more stocks to portfolios or consistent dollar-cost averaging?
If you have cash (like a recent cash event) we would be dollar-cost averaging into this market to get you in line with our model portfolios. Currently, our model portfolios are holding an overweight cash position due to the recent surge in the market and valuations that look stretched. We are patiently awaiting a pullback to put more cash to work. The recent market rally has been driven by unprecedented fiscal and monetary stimulus as well as optimism about reopening the economy. It is not being driven by underlying fundamentals or even earnings as that remains unclear at this time. Therefore, we would be cautious and await further entry points to put additional cash to work.
Did we miss investing at the bottom? or will stocks prices slowly slide until they reflect the new economy?
History proves that after a bear market there tends to be several pullbacks in the 12 months after the market troughs and in some instances the market even tries to test the lows. We believe that the recent market rally has been driven by unprecedented fiscal and monetary stimulus as well as optimism about reopening the economy. It is not being driven by underlying fundamentals or even earnings as that remains unclear at this time. Therefore, we believe a pullback is likely as investors begin to assess the speed and magnitude of the economy reopening. We have begun to see positive signs about the human element as the economy reopens regarding their desire to travel and go out to restaurants, but we do believe stock prices at current levels are pricing in heightened optimism about the economy. That is why we believe a pullback is likely and we are holding an overweight cash position in order to await for more attractive opportunities.
The commentators say the DOW will drop to 18,000 or more. What can we do to counteract this doomsday message. We are very happy with you.
A drop to 18,000 would be another bear market decline from current levels (approximately -26%). While we believe that market is pricing in the optimism about the gradual reopening of the economy, we do think the recent rally has been a bit overdone and expect at least a moderate pullback (7-10%). History suggests that in the one year after a bear market, there tends to be multiple pullbacks and some in the double-digit range. However, history also shows that those events should be treated as buying opportunities as equity returns are attractive in the one year after a bear market trough. Therefore, we would use that as an opportunity to put our overweight cash position to work. It is important to remember that the current recession is a self-inflicted recession. This is not a typical recession where you have a gradual decline in economic activity. We came into this self-inflicted recession with an economy on solid footing, healthy corporate and household balance sheets and the strongest labor market since the 1960s. What the federal reserve and federal government have done is implement an unprecedented amount of fiscal and monetary stimulus to help bridge the gap before we can comfortably reopen our economy. While we expect it will take time to fully recover, and the recovery may look quite different until treatments and a vaccine come to the market, we do believe the actions taken by the government will help the economy expand.
Rural Broadband is in the news more than ever—any investment opps in this space that come to mind?
What about investing in the Airlines and Curise Lines?
Source: Cornerstone Investment Partners
- There’s no doubt that cruise lines are priced lower than they used to be. However, for us, it’s a question of whether the past track record is relevant and repeatable when we determine if they are inexpensive.
- Cruise lines continue to be under no-sail orders, and while some expect to begin to sail again in August, there remains significant uncertainty if and when they will be able to reinstate operations
- Long-term demand will probably return, but the business model may change (lower occupancy, shorter cruises, lower prices, more locals, more expensive labor) for the worse
- Were left out of the last coronavirus support package and cruise ships represent significant fixed cost assets with even more ships remaining on order
- Most cruise lines are significantly levered, making their outcome highly dependent on shorter-term outcomes than less debt-laden businesses
- While it is possible they are inexpensive, the significant fundamental uncertainty keeps us on the sidelines
- Similar to cruise lines, the uncertainty around repeatability of past track record for airlines has kept us on the sidelines
- Airlines also have a high fixed cost base, so losses this year will be significant and bankruptcies (such as LATAM which filed today) are a real possibility for airlines with too much leverage
- US airlines are generally considered strategically important, so have a higher likelihood of government support/backstop than do the cruise lines
- We have looked at Delta and like some of the company-specific moves they are making, both ahead of and during the shutdown, but uncertainty has remained too large for us given our concentrated portfolio
- We have seen some early signs of life for flight bookings and we don’t expect flying to be permanently impaired, so are continuing to monitor the space
We are 80+ year old retirees dependent upon Social Security and our Verdence IRA for income. You haven’t said anything today to help me or others like me.
Mike Hoffman mentioned a type of trust. What was the name of it?
Charitable Lead Trust (CLT) and Intentionally Defective Grantor Trust (IDGT).
What is your view on how state and federal taxes will change over the next 10 years due to the massive losses and stimulus payments and how will this impact our investing strategy.
Is this a time to convert an Ira to a Roth? Should one consider taking the RMD this year even if not required? Any advantage?
How and when the world be free of the Corona Virus influence(s)
How will portfolio allocations change to address the faster pace of change To a digital economy and the permanent aspects of working/staying home?
What are the mitigation strategies for Verdence for sector avoidance or abandonment where the product line is not sustainable over the next 18 months?
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