My view on the markets
I’ve had a few people ask my thoughts on where the markets are going. While I have as much idea about the markets as any other moron, I always like to write my thoughts down and be open and accountable. I’ve been lucky on this blog in picking trends/events. I talked about Bitcoin when it was still in the low hundreds and wrote this article just before it took off. Last year I wrote about why I was taking a fair chunk of my money out of the stock market. I’ll likely be very wrong on my next two predictions to bring my average to 50%.
Disclaimers: I’m not a financial adviser and this is not financial advice, these are my opinions. I am an idiot, I have no idea what I am talking about.
The economy runs a very distant second to the real issue. People are dying and many more will die over the coming year and a bit. Talking about money at a time like this feels pretty unimportant, but the impact the coronavirus has on our economy is going to be massive and will cause extreme pain now and many years into the future. I’ve done everything I can on the health side of things, we self-isolated many weeks ago (and took the kid out of school) and I have told my close family members to do the same (even yelling at them). Being home 24/7 gives us all a lot of time to think, and I love to think about numbers.
Where are we currently?
How amazing to think that something we can’t actually see can have such an oversized impact on the entire world. There is an invisible thing out in the public that hitches a ride on anyone it comes into contact with and tries to murder everyone it touches. Apart from an alien invasion or nuclear war, I can’t think of any other thing that can have such an impact on every single person on earth.
The world is currently shut down and we have all been sent to our rooms. For those thinking this is a short term issue and we will be back to how we were before this started, bad news. The world will never be the same and we won’t be back to our new “normal” for at least a year. Until a vaccine comes on the market, any future plans are out the window.
We have seen the first wave hit China and Europe and it has begun in America now. This will last for another month or two before things seem to settle down. Governments will slowly reopen parts of the economy before a second wave hits and we are sent scurrying back into our caves. This game of cat and mouse will last until at least the end of this year.
I’ll comment on the Australian market (but it will be similar for all other markets). The peak of the S&P/ASX200 was 7162 on the 20th of February, the current low of 4546 was hit on the 23rd of March. That was a 36.52% decline. Over the past week, we have gone back up to 5,250.
The Dow has experienced the fastest ever bear market followed by the fastest ever reversal into a bull market. Right now the markets are in no way efficient.
The market seems to be moving based only on the level 1 issue, the coronavirus. As we see new numbers each day and are told the initial wave will be over in a few months, people assume that once we are past the worst of it, the markets will recover and will reach new all-time highs in no time. Frightened people make very rash decisions and can’t see past the initial issue.
When I wrote my article about why I was pulling money out of stocks back in June of 2019, my thoughts were that we were living in a world that was leveraged to the max with no slack in the system. The market valuations seemed crazy to me and I assumed a 15-30% correction was very likely in the next 2 years. This was based on the current state of affairs in June. If you told me the entire world was also going to stop and the economy would grind to a halt, my assumptions would have been very different. The current drop is where I assumed the markets would be if things continued on as normal. Where we see ourselves now leads me to believe the markets have a lot further to drop.
Where I think we are going
Once again, let me state: I have no idea about any of this. This is based purely on how I interpret the world and I’m positive I have a heap of blind spots.
I believe we are in for a lot more pain. The economy is dead. Every single industry has been hit and some have lost 100% of their revenue. Any money the government gives us has to eventually be paid back. Most industries will never go back to where they used to be. We have likely reached peak cases in many industries. Travel will not return to where it was for at least 5 to 10 years, I doubt cruising will ever recover. Countries will rely less on other countries for critical supplies, which means production will be moved from cheap places and prices for critical products will increase. There are so many changes that will happen because of this.
I can see a total 40-60% decline in the markets and will have dumped everything in by the time we reach a 50% decline. I could put everything in now and be fine as I won’t be touching the stocks ever again. My main goal since I started this blog was to get to $2 million in investments and let the dividends pay me 4% a year ($80,000).
I’ve currently put in 25% of the total amount I will put back into the market. I have no idea how quickly the markets will crash again (and we could have already seen the bottom and I’ll never get to invest my capital), but I’m fairly confident we are in much worse shape than the market seems to think, and I’m willing to wait.
For the most part, I’ll be investing in Index funds. But I’ll have 20% to play with individual stocks and angel investing. I’ve been thinking about how life is going to change for a lot of people and the new businesses that may come out of this. We have seen how quickly the government can work and implement new laws when it is faced with a crisis. Things they said would have normally taken 5 years to implement have taken weeks. These offer both positive and negative outcomes. When people are literally scared for their lives, they are willing to give up a lot and we have seen how quickly people are willing to give up their privacy in the form of digital tracking and cyber surveillance, let alone installing a dictatorship in Hungary.
We can assume the health space is going to keep going up. The government has already moved to Telehealth and this will continue to accelerate. I can see a future where devices will connect to our phones and a doctor can take measurements in realtime without having to touch the patient. Most of the basics are already there with devices like smartwatches, Fitbit and so on. We can easily get all our basic metrics from products on the market today. We will be able to take a pinprick of blood as we do for diabetes and it will give us a full blood workup in a matter of seconds.
Companies working in the health space have a lot of upside, as people now realise how important our health is and will be willing to spend more and more to make sure they are healthy.
The other easy one is the move to online everything. This was something that was bound to happen over the coming decades but will be massively accelerated. Companies will see that most of their employees can be remote, we will shop online even more and have everything delivered. Education, entertainment, and all the other letters of the alphabet will move more online. This will further impact all our real-world locations which will need to adapt to our new mostly online world.
“There are decades where nothing happens; and there are weeks where decades happen.” Vladimir Ilyich Lenin
In less than a month, the world has seen decades happen. It’s impossible to know the long term ramifications of everything.
I believe the next few years are going to give us a massive opportunity to invest in companies that will thrive in the new world economy. I hesitated to invest in many startups over the past 5 years as valuations had got out of hand. I’m now eager to start angel investing once again. Things will suck for a while, but as humans always do, we will continue to make the world more efficient and a better place to live.
I couldn’t write where I am investing and not talk about Bitcoin. I recently bought more when Bitcoin plunged from 10k down to 4k.
I couldn’t think of a better set up for Bitcoin than right now. We have the world in a panic, central banks printing trillions of dollars, a halving coming up and a massive move to online everything. If Bitcoin isn’t over $30,000 a coin on April 1st 2022 I think I’ll need to admit it has failed and I’ll likely sell out. I’m fairly confident Bitcoin will be over $50k at that stage and 50/50 on it being over $100k.
But I’m a gambler.