As you probably know, I write a weekly investment newsletter, the Reitmeister Total Return. But given the stampede of events this past week I have actually sent 7 full commentaries to help customers navigate the rough terrain.
I don’t believe I can spell it out any better than I did in these commentaries. So I have decided to weave together the best of those insights to explain what is happening and the recommended path forward.
(Monday 2/24 @ 9:26am ET)
“…the stock market is not always rational. That’s why we say it swings on a pendulum from greed to fear. And if indeed the fear picks up pace, then we could easily see the S&P tumble down towards the 200 day moving average at 3040 before the bounce comes.
That move would mark and additional 6-7% decline for the S&P and probably 10-15% decline for smaller riskier stocks. Meaning whatever red you see on your screen has nothing to do with the individual merits of the picks. All babies will be thrown out with the bathwater. And the smaller/riskier babies will endure the most pain.
The solution is to buy a little downside protection in the Small Cap Bear 3X ETF (TZA). 7% is a good allocation as it would reduce our % long in the portfolio to 65%. That is a good place to hunker down for a little while and how things shake out.”
(Wednesday 2/26 @ 5:35pm ET)
“Let’s be 110% clear about the current market situation. No one on the planet knows with certainty the perfect way to trade around the Coronavirus. Not Warren Buffet. Not Citadel. Not Goldman Sachs. And not Steve Reitmeister.
Sorry if this is a shock. Or not what you want to hear. But the more honest we are about the situation, the more we can transparently explore the range of possibilities and give ourselves a fighting chance to come out the other side in the best possible shape.
Look at all major news outlets. It’s becoming Coronavirus central 24/7.
That is the media. They feed on fear. Just their natural bias. And this is an easy story to make folks fearful about and turn on the news to sell more advertising space.
It will expand to more countries before it’s over because its already on 6 continents. And that includes expansion in the United States. And there will be enough people who stop going to the mall, vacation, business trips etc, etc, etc to curb economic activity in the short run.
Note I used the word “curb” as in lower economic growth as I don’t see enough to call recession. And if not recession then not ready to truly contemplate bear market.
Back to the point about how much it could harm the economy…
How much will it lower economic activity? No one knows.
For how long? No one knows.
Thus, how low will stocks go? Again…NO ONE KNOWS.
This gets us back to the idea that the market hates uncertainty. And this situation is as uncertain as it gets. Thus the natural direction of stocks in the short run is down.”
(Friday 2/28 @ 9:42am ET)
I’ve been up since 4am. One of my 3 dogs is to blame as she needed to go outside at that time. So I have been up ever since contemplating our next steps. I have even gone so far as to investigate the rate in which the Coronavirus is expanding around the globe along with other vital stats (find that here).
I could give you a very rational case that the actual rate of expansion of the disease is on the decline because active cases are heading lower (instead of the exponential curve higher that typically happens when a disease is getting out of control). But the real problem is that this disease has now spread to over 60 countries and the media will sow fear in each nation for a lot longer. And thus economic damage will probably be greater. And thus stock market downside will probably be greater.
Or to put it another way, fear is not rational. And thus it is hard to measure the extent of the damage. Or when things will take a turn for the better. So the most logical response to these illogical times is to get more defensive. For that I have chosen a more balanced, conservative posture of 50% long.
That’s because after a 12% drop already there could be a meaningful bounce very soon. So we don’t want to be completely out of the market. Especially with the notion that it’s still a bull market til proven otherwise.
But just as easily, stocks could implode down to the 20% correction level boarding on a bear market before pausing. Adding the two together brings me to the notion of 50% long being the prudent approach for now. (this was followed by a section with 3 stocks to sell and 2 leveraged inverse ETFs to get to 50% long).
…You, of course, have the right to do what makes sense to you. To adjust this strategy to be more aggressive or conservative given your take on how things unfold.
For those who chose to be more conservative, then make sure you have a strategy in place of how you will get back into the market if it bounces and the virus seems to be disappearing in the rear view mirror. It’s harder than you think especially given the amazing speed in which the modern market makes its moves. So best to plan in advance.
For those who chose to be more aggressive, like buying this dip right now, you also need a contingency plan in place in case things devolve even further. Not just share price declines, but actual signs of economic damage that “could” point to the next bear market in the offing.
So yes, is the answer to your next question. This “could” be the start of the next bear market. I doubt that is the case and think continuation of the bull is most likely. However, it would be unwise to dismiss the possibility that this event is what finally puts this 11 year bull run out to pasture.
Putting it altogether, being 50% long is what makes sense to me to balance out current risk and reward. This gives us time to review how things evolve from here. And then make adjustments to get more or less long the market as needed.”
(Friday 2/28 @ 5:35pm ET)
“The markets were insane today. But we have already beaten that topic into the ground with a myriad of commentaries and trades this week to get ourselves back to a more balanced posture at 50% long. This strategy gets us ready for anything that comes our way next week.
In the meantime, be sure to push away from the markets for a while. Spend quality time with friends and family. Sleep in. Have fun. Whatever it takes to be fresh and ready for what will likely be another crazy week ahead.”
I hope you gained some benefit from these Reitmeister Total Return insights. Like a better understanding of what is going on…improved strategy…and perhaps a little piece of mind.
If you’d like to see the current portfolio of 8 stocks and 3 ETFs along with evolving market commentary and timely trades, then consider taking a 30 day trial to the service. Just click the link below.
Wishing you a world of investment success!
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network
SPY shares . Year-to-date, SPY has declined -7.95%, versus a -7.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...
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