What I'm Doing During Corona
Summary
I prepared a little.
I hedged a little.
Now I'm buying a little.
I manage three personal accounts of interest, my Chump IRA, which I write about occasionally, a taxable account with the bulk of my savings, and a smaller taxable account where I make more speculative trades.
Back in January, I was thinking about the Corona virus. I work with several Chinese scientists, and via We-Chat (Tencent TCEHY), they were telling me how bad things were getting for their families back in China, one group specifically in Wuhan.
I was struck by the extreme measures China was taking - shutting down industry completely, which wasn't matching the narrative coming out of China. I feared this would end up being pretty serious.
So, as an investor, what to do?
1. Trim your overpriced stocks; using my preferred valuation tool, FASTGraphs, I took a look at all of my stocks, and started trimming the ones that were significantly overpriced, and there were several. However, I made a few mistakes. In my IRA, trimming is a non-taxable event, so I trimmed quite a bit and got to around 30% cash in my portfolio, but I hold quite a few REITs, and some were still "undervalued," so I left those alone. This created a portfolio that became a bit REIT heavy, and as the market has dropped, the REITs have been crushed. Ouch.
In my taxable account, trimming or selling winners sucks because it creates a taxable event, and here in California, you get to tack on another 10%! So I try to avoid selling and trimming, which makes portfolio management difficult. I thought I would be smart, and instead of trimming, sell a few so-so gainers, and use the cash to by some S&P puts to hedge my portfolio - smart heh?
Well, my bigger taxable account is at Vanguard, and until just a few weeks ago, I didn't realize that they don't let you trade options - crap, so much for my hedge. Fortunately, I have a third account, my Schwab taxable account, and I had a pretty good cash position at Vanguard, so I moved that cash and some additional, into the Schwab account, where I could do a little hedging!
2. Hedge a little; in my Chump IRA (Fidelity), I bought some out of the money SPY S&P 500 Puts for mid-April, and I went long the VIX via UVXY. In my Vanguard account I added to PPL - a safe utility, and bought VCSH, a Vanguard short term, high quality bond ETF, these seemed to be my best moves given my account limitations (I'll be transferring my assets out of this account in the future). In my Schwab account, I bought a bunch of puts with the goal of hedging my many long positions in the Vanguard account - HTZ, MGM, AAL, AAPL, and S&P 500 were my mainstays.
In early March, I was ready, but my puts and the VIX went in wrong direction initially, and continued for a couple of weeks - which was very painful. I nearly closed all my hedges on several occasions.
Then all heck broke loose mid-march, and the hedges really helped a lot. On a day when my stocks were down 5%-6%, with the hedges, I would be down only 2%-3% overall, on several occasions wishing I had bought more hedges (greed). There was always this nagging feeling that I should sell the puts before the market shot back up (fear). It wasn't long until UVXY in the Chump IRA became my largest holding by far - which got scary given how volatile it tends to be. At one point I sold my entire UVXY position, then after 10 minutes of stress, I bought it right back, second guessing my decision (more fear, stupidity)
On Friday, March 20, I took down all my hedges - I'd been hearing a lot about the effectiveness of the Malaria + antibiotic treatment, not to mention the massive government aid packages coming, and didn't want to be on the wrong side of a massive rally. The rally today, March 24, would have been very painful had the hedges been in place.
But now what? After selling the hedges, and sitting on the sidelines with some cash, is it time to buy? Or is it too early?
3. Buying a little; the hedges are stressful, and super tough to time. At this point, I'm going to just keep making regular small investments across the accounts - on the worst of the down days, I started adding to my Chump IRA, mostly just buying more of what I already owned. The Chump IRA is a dividend growth focus, so I buy quality names that have paid a growing dividend for years. I also focus this account on a yield of at least 3.0%. Here are some of my recent buys:
HON, AFL, GPC, EMR, PPL, MMM, CSCO, STOR, AAT, T, PFE, GD, LMT, CVS
In my taxable account, I focus on stocks with a bit more growth potential, smaller or no dividend, but still very high quality. I've had a watch list in place for both accounts for years, but haven't bought many of these stocks due to extremely poor valuations. Finally, some of these quality names are hitting really good buy points. In addition, I'm trying to stick with companies that have low debt, excellent cash flow, and will be around even if things with the virus continue to get worse. Here some buys I've made there, most of which are new holdings:
V, ADP, BRK.B, FB, GOOGL, TCEHY, WBA, ADBE
As the situation evolves, I hope to keep making small buys every week for the next month or so. If things look dire, I'll slow down my buys, and stretch them out over months. If a cure looks likely, I may speed up the buys a little.
How are you hedged, and what are you buying?
Chump
