Are there ways to make better gains during this crisis? Value investing?

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ChrisO
Posts: 54
Joined: Fri May 11, 2018 8:07 am

Are there ways to make better gains during this crisis? Value investing?

Post by ChrisO » Thu Mar 26, 2020 12:02 pm

Hello everyone,

I have a 6+ month emergency fund and two stable 'essential' jobs. One is in the medical field and the other does military parts. I haven't sold anything yet during this crisis since I still have around 30 years until I retire.

I am currently just DCA into VTI whenever I have extra money, but I was wondering if there is something better I can do? During the 2008 crash, houses were selling for pennies on the dollar so I few people became millionaire from this. And I was wondering maybe "stock picking" (even though it's against the Boglehead way) is better during a bear market since you can buy companies with strong earnings and cash. Oil might be an option if it drips lower. I guess I am asking if "value investing" has it's advantage right now. Thanks.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Are there ways to make better gains during this crisis? Value investing?

Post by mega317 » Thu Mar 26, 2020 12:11 pm

I think no matter what you do you have to think about the idea that the market can stay irrational longer than you can stay solvent.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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ruralavalon
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Location: Illinois

Re: Are there ways to make better gains during this crisis? Value investing?

Post by ruralavalon » Thu Mar 26, 2020 1:11 pm

ChrisO wrote:
Thu Mar 26, 2020 12:02 pm
Hello everyone,

I have a 6+ month emergency fund and two stable 'essential' jobs. One is in the medical field and the other does military parts. I haven't sold anything yet during this crisis since I still have around 30 years until I retire.

I am currently just DCA into VTI whenever I have extra money, but I was wondering if there is something better I can do? During the 2008 crash, houses were selling for pennies on the dollar so I few people became millionaire from this. And I was wondering maybe "stock picking" (even though it's against the Boglehead way) is better during a bear market since you can buy companies with strong earnings and cash. Oil might be an option if it drips lower. I guess I am asking if "value investing" has it's advantage right now. Thanks.
In my opinion regular contributions to Vanguard Total Stock Market ETF (VTI) is probably a good choice for future gains, better than stock picking or sector bets.

My rebalancing has been and will be into Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Scott S
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Location: CID

Re: Are there ways to make better gains during this crisis? Value investing?

Post by Scott S » Thu Mar 26, 2020 1:40 pm

If you've got the itch to gamble, consider setting up a small account to buy stuff you think will outperform: viewtopic.php?f=1&t=309494

I did it once, the fact that my picks did worse than the market cured me of that idea!
My Plan: (Age-10)% in bonds until I reach age 60, 50/50 thereafter. Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS.

vipertom1970
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Re: Are there ways to make better gains during this crisis? Value investing?

Post by vipertom1970 » Thu Mar 26, 2020 1:45 pm

just 3 days of upswing making people go cuckoo :D

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Wiggums
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Re: Are there ways to make better gains during this crisis? Value investing?

Post by Wiggums » Thu Mar 26, 2020 1:59 pm

ruralavalon wrote:
Thu Mar 26, 2020 1:11 pm
ChrisO wrote:
Thu Mar 26, 2020 12:02 pm
Hello everyone,

I have a 6+ month emergency fund and two stable 'essential' jobs. One is in the medical field and the other does military parts. I haven't sold anything yet during this crisis since I still have around 30 years until I retire.

I am currently just DCA into VTI whenever I have extra money, but I was wondering if there is something better I can do? During the 2008 crash, houses were selling for pennies on the dollar so I few people became millionaire from this. And I was wondering maybe "stock picking" (even though it's against the Boglehead way) is better during a bear market since you can buy companies with strong earnings and cash. Oil might be an option if it drips lower. I guess I am asking if "value investing" has it's advantage right now. Thanks.
In my opinion regular contributions to Vanguard Total Stock Market ETF (VTI) is probably a good choice for future gains, better than stock picking or sector bets.

My rebalancing has been and will be into Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX).
I buy weekly. Been doing that for over 15 years.

Rosencrantz1
Posts: 342
Joined: Tue Sep 10, 2019 12:28 pm

Re: Are there ways to make better gains during this crisis? Value investing?

Post by Rosencrantz1 » Thu Mar 26, 2020 2:02 pm

To answer your question - Yes, there are, IMHO, better ways.

I've bought a few individual companies (this is frowned upon here) because A.) I fundamentally believe in the equity market and B.) I believe some industries have/had 'blood in the streets' and C.) I think our gov't is VERY likely to do whatever is necessary to prop up the economy. The key, of course, is to be able to identify some of those special cases (and I'd suggest there have been a lot of special cases over the past couple of weeks). And, in the case of individual stocks, you should absolutely be prepared to accept the possibility of bankruptcy.

I'm up nearly 100% (so far) on one of my individual stocks (bought about a week ago) and both of the others are up significantly from where I purchased.

Having said this, the vast majority of buying I've done over the past month has been in VOO - I've been buying on the way down and I bought more VOO yesterday. And, if the market continues to 'head south', I'll continue to buy more VOO - - because I believe, someday, VOO will be higher than it is today. If the DOW were to continue towards 10,000, I'll still buy more VOO on the way there. I have/had a large EF (3+ years of expenses) and I've gone through a bit more than a third of it so far. Plus I've done some rebalancing in the IRAs (70/30).

Best of luck to you with your investments :beer

KEotSK66
Posts: 73
Joined: Wed Mar 11, 2020 7:03 pm

Re: Are there ways to make better gains during this crisis? Value investing?

Post by KEotSK66 » Thu Mar 26, 2020 4:32 pm

how about value averaging rather than value investing ?

while the market is down you maintain your current dca schedule but you also buy once or a few times in between the scheduled buys as you see fit

once the market recovers you can go back to just the sceduled buys

that's value averaging, ie buying more frequently when the market is down

you won't have to change funds or your dca plan, just make more purchases while the market is down

you won't have to research value investing either

BogleCollins101
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Joined: Fri Mar 27, 2020 11:07 am

Re: Are there ways to make better gains during this crisis? Value investing?

Post by BogleCollins101 » Fri Mar 27, 2020 3:32 pm

mega317 wrote:
Thu Mar 26, 2020 12:11 pm
I think no matter what you do you have to think about the idea that the market can stay irrational longer than you can stay solvent.
I'm going to put this on a t-shirt.

MoneyMarathon
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Joined: Sun Sep 30, 2012 3:38 am

Re: Are there ways to make better gains during this crisis? Value investing?

Post by MoneyMarathon » Fri Mar 27, 2020 3:56 pm

mega317 wrote:
Thu Mar 26, 2020 12:11 pm
the market can stay irrational longer than you can stay solvent
This is very relevant advice when you need the market to move in your direction or to move quickly, e.g. using leverage, options, or futures. If someone is just buying something with cash, they have good odds on being solvent longer, since they can survive the market moving against them in the short term, the same as any long term investor. The OP didn't say they wanted to use leverage or derivatives.

carmonkie
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Re: Are there ways to make better gains during this crisis? Value investing?

Post by carmonkie » Fri Mar 27, 2020 4:17 pm

Airlines and Cruise Liners if you think they will rebound..

mega317
Posts: 3779
Joined: Tue Apr 19, 2016 10:55 am

Re: Are there ways to make better gains during this crisis? Value investing?

Post by mega317 » Fri Mar 27, 2020 6:26 pm

MoneyMarathon wrote:
Fri Mar 27, 2020 3:56 pm
mega317 wrote:
Thu Mar 26, 2020 12:11 pm
the market can stay irrational longer than you can stay solvent
This is very relevant advice when you need the market to move in your direction or to move quickly, e.g. using leverage, options, or futures. If someone is just buying something with cash, they have good odds on being solvent longer, since they can survive the market moving against them in the short term, the same as any long term investor. The OP didn't say they wanted to use leverage or derivatives.
This is very true and I guess I stretched the meaning of the phrase a bit. I suppose if OP wanted to put all his money in oil and sat and waited for it to increase that wouldn't necessarily cause insolvency. But oil prices could lag any particular other investment choice for OPs whole life.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

pseudoiterative
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Joined: Tue Sep 24, 2019 6:11 am

Re: Are there ways to make better gains during this crisis? Value investing?

Post by pseudoiterative » Fri Mar 27, 2020 7:22 pm

I'll out myself: while I appreciate the boglehead approach and the discussion on these forums, I don't follow the boglehead approach - I operate as a value investor. I prefer not to buy into any stock investment where I cannot independently estimate the value of that stock separately from the market price. I invest into individual stocks, not in low-cost passive ETFs. I think a lot of market prices for stocks are nonsense and not grounded in reality -- not just now there's a crisis, but the market prices over the last few years. I do follow a rather boglehead-ish approach to gain exposure to asset classes that I don't understand well enough to value -- I hold vanguard ETFs for bonds and REIT exposure.

If you operate as a value investor, this does not mean to throw other investment principles out the window, such as picking an asset allocation or diversifying within asset categories. I do not recommend betting a substantial fraction of your wealth on a single company. Diversification is important. I hold ~40 individual stocks, with the max allocation of about 5% to any single stock. As discussed in Malkiel's book "A Random Walk Down Wall Street", once you hold at least 40 stocks in an international stock portfolio, the remaining risk from lack of diversification within that asset class is roughly minimised, and there is roughly no value in terms of reduced risks by increasing the portfolio to 50 stocks or 80 stocks. So you could gain exposure to 40+ stocks by buying a vanguard ETF that tracks the global stock market, or (if you have enough money to invest to cover the additional commissions) you could take positions in a diversified portfolio of 40 individual stocks. It's also worth remembering that the most important factors for a good investment outcome are (1) how much money you can invest, and (2) asset allocation --- not how well you allocate money to individual picks within an asset class.

If you don't have much time to learn about fundamental valuation and do research, or don't have much money to invest, it is much simpler and easier to get diversification by following the boglehead approach of buying into a low cost passive ETF that tracks the whole market. But you can still get diversification if buying individual stocks: you just need to keep tabs on which countries and sectors each stock in your portfolio is exposed too, and avoid picking too many stocks that share the same risks.

I don't view value investing as an approach to only use in a crisis -- I view value investing as an approach to use all the time. There is no difference in philosophy during the crisis --- but indeed there are more opportunities to identify companies with strong businesses, healthy balance sheets, that are trading at a sharp discount to their estimated fundamental valuation. To estimate fundamental valuation I compute net present value of discounted future cash flows -- and make assumptions that (1) the company will not do as well as historical data suggests, and (2) layer an even more pessimistic scenario on top of that to account for the shock caused by the current crisis -- e.g. assume for the next couple of years that revenue will be 40% less than what it would have been if there was no economic impact due to the virus.

If you want to learn about value investing, I'd argue that you're not likely to be able to learn enough in a few weeks or months to make very good value investment decisions. It might take years of learning and applying the ideas and making mistakes (losing money!) before you start to get okay at it. So if you want to suddenly switch to using a value investment approach, it is a good idea to be cautious and to limit the amount of your wealth you will allocate to that investment approach -- say 5% -- treat it as money you are prepared to lose as the price of learning a new way of making investments.

Recommended reading: Malkiel's -- A Random Walk Down Wall Street -- which is *not* about value investing, and might convince you to not do value investing. Browne's "the little book of value investing" could be a short introductory read to gives a few rules of thumb of principles to use to screen stocks -- e.g. by looking at classic indicators such as PE, PB ratios, balance sheet health metrics (acid test etc). But Browne's book doesn't go into any depth abouthow to independently compute a value (in dollars) for a share without relying on the market price in some way, so by following the simple screening and fundamental valuation rules in Browne's book you would (irrationally) never consider investing in a high quality high-growth business that is not yet profitable. Prof Damodaran has a great blog with many detailed worked examples of discounted cash flow valuations of interesting or trendy companies: http://aswathdamodaran.blogspot.com/ There's also Graham's tome The Intelligent Investor.

annu
Posts: 411
Joined: Mon Nov 04, 2019 7:55 pm

Re: Are there ways to make better gains during this crisis? Value investing?

Post by annu » Fri Mar 27, 2020 11:43 pm

pseudoiterative wrote:
Fri Mar 27, 2020 7:22 pm
I'll out myself: while I appreciate the boglehead approach and the discussion on these forums, I don't follow the boglehead approach - I operate as a value investor. I prefer not to buy into any stock investment where I cannot independently estimate the value of that stock separately from the market price. I invest into individual stocks, not in low-cost passive ETFs. I think a lot of market prices for stocks are nonsense and not grounded in reality -- not just now there's a crisis, but the market prices over the last few years. I do follow a rather boglehead-ish approach to gain exposure to asset classes that I don't understand well enough to value -- I hold vanguard ETFs for bonds and REIT exposure.

If you operate as a value investor, this does not mean to throw other investment principles out the window, such as picking an asset allocation or diversifying within asset categories. I do not recommend betting a substantial fraction of your wealth on a single company. Diversification is important. I hold ~40 individual stocks, with the max allocation of about 5% to any single stock. As discussed in Malkiel's book "A Random Walk Down Wall Street", once you hold at least 40 stocks in an international stock portfolio, the remaining risk from lack of diversification within that asset class is roughly minimised, and there is roughly no value in terms of reduced risks by increasing the portfolio to 50 stocks or 80 stocks. So you could gain exposure to 40+ stocks by buying a vanguard ETF that tracks the global stock market, or (if you have enough money to invest to cover the additional commissions) you could take positions in a diversified portfolio of 40 individual stocks. It's also worth remembering that the most important factors for a good investment outcome are (1) how much money you can invest, and (2) asset allocation --- not how well you allocate money to individual picks within an asset class.

If you don't have much time to learn about fundamental valuation and do research, or don't have much money to invest, it is much simpler and easier to get diversification by following the boglehead approach of buying into a low cost passive ETF that tracks the whole market. But you can still get diversification if buying individual stocks: you just need to keep tabs on which countries and sectors each stock in your portfolio is exposed too, and avoid picking too many stocks that share the same risks.

I don't view value investing as an approach to only use in a crisis -- I view value investing as an approach to use all the time. There is no difference in philosophy during the crisis --- but indeed there are more opportunities to identify companies with strong businesses, healthy balance sheets, that are trading at a sharp discount to their estimated fundamental valuation. To estimate fundamental valuation I compute net present value of discounted future cash flows -- and make assumptions that (1) the company will not do as well as historical data suggests, and (2) layer an even more pessimistic scenario on top of that to account for the shock caused by the current crisis -- e.g. assume for the next couple of years that revenue will be 40% less than what it would have been if there was no economic impact due to the virus.

If you want to learn about value investing, I'd argue that you're not likely to be able to learn enough in a few weeks or months to make very good value investment decisions. It might take years of learning and applying the ideas and making mistakes (losing money!) before you start to get okay at it. So if you want to suddenly switch to using a value investment approach, it is a good idea to be cautious and to limit the amount of your wealth you will allocate to that investment approach -- say 5% -- treat it as money you are prepared to lose as the price of learning a new way of making investments.

Recommended reading: Malkiel's -- A Random Walk Down Wall Street -- which is *not* about value investing, and might convince you to not do value investing. Browne's "the little book of value investing" could be a short introductory read to gives a few rules of thumb of principles to use to screen stocks -- e.g. by looking at classic indicators such as PE, PB ratios, balance sheet health metrics (acid test etc). But Browne's book doesn't go into any depth abouthow to independently compute a value (in dollars) for a share without relying on the market price in some way, so by following the simple screening and fundamental valuation rules in Browne's book you would (irrationally) never consider investing in a high quality high-growth business that is not yet profitable. Prof Damodaran has a great blog with many detailed worked examples of discounted cash flow valuations of interesting or trendy companies: http://aswathdamodaran.blogspot.com/ There's also Graham's tome The Intelligent Investor.
There are value based funds, both active and passive. Many from vanguard and others, almost every fund/etf has a corresponding value derivative. There are also multifactor funds now, and its endless. But you look at most of them, they are performing similar to 3 fund portfolio if not worst. Unless you are shorting, or doing other variations on investing, for long term investor, there is enough data that market will value stocks appropriately. I apologize, I am not trying to question your specific skills, but for average investor, index funds are quite decent option, and adding tilts, while it does add complexity, but still using index based approach, will minimize risk, than stock picking. If it was this simple and there was a way to learn to successfully pick stocks, Vanguard would not be so huge, and also other companies following suite with similar products, in fact all managed fund companies had to do was make more money as claimed they would, but time and again, it has shown to not be the case.

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