Has the bell rung for the bottom?

I am now going to commit an act of utter insanity: by predicting that the market is near the bottom. To quantify that as a specific prediction: the FT100 is within 10% of its 2020 low, and will be higher in 6 months than it is now.

Why do I say that? An article was published on MarketWatch that what taken from Barron’s: “Fear Grips Markets Again. The Only Safe Place Is Cash”. I am not a subscriber, so I know next to nothing about its contents.

Another headline is also links: “The Latest Coronavirus Data Is Out. The Number of New Cases Worlwide Declined Today”.

In a post on Stockopedia, a user notes that South Korea, which has a similar population as the UK) has reported only 84 deaths after a month of the outbreak. A respondent to that post says that Italy has a population 10% smaller than the UK with 2500 deaths attributed to the virus.

Let’s see if I’m about to make an utter buffoon of myself. Follow-up in 6 months time.

FTSE100 5091


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Magic Hat Portfolio: down 19% today

The markets are exhibiting extraordinary behaviour at the moment. The portfolio benchmark, the FT350 is down 8.5%. The MHP is down 18.5%, with everything at least down 10%, with the exception of FXPO, which is down “only” 7.3%.

Airline tour operator DTG (Dart) is down 42% after announcing that it has stopped flights to Spain. SLP (Sylvania Platinum) is down 36%.

The fall in the indices has been relentless. We’re down about 40% from the peak earlier this year.

The Dow circuit breaker kicked in earlier. I’m not sure the exact status right now, but the prognosis is bad.

The S&P500 is still on a PE of 17.2, which is still above the long-term average of around 15. Arguably, it still hasn’t factored in likely forward earnings despite the falls that it has suffered so far.

Could it fall a further 50% from here? Well, it’s not impossible, and there’s a good argument for it being within the realms of possibility. I’m not so bold as to suggest that it’s probable, though.

Stay safe out there.

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Magic Hat Portfolio: a little update

After yesterday’s horrendous fall, the FT350 is now lower than it was when I first started the MHP (Magic Hat Portfolio) in February 2011. So nine years out, and the FT350 has returned a big fat zero. Less than zero, in fact.

A similar situation arose in 2016. The FT350 is not at its lowest point since then., though. The nadir happened in October 2011, where the FT350 has declined amost 20%.

Fortunately my stock selections themselves are in positive territory, having returned an annualised growth of 6%. That excludes dividends. A few months ago the growth rate was about 10%.

Let’s see what the future brings.

Stay safe out there.

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TUI looks vulnerable to me

COVID is starting to ramp up in Europe now. Things are worsening in Spain, and it’s starting to look bad as a holiday destination. It’s difficult to gain a perspective in the UK, because I believe we are only at the thin edge of the wedge. It seems to be the same for the US. I do hope we avoid a situation like China and Italy. Realistically, though, I think the wheels have been set in motion, and it’s just a question of time.

If the US catches COVID bad then I expect stock markets to get a lot worse.

UK stock markets are down about 30%, so we’re in unequivocal bear territory. I do think markets will go lower. I’m actually a little optimistic about our eventual recovery from the virus, relatively speaking.

Anyway …

I note that tour operator TUI is down 14.3% to 398p. It does a lot of package holidays to Spain, so obviously it is going to be greatly impacted by the virus. One thing I did want to point out is just how vulnerable I think TUI is as a company.

A quick check on Stockopedia reveals that it has a market cap of £2.8b and an EV (enterprise value) of £7.9b. I view this as perilously high debt. TUI has operating margins of around 4%, and has plenty of fixed costs. It won’t take much to put this company into a loss, thereby increasing its debt load.

Put it this way: if I was offered an even-money bet as to whether it would survive or not over the next year, then I would put my money on “survive”. But make no mistake, TUI is vulnerable.

It’s a shame. I have taken many holidays through TUI. I found the company to be well-organised and the reps helpful. So I wouldn’t want it to see it go the way of Thomas Cook.

I did not take a holiday abroad last year on account of my passport near expiry and the existence of the tourist tax on the Balaerics. £75 to renew a passport is outrageous, too. I do resent being treated like a walking wallet.

Akthough I do miss going abroad a little, there’s something to be said for staying at home. If we get nice weather, then I sometimes wonder what the point of going abroad is. Having said that, I do live in Scotland! Brr.

Anyway, that’s enough nonsense from me for today. Stay safe out there.

Update 1: Someone mentioned SAGA, which is a travel operator for old crusties like me. I see it made a loss in 2019, so prospects for 2020 can’t ge good, either. SAGA is down 15% to 14.8p. It has a market cap of £193m, and an EV of £748. Verdict: too much debt, especially for such a cyclical sector. SAGA has a long trading history, but has only been publicly listed since 2014. I think it was a VC management buyout jobby. As you might expect for such a setup the company was pushed out to the market loaded with debt. It’s on a PE of 2.4 and a PBV of 0.2 and a momentum score of 15. Clearly Mr. Market thinks that the wheels are going to fall off the wagon on this one, and I wouldn’t necessarily question his judgement at this point.

Update 2: I didn’t want to post this update on Stockopedia because it might be considered too frivolous. The FT100 is now down 9.2%, similar to the Dow. A BB poster noted said that gold was falling, too, and that there was a simple explanation: margin calls. I found a video on YouTube from late 2018 entitled: “MARGIN CALL: Why The Next Market Crash Will Be Worse Than Anticipated.” Margin debt was at an all-time high when the video was made, and I don’t imagine things are any better now than they were a year-and-a-bit ago. The video may have been early, but may have been prescient. Make of it what you will.

Update 3: FT100 closed down 10.87%, making it the second-biggest fall on record. The index closed at 5237.48.

TUI 398p

SAGA 14.8p

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My thoughts on the market

The number of cases of covid is currently small in the UK. The UK health minister accounced that she has it, and I surmise that it will now spread rapidly. We are experiencing a calm before the storm. I hope I am wrong, but I think that’s the way it’s going to go. I imagine it’s the same situation in the  US. If America goes, we’ll probably all go down.

As I noted elsewhere, the FT100 is in bear territory. My worry is, when markets decline by 20%, they don’t just decline 20%, they like to decline more. I don’t know by how much, but 30% seems reasonable. It could be more, it could be less.

I also noted that near-record 1-day declines haven’t appeared in isolation. So we’ve probably got one, two, or possibly more whoppers to come.

The RSI(14) of the FT100 is at 17.88, as it was a few days ago. Anything below 30 is considered oversold. So we are at levels that we could class as extremely oversold historically.

My speculation that we would have a sharp rebound has been wrong so far.

The declines that we have seen recently seem uncharacteristic of a typical end-of-bull market. My expected behaviour is that bull markets end with a whimper, not with a bang. The declines seem too sharp. It’s the end of bear markets that one normally associates with steep declines.

The fallout from covid has not yet filtered into company announcements, so there’s that to look forward to! According to Stockopedia, the FT100 is on a PE of 14. This is lower than average, but still in what i would consider an average range.

So I think there’s plenty of scope for further falls, especially given the fact that the UK has yet to see covid bite into the UK population and company results.

Stay safe out there.


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Oil takes a tumble

The FT100 closed at 5965 today, down 7.7%. That puts it in the top 5 one-day falls according to a post on Stockopedia. What is noticeable – and worrying – is that big falls do not occur in isolation, but cluster. Those clusters are 1987 (4 out of the top 20), 2001/2 (3 of 20) and 2008/9 (13 of 20). So we can probably expect one or two more plunges to occur over the next year.

The other big news for the day is the plunge in oil pricdes. Brent crude was down 27$ to $35.64 a barrel, having fallen to nearly $30 a barrel at one point. At the start of the month, Brent crude was trading at $70 s barrel.

Oil sector shares were amongst the worst performers. BP was down 20% to 318p, and RDBA (Royal Dutch Shell) was down 18% to 1317p.

The 10-year daily chart of Brent Crude Oil Prices shows that the lowest price during that period was around $28.55 on 18 Jan 2016, or therabouts. The share price bottomed at 1375p on that date.

We are now trading at below that figure, suggesting that RDSA’s shares are incredibly cheap. I’d like to say that on the one hand the shares are about as low as they can go. On the other hand, the EV/EBITDA is 5.2. That’s low, but if you want to be really greedy, then maybe wait until it trades below 4. There’s no guarantee that will happen, of course, so you might miss out on the deal of the decade.

IAG (former Brit Airways) trades on an EV/EBITDA of 3.7, a very low rating.

I do own shares in IAG, but not RDSA. I was under the impression that I did, but I checked my records and realised that I sold them at 1982p at the beginning of February. They’re down 34% since then, so it was a lucky sell on my part.

What’s interesting is the shares were going off the boil even at that stage. It was almost as if Mr. Market was anticipating the oil price to fall further.

The New York Times reports the reason for the fall is the Russian rejection of an agreement with OPEN on cuts in oil production in order to buoy up prices.

Stay safe out there.


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More market turmoil

I see the FT2350 is down a massive 2.45% as of writing. I was doing really well in 2020, too, but everything is unravelling, basically.

It’s a mess, but remember, we faced a similar mess in Sep 2019 and early 2018. There were two big falls in 2016, too. So, nothing too unusual. I go along with Paul Scott’s opinion that the market had gotten ahead of itself in 2020 and was looking for an excuse to fall. Coronavirus was just such an excuse.

Airlines are continuing to take a hammering. It seems reasonable to suppose that they will post some dire numbers. the question is whether they will be better or worse than the market is implying. I hold IAG (Int’l Cons Airlines). I am, of course, receiving a thrashing at the moment. It is on an EV/EBITDA of 3.77, which is astoundingly cheap. I dare say it’s going to get cheaper, and will publish some nasty numbers.

I suspect that IAG is one to watch. Don’t pull the trigger yet, but bide your time.

I tend to think of markets as providing “tiers” of opportunities. For example, the safest tier is on a country basis. The next one is a sector basis. The last one is individual companies. Timing is important.

I don’t think we’re there with China. I’m basing my judgement on CAPE. It’s OK, but not compelling. I want to see more pessimism before investing. That pessimism may never come, but I don’t yet see China as compelling.

So, barring countries, sectors are a place to look for opportunities. Airlines are an obvious to place to look. The whole sector is being dumped. When that happens, the odds start to weigh more decisively in one’s favour. The good news is that you don’t even have to be particularly discriminate in what you buy. Buy something half-decent, and you’ll do well.

My portfolio is down 3.6% today, significantly underperforming markets. It had held up fairly well against the rest of the market earlier this year, but it is succumbing to the inevitable.

Travel and leisure generally is one to watch out for. CCL (Carnival) and TUI are obvious picks. Note that I am not saying to buy now, but wait on the sidelines on those two.

My Magic Hat Portfolio is taking a similar drubbing to my personal portfolio. CGS (Casting) is actually up on the day! How about that, then? Airline DTG (Dart), in which I do not have a personal investment is down, of course.

Suddenly, my decision to sell DTG at 1509p doesn’t look so daft, considering its share price is 1222p. At the time, I noticed with chagrin that its share price kept rising after I sold it.

The market is fond of delivering cruel blows and unexpected twist. There was no way for me to know that there would be the virus that would send the shares tumbling. This is why you should always size your risks! Just ask Neil Woodford. As I have said before, investing is a game of probabilities, not certainties. I don’t believe you can play it on the basis that you know what is going to happen. In that respect, I am very much unlike Warren Buffett.

I am fully invested at the moment, although obviously I have cash aside to pay bills, and suchlike.

Stay safe out there!


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