16 Mar Everyone is a genius in a bear market – Buffet Vs. Barstool

The Coronavirus Stock Market Plunge created a pretty interesting and in some cases sadly damaging phenomena of day traders when it was paired with shelter in place orders and closure of casino’s and no professional sports.  Outside of those reasons I also think there are a flurry of people with access to the internet that experienced the 2008 recession and stock market plunge and said “this is what I’ve been waiting for, now I must invest!”.  The stock market was flooded with a new wave of retail investors and instant self-proclaimed geniuses trading options and futures.

I have an entire post about the tale of two recessions and how we had dry powder on hand (a fancy phrase for cash ready to deploy) and what we did with it during the Coronavirus market plunge.  At the time of this writing its July 23^rd 2020 and I have now made almost $20,000 on the infamous “why is there $40,000 in cash” trade, and another $14k or so on other purchases with the $24k we put in for two years of IRA contribution.  That situation was unique and as I said in that post, I’ll stick to dollar cost averaging for the most part from that point forward.  In any case here’s what happened back in March and what is happening today. People think they are a bunch of geniuses because the market plunged, they got to buy super cheap and then the market went into a straight up V recovery (google to graph if you need) which we have yet to know if it will hold or take a moderate or significant step back.  There are countless articles about the market recovery in its current state, its overpriced, its as expensive as the tech bubble, its this its that.  The good news is that most of us are long term investors with a goal of never touching the principal and only living off dividends.

That is what keeps me head strong on my current allocation of 98% stocks and 2% bonds, which as of 2 days ago was 99.7% stocks.  My bond portfolio increased because I still have some lingering funds from my former financial planner that are working their way to even, I’ll sell them at even and buy bonds to get to a 90/10 ratio which better matches my tolerance.  With all this said, I don’t even come close to considering myself a genius and here’s why, timing the market day to day is really hard.  I watch the market every day right now because I’m trying to offload those funds I just mentioned and buy my funds of choice.  Tens of or hundreds of thousands of individual investors that flooded the market started buying up individual stock from airlines, cruise lines and other hard hit sectors in hopes of making a quick buck.  Some may have, made their abrupt exit and hopefully then reinvested into Index funds for the long haul.  Others got hard into options and futures trading which I’m not even going to begin to try and explain because if you are in this audience, this shouldn’t align with your views plans, if it does, you’ll have to find another writer to give you advice because my advice is run away as fast as you can from options and futures.  Leave that stuff to the pro’s. There are heartbreaking stories out there of young investors that bought and sold futures and options on margin, meaning they borrowed money to do so and they ended up not only losing everything they had but ended up with negative balances of significance.  Let that sink in, people that have never even had an investment account, never made a single trade, opened an account, borrowed money, made money, got greedy, lost it all and then some. Yikes.

To this point if you can’t help yourself and you do want to tinker with timing the market or trying to boost your net worth a little faster during a bear market drop like we experienced, I’ll share with you what I dabbled in but then my heart just wasn’t in it so I stuck with what I know.  The market was down, I was trading out of funds that my former planner had me in and I was rebuying VTI and VTSAX which are my two Index Funds of choice (and VBTLX Total Bond Fund but I wasn’t in a hurry to buy bonds during a bear market plunge).  What I did was look closely at the funds that I had wanted to sell and how far they had dropped from their previous highs a month or more prior.  What I would find is in some cases a fund I was in had only dropped 21% from its all time high and VTI was 28% off its all time high, I sold the fund and immediately bought VTI which I believed to be an instant 9% net gain in value purchased that I had to wait for time to work in my favor to actually receive.  Still I wanted to scratch that day trading itch that everyone seems to have but I had no desire in buying and holding or risking retirement savings on single stock even though it seemed so easy.  Instead I looked at Index Funds in different sectors and tried to find funds that had been the hardest hit by the plunge, and yet the fund itself was an index fund and held 50-300 stocks of companies in those sectors and thus was diversified within the fund even though the fund was sector heavy.  I found two that I considered and one that I bought, a Healthcare sector fund which seemed odd to be deeply discounted while coronavirus was going on but later made sense with elective surgery on hold and no one wanting to go to a hospital unless they needed.  The other I found and bought some of was an energy sector fund called VDE.  I noticed that VDE was very volatile over the last 15 or so years but it had nice climbs and hard crashes but when looking at it I said “it always seems to make its way back to $75 per share or $95 per share.

I wanted to dabble so I bought $1,000 worth of VDE at $34 a share and thought I’d see how it played out. Not only is this fund volatile over a 15 year period but the intraday and week to week pricing is insane up and down.  While it never actually lost money or went below $34 the ups and downs day in and day out were odd to watch.  Eventually I realized after a few weeks the fund had hit about $44 per share and I realized if I more than doubled my money from $34 to $75 I was going to make a whopping $1,000 in extra money for my retirement.  I realized in that moment that I either needed to buy $5,000-10,000 worth of VDE to make the gain big enough to be worth potentially bragging about, or take my little bit of bonus money I made, sell it, and move it into VTI.  I chose the latter and have zero regrets.  I don’t even know what VDE trades at as of today and frankly I don’t care.  The Indexing Path was built for a reason, simple, easy and pretty consistent as long as you stay disciplined you should win over time.  Trying to trade in and out of something like VDE certainly could have allowed me to double my money and I bet if I look in 2023 that will be the case or would have been the case and some point and I would have sold at $75 and bought VTI or VTSAX at that time.  I wasn’t willing to move a significant portion of my portfolio into a bet, however and thus it was nothing more than a distraction that ultimately lead to a long paragraph of writing about it in a blog that no one may ever read.

I would be remiss to write on the day trading phenomena of genius’ without taking a moment to call out the most loud day trader of all time, and perhaps the most egotistical in this current era.  I give you Mr. Bar Stool Sports guy, Dave Portnoy and this oh-so-bold quote after previously calling Warren Buffet Washed up: “I’m not saying I had a better career. … He’s one of the best ever to do it,” he said. “I’m the new breed. I’m the new generation. There’s nobody who can argue that Warren Buffett is better at the stock market than I am right now. I’m better than he is. That’s a fact.”

I have no idea what Mr. Portnoy’s stock account looks like right now but it is probably way bigger than mine will ever be and hats off to him. I share his quote for a bit of a laugh but really because although it is the loudest and most bold day trader comment that came up during all of this, I think it represents a version of what these people were and are thinking as they continue to make their trades.  Earlier in this post I mentioned there were some heartbreaking losses that happened, in at least one case there was a young man that made such a huge bet on margin that he ended up something like $700k in debt when his futures and options trading failed, he took his own life.  A very young man who probably never should have had access to margin somehow found himself with access to enough to buy and sell and eventually wake up and find himself $700k in debt, he took his own life.

Surely I’m not suggesting any of my readers are considering options and day trading to this level, but for what its worth, enjoy the bear market low, buy as much as you can of what you were already buying anyway and enjoy the boost it gives your investing.  Try and think about it in terms of what it got you back, for me, the $24k of IRA investing I was going to do anyway is already up $12k since then, I see that as one more “free year” of investing contributions that I didn’t do in my first 4 years of marriage.  Be smart, keep it simple and hopefully take advantage of the bear when he rears his ugly head.