Whew! What has happened in the markets over the past month has made history. It was gut wrenching to be part of the pace and magnitude of the falls and rises... The huge ramp up in coronavirus cases in Europe and USA and the liquidity squeeze on hedge funds had caused a huge firesale of all assets. It just goes to show that predicting the outcome of markets and events is impossible (and especially for me)!
I don't know if the market rebound over the past week is sustainable but I'd been accumulating shares throughout this month. At the same time I'd continued to build my Long (at ~-10% below Spot) Puts and Short (at Spot Price) Puts on the S&P and Nasdaq. I'd been able to get them roughly in a 2 to 1 ratio with minimal differences in Duration but with the spike in volatility in the later parts of the month I'd been forced to extend the Duration to Long: 90-120day and Short: 6-9months or otherwise accept the Strike difference increasing to -15% to maintain the 2 to 1 ratio. So with this strategy effectively covering 40% of my entire Equity exposure (including the full value of the Short Puts on various Stocks I'd been selling), my net Equity exposure today is only around 45%...
Despite these measures, I'm still down. Tobacco hadn't held up as well I had hoped even though they (Imperial, BATS) have not changed guidance and have ample liquidity to continue dividend payments. My foray into the big international oil majors was a few days too early (I started buying just a few days before announcement of the the Saudi/Russia split). My oil rig drillers have fallen off a cliff with Valaris the worst hit after Valaris DS-8 drillship had an accident which will likely mean losing that very lucrative legacy contract. As a result its FY20E EBITDA forecast of $210-240m may be taken down to $60-90m (if fully terminated)! Valaris immediately sold off with its 3/2021 bonds now being traded at just 10% of face value... Pretty much everything other than JD is down for the month.
I'm very happy. My portfolio is the most attractive its ever been and I still have a huge untapped cash position. There have been an amazing number of opportunities being offered by the market. Some recent purchases include:
TEVA bonds being sold off to offer double digit yields. Unfortunately I was only able to grab a bit of 18 Dec 2022 bonds at ~14% yield before they repriced back to 5-6%... I think I was too greedy in my price bids...
CVR Energy (Icahn's little cash box) trading at ~$14/share (22% historical div yield). Icahn holds >70% of the shares and has full control of the board. He's been returning capital to himself ever since he gained control back in 2012. My bet is he isn't planning any M&A anymore, but the cash returns from CVR will continue
Hasbro selling down to $41 (low double digit PE). Unfortunately I only came across it on a screen when it had bounced to $60 (still on 15x PE)..
Many, many more quality companies at extremely low valuations are on offer today: Loomis (cash handling services), En-Japan (Japanese HR firm with a large insider stake), Euronet Worldwide, Ctrip, etc.
So is this a dead cat bounce? I certainly hope so. I'm greedy to buy more of these companies at even lower prices.
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