Panic Journal (5) – “Everyone has a plan until they get punched in the mouth”
When Mike Tyson was asked by a reporter whether he was worried about Evander Holyfield and his fight plan he answered; “Everyone has a plan until they get punched in the mouth.”
This is how the current crisis developed so far for me personally and that is why i decided to do this more frequent “Panic journal” in order to document my actions and to hopefully learn a thing or two.
I laid down the plan & the rules 4 weeks ago, which now feels already years ago. Some readers commented that I violated the rules. To a certain degree I agree. For instance I did buy one stock on “impulse” : Walt Disney.
However I followed most of the rules. For instance I reduced vulnerable/mediocre position, which earned me another punch in the mouth (Dragerwerke Prefs jumping +100% a few days after I sold them holding them for 9+years, but this is plain bad luck) and I put money to work relatively slowly, buying small positions only on down days, with a maximum investment of 2% of the portfolio in a single day. This created a lot of transactions but was clearly part of the plan.
The big punch: Covid-19 is MUCH more severe than I initially thought
The most important point however is the following:
I did change my overall assessment since the start of the crisis significantly. In the beginning, I really thought that this is a 3-4 week thing, but now it looks that a 4-6 week total shutdown is the best case. The worst case would be a series of shutdowns for the next 18-24 months, the expected case maybe somewhere in between.
Especially tourism (plus leisure and entertainment) might be hit really hard and for a longer time. For instance, when Italy initially decided to do some local lock downs, I thought something like “first they do nothing, then they over react”. Well, that was a big mistake.
I think there is now a much higher probability of a severe negative outcome resulting in a loss of at least one full tourist season, which will impact especially economies with a high tourism share (Italy, Spain etc.). This realization was the main driver for some of the back and forth trades, especially reversing the initial decision to focus on travel companies and starting to buy stocks from my Italian watch list.
You need to adapt if things change fundamentally, unless you want to be punched over and over again. I still do not want to time this crisis, but I did reverse some of the transactions and increased for instance Richemont which I think has the more diversified business model than Amadeus IT and Mutui.
Interestingly, the oil price would have been a good indicator for the current scenario, but as many observers I thought that the move was excessive and bought into TGS much too early. Depending on how Covid-19 develops further, there might be a lot of spill-over effects into other areas than tourism and entertainment. That’s why I need to put more thought into understanding the whole thing instead of just buying into my old watch list on down days. If history is any guide, then there will be time to identify the best risk/return situations in the coming months
Finally, I will try to go back more to my old routine: I will post less frequently “panic journal” posts but reinstate my “All German Shares” series. Let’s see if that works out 😉
I will also do a more detailed portfolio review in the next quarterly review.
Stay safe, stay healthy !!!
value and opportunity 
Contango! I know you don’t like it.
https://adventuresincapitalism.com/2020/03/19/crude-contango/
I think it will be quite hard to get a more precise view of the potential future of various parts of the economy. While travel and leisure look like obvious candidates, how much of this will spill over into other areas? For example, will a real-estate fund with a few problematic hotels (operator defaults) also stop construction work on the office-properties next year in order to shore up capital? Will a large retailer like Metro come under serious pressure because thousands of small businesses go bust?
In the past I have often looked at the stock-prices of companies that had outperformed the market despite negative (or non-existant) earings prior to a crisis. It is often only after these companies have been hammered by the market, that the re-allocation of capital is finished. As long as zombie-companies (fracking industry,etc. ) and ten year old “start-ups” without any earnings have not gone bankrupt or gotten revalued it seems hard to believe that the market has returned to realism.
Maybe it would be fun to produce a list of these “canaries in the coal-mine” that are still priced for a soft landing.
Do you mean TESLA when you’re talking about ten year old “start-ups” :)?
How important is performance reporting in this current environment?
Short term: extremely unimportant
Then why is it that reporting on your blog stops after 2017?
The reporting on the blog didn’t stop. I just didn’t update this page. Every quarter there is a performance review which should satisfy all your information needs. I guess you haven’t bothered to read these posts.
You are guessing correctly. But then again, it is extremely unimportant as you say
I hope you WILL keep the panic journal going! I like your perspective…
Have you ever researched Intertrust? Looks like a decent opportunity.
Not that I remember. What are they doing ?
Love it…
I always said one of your (many) qualities is that you openly accept conflicting issues (or errors). This time you scored high. Very good Mmi !