Coronavirus: when do we reach the bottom of the dip?

[magic_unicorn]

I wanted to start investing my savings and reinvest my third pillar, but I’m at doubt now, hard to know when the timing will be good.

Best time is now. Compared to 2 months ago, stocks are now overall 30%-40% lower. So you already avoided a huge drop. What else do you want?

If you don’t want to risk it all, spread out your investment over the next 6 months. Or longer if it helps your gut feeling.

[glina]

@dbu

P.S. If you don’t want approximately “double” the exposure to Alibaba, Tencent etc. - makes sense to just stick with VWO (last column) and buy more of it.

Have a look at EMQQ. It’s capped at 8% per constituent, which means it leaves lots of room for the smaller companies to grow, and it will have a limited doubling power if combined with VWO for example.

[preparations]

I’ve just received a lump sum the size of 100% of my already invested assets on IB.
Very grateful for that but also kind of nervewracking to decide how to invest this money…

[glina]

@preparations

but also kind of nervewracking to decide how to invest this money…

You know my advice and I’m pretty sure that at one point I will finally be right

Also this…

Kuppys Korner - Praetorian Capital

[arjuno]

@dbu

MCHI is a bit broader (and cheaper TER) for China than KWEB/CQQQ - depends what and how much you want to overweight.

I already have IEMG, so I prefer to have more focused ETFs, I don’t mind the higher TER because it’s still a smaller fraction (< 30%) of my whole portfolio. I included now also CHIH next to CQQQ and EMQQ. I am very happy for any criticism on that because I don’t spend too much time to think it through, I just look at the top allocations/sector and TER.

[glina]

Hell is freezing over
" Trump Is Finally Happy With Powell: “I Called Him Today And I Said ‘Jerome, Good Job’”

[Bojack]

@Julianek

The blue line shows stupidity from managers in general. They should buy back when their stock is cheap

Yes, well, in hindsight it was stupid that they were getting rid of cash and buying their own stock after a 10 years bull market, with very high P/E indicators. Somehow, they still were sending a message: we believe our stock is undervalued. And now when we have experienced huge drops, it would actually be a better moment for some buybacks. Firstly, the stock is much cheaper, secondly, it would limit the drop in price.

But as we discussed, if these managers acted only in their own interest, pumping up the price of their vested stock, so that they can sell with profit, then their actions were not that stupid. Stupid were the shareholders who put them in their position.

Or, as the article suggests, the managers act in the interest of private investors. Is it actually possible to have a part of your stock traded on the exchange, and part outside of it?

[Zerte2]

Well, they don’t buy back stock with their own money, but with the company’s money.
They get a bonus (can be in free shares, that can be sold, or in cash) for the good EPS (Earnings Per Share) which are pumped up through the denominator effect.
So this practice is not stupid at all regarding their own finances.

[glina]

If you are following the news, the stimulus package by the FED and Congress is critical towards this. Bailout money may not be used for buybacks nor dividends.

[Zerte2]

You can just hope that the Fed will replace the buybacks in terms of buying pressure or volumes.

[Bojack]

@Zerte2

So this practice is not stupid at all regarding their own finances.

What I don’t get is this: CEO is appointed by the board of directors, which is appointed by the shareholders. So in theory they should work in the interest of the shareholders, or they’re gone. Or the shareholders should opt for incentives which don’t put the CEO in a conflict of interest. If a company policy leads to conflict of interest then it’s for sure bad. CEOs should not profit from buying back overpriced stock of their company. And if they do and then sell their own stuff, it should be easy to track and punish. How come this thing still happens?

Or maybe it’s less evil than we think? Maybe the CEO tells the shareholders: we have so much income, we don’t know what to do with it. Should we:

1. just keep it ready
2. increase dividend
3. increase buyback

And the shareholders prefer #3, because capital gains can be tax free in some countries.

[nabalzbhf]

@Bojack

CEOs should not profit from buying back overpriced stock of their company. And if they do and then sell their own stuff, it should be easy to track and punish. How come this thing still happens?

What is so wrong with buyback? Why shouldn’t company return cash to shareholders if they can’t use it in the most productive way (the shareholders will then reinvest it elsewhere in the economy, hopefully in business which will have a more productive use of it).

[Julianek]

@Bojack

What I don’t get is this: CEO is appointed by the board of directors, which is appointed by the shareholders. So in theory they should work in the interest of the shareholders, or they’re gone. Or the shareholders should opt for incentives which don’t put the CEO in a conflict of interest. If a company policy leads to conflict of interest then it’s for sure bad. CEOs should not profit from buying back overpriced stock of their company. And if they do and then sell their own stuff, it should be easy to track and punish. How come this thing still happens?

Well, incentives matters…
Cf last Berkshire’s Letter to Shareholders:

@Warren Buffett

Over the years, board “independence” has become a new area of emphasis. One key point relating to this topic, though, is almost invariably overlooked: Director compensation has now soared to a level that inevitably makes pay a subconscious factor affecting the behavior of many non-wealthy members.

Think, for a moment, of the director earning $250,000-300,000 for board meetings consuming a pleasant couple of days six or so times a year. Frequently, the possession of one such directorship bestows on its holder three to four times the annual median income of U.S. households. (I missed much of this gravy train: As a director of Portland Gas Light in the early 1960s, I received $100 annually for my service. To earn this princely sum, I commuted to Maine four times a year.)

And job security now? It’s fabulous. Board members may get politely ignored, but they seldom get fired. Instead, generous age limits – usually 70 or higher – act as the standard method for the genteel ejection of directors. Is it any wonder that a non-wealthy director (“NWD”) now hopes – or even yearns – to be asked to join a second board, thereby vaulting into the $500,000-600,000 class?

To achieve this goal, the NWD will need help. The CEO of a company searching for board members will almost certainly check with the NWD’s current CEO as to whether NWD is a “good” director. “Good,” of course, is a code word. If the NWD has seriously challenged his/her present CEO’s compensation or acquisition dreams, his or her candidacy will silently die. When seeking directors, CEOs don’t look for pit bulls. It’s the cocker spaniel that gets taken home.

Despite the illogic of it all, the director for whom fees are important – indeed, craved – is almost universally classified as “independent” while many directors possessing fortunes very substantially linked to the welfare of the corporation are deemed lacking in independence.
Not long ago, I looked at the proxy material of a large American company and found that eight directors had never purchased a share of the company’s stock using their own money. (They, of course, had received grants of stock as a supplement to their generous cash compensation.) This particular company had long been a laggard, but the directors were doing wonderfully.

Paid-with-my-own-money ownership, of course, does not create wisdom or ensure business smarts. Nevertheless, I feel better when directors of our portfolio companies have had the experience of purchasing shares with their savings, rather than simply having been the recipients of grants.

[Julianek]

@nabalzbhf

What is so wrong with buyback? Why shouldn’t company return cash to shareholders if they can’t use it in the most productive way (the shareholders will then reinvest it elsewhere in the economy, hopefully in business which will have a more productive use of it).

Buybacks are not always bad or always good. They are very good when the stock is cheap, neutral at fair value, and detrimental when expensive. Yes, they always increase EPS, but if the stock is expensive, it is done at such a price that shareholders would have been better off if the money had been put to other ventures…

[laoo_g]

At first sight, indeed, nothing appears to be wrong, but on the contrary as share price it’s most of the time (if not always) part of the CEO’s KPIs, and consequently one can argue that interests are aligned. So having the share price increase seems a win-win situation - win for shareholders as their wealth increases, and win for the CEO as his share options increase as well in value.

However, the problem is when this propping up of the share price is done artificially through share buybacks. I view this action as a genuine Ponzi scheme. Think about it: the first to arrive at the party (i.e. our original shareholders) will benefit the most on the back of those to arrive last at the party, as they will pay the highest price for these shares (being fooled by market rallying, EPS, P/E ratios etc.), and only to see the value of their holdings tumbling down in a market crash like the one we’re experiencing now…

[1000000CHF]

@preparations

I’ve just received a lump sum the size of 100% of my already invested assets on IB.
Very grateful for that but also kind of nervewracking to decide how to invest this money…

As I mentioned before, I’d DCA over couple of months. The peak of Corona is estimated in 2-3 months. The peak of the crisis caused by lockdowns God one knows when.

[Zerte2]

@Bojack

CEOs should not profit from buying back overpriced stock of their company.

In the ascending phase, stocks don’t look overpriced, they just look as if there was a real strong growth and CEOs are applauded, they are geniuses! Look at that stock price curve! Plus the competition does the same, so if you do even more buybacks than the competition, your stock price curve, plotted with competitors’ curves, looks even better on the presentation to the board! Wow, great, we are leaders! You leapfrog the competition!
[ Shameless plug for my Corporate Bullshit Generator ].

@Bojack

And if they do and then sell their own stuff, it should be easy to track and punish.

Perhaps they opt for a cash bonus, so they don’t even need to sell anything!

[arjuno]

@1000000CHF

As I mentioned before, I’d DCA over couple of months. The peak of Corona is estimated in 2-3 months. The peak of the crisis caused by lockdowns God one knows when

There might be a second wave coming in autumn.

[1000000CHF]

Just like it did for Spanish flu one hundred years ago.

It is possible but frankly I think we’ll have at least drugs to treat symptoms of severe cases before autumn.

[arjuno]

@1000000CHF

It is possible but frankly I think we’ll have at least drugs to treat symptoms of severe cases before autumn.

drugs to treat the symptoms maybe, but then this has to be a crazy fast FDA approval, I doubt it. They just started now in some hospitals with clinical studies, and usually it takes muuuuuuch longer to get FDA approval, but yes research is very focused right now on covid-19 and basically it is almost the only research that is allowed at full scale in most of the top tier universities in CH and USA at least, I don’t know about other countires.