Coronavirus

So the coronovirus pandemic is ongoing. Initially, the market shrugged it off, racing to new all time highs (3393 on the S&P).

Then, as the scale and nature of the destruction (supply chain and demand disruption) became apparent, it started to have convulsions. At one point the market corrected 15%, and there have been wild +/- 3-5% daily moves.

Today it is down about 12-13% from ATHs, but many interesting names have been hammered. Among the stocks I own, financials (led by WFC) and energy (XOM is now trading near tangible book!) have been hit especially hard. The companies that are holding on best are surprisingly Tencent and JD.

Overall, my portfolio is bleeding red. The large cash cushion (~25% at year end) has softened the blow to about 7-8%. Still, I feel like I have been punched in the gut.

Given the crazy volatility, I’ve been trying to deploy cash using puts. Part of me is fearful that I am trying to be too clever. That the market will snap back before most of my puts gets exercised; kinda like Dec 2018. But for some reason, I feel the effects of this down turn might linger.

I’ve taken the opportunity to write a lot of cash-secured puts on businesses I like. These include IAC, CMCSA, DIS, MO, and MTCH. I also put some new puts on midstream players, MMP and EPD. The implied volatility on many of these fine businesses is crazy. In a year or two, I expect all of these to survive and thrive, and shrug off any effects of the coronavirus.

I really don’t mind owning them at current prices for the long run.

I still have about 10% in uncommitted cash because I don’t think the market sell-off has been overdone. If we get a real melt-down, then I want some dry powder.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s