What would you buy and hold if every stock was -40% off?

[luutzu]

If all stocks go down 40%, they don't necessarily become 40% cheaper if the earnings generation power of these stocks has also become impaired. Such statements are made in the belief that things always recover and price movements arise primarily from sentiment.

In the event that all stocks are off 40%, buying those whose earnings generation has been impaired the least is a good place to start. Energy and investment banks can blow up in a major stress event, but one suspects women will still need feminine hygiene products (eg. Asaleo). You can go a step further and determine discount to intrinsic value, if you have that ability.

You buying Asaleo do you?

 

[Value Collector]

Oh look, AIG is still trading like it's not broke during the GFC if the gov't hasn't stepped in. Its share price is not zero and its shareholders didn't lose everything.

From about $7 a share in 2008, it's now at $63 a share.

Dam big slimy government! Stepping in and bailing them out [at $180Billion?], getting them over that rough bankruptcy spot.

Do you understand the US government took 92% of the shares in AIG?

so only 8% of AIG current equity position is attributable to the shares that existed prior to the bail out?

Please explain why you think the bail out was such a good thing for investors that you would recommend taking positions in those that needed to be bailed out.

Again, I don't think I will let you near my investments.

The Bailout wasn't a windfall for AIG, it destroyed investor value, it was a massive windfall for the US government and the FED

 

[Value Collector]

Not sit there, get all those billions and trillions; pay themselves big bonuses and then dividends... then have the nerve to complaint that the big bad gov't were being unfair.

You are confusing the employees with the share holders there.

 

[luutzu]

Do you understand the US government took 92% of the shares in AIG?

so only 8% of AIG current equity position is attributable to the shares that existed prior to the bail out?

Please explain why you think the bail out was such a good thing for investors that you would recommend taking positions in those that needed to be bailed out.

Again, I don't think I will let you near my investments.

The Bailout wasn't a windfall for AIG, it destroyed investor value, it was a massive windfall for the US government and the FED

Beside my brother, I don't think anyone is smart enough to ever let me near their investment

Soooo.... without that $182B bailout [got it from Fox News, so I won't want to believe that figure either], AIG would be where? Alive and kicking or down the tube?

With the bailout, those shareholders who hang on to their stocks; or those who buy in at or soon after the bailout would have had their holdings gain about 10 times in 8 years.

Somehow that's a bad deal for AIG? So bad that the former CEO - who left 2 years before the total collapse he obviously had nothing to do with, ha ha - thought he'd sue for $20B?

-----------

Oh, so AIG have to issue new shares to the gov't for the bailout?

That's a massive dilution for sure.

Poor AIG shareholders. From the edge of the abyss, they're given $182B, still get to keep 8% of what is about to be zero [that's a literal infinite-ly better deal right?]; gained 10 times on that in 8 years.

If I ever screw up and about to go under, tell the US gov't to give me that bad a deal please. Lots of it.

 

[luutzu]

You are confusing the employees with the share holders there.

Pretty sure more than half AIG's workforce got canned with the collapse.

And why should shareholders expect to gain anything from the deal anyway? It's their fault for buying into the bs their board and executives were selling them.

So it's all cool that tens of millions of American homeowners got kicked out of their home, losing practically all of their life's savings. That's just the market weeding out the weak.

For banking executives and shareholders... giving lotsa money to save their skin is just bad form?

What have you been smoking? Can I have some?

 

[Klogg]

I have a feeling you are making a case for me.

How so? All I mentioned was that one couldn't really quantify the risk because liabilities were unknown. So you have an unknown downside... with the limit that it's asymptotal at the $0 value (i.e. it can't touch zero, but can get forever closer to it)

For all we know, the next one might need 5 bailouts, each 90% cheaper than the last. Hardly bodes well for those who buy in at the first or second bailout.

 

[Value Collector]

Pretty sure more than half AIG's workforce got canned with the collapse.

When you are talking about people walking away with "fat bonuses", those are employees, not shareholders

And why should shareholders expect to gain anything from the deal anyway? It's their fault for buying into the bs their board and executives were selling them.

It's not about gaining, there just could have been a deal done that wasn't so punitive.

So it's all cool that tens of millions of American homeowners got kicked out of their home, losing practically all of their life's savings. That's just the market weeding out the weak.

The bail out was designed to protect the customers,

For banking executives and shareholders... giving lotsa money to save their skin is just bad form?

They didn't save investors skin, investors took a very real hit, their shares went from $1,400 to $7, and now nearly 10 years later are only $63.

AIG got given a loan for $85 Billion to AIG,

For this loan the government want 25% Interest, and 80% ownership. this is a very punitive deal, if you think its a great deal, maybe I can provide you with some financing.

The Fed also took equity, it bought assets from AIG for much less than what they turned out to be worth, and made billions on it.

I am not trying to make a moral judgement on it, but I am jut saying you seem to continually be saying the bail outs were free money and a windfall for investors, and they made the investment risk free for shareholders, but they didn't, its a perfect example of shareholders capital taking hits to protect the customers.

 

[luutzu]

How so? All I mentioned was that one couldn't really quantify the risk because liabilities were unknown. So you have an unknown downside... with the limit that it's asymptotal at the $0 value (i.e. it can't touch zero, but can get forever closer to it)

For all we know, the next one might need 5 bailouts, each 90% cheaper than the last. Hardly bodes well for those who buy in at the first or second bailout.

Yea, maybe there'll be a few bailouts next time round. Hard to pick the bottom.

But in general, if an investor somehow managed to buy into those companies that eventually got bailed out, they end up doing very well.

I think Buffett got some deal to buy Goldman Sachs at $110, then it went to $47. Similarly with GM. They've all done well soon after.

 

[luutzu]

When you are talking about people walking away with "fat bonuses", those are employees, not shareholders


It's not about gaining, there just could have been a deal done that wasn't so punitive.



The bail out was designed to protect the customers,



They didn't save investors skin, investors took a very real hit, their shares went from $1,400 to $7, and now nearly 10 years later are only $63.

AIG got given a loan for $85 Billion to AIG,

For this loan the government want 25% Interest, and 80% ownership. this is a very punitive deal, if you think its a great deal, maybe I can provide you with some financing.

The Fed also took equity, it bought assets from AIG for much less than what they turned out to be worth, and made billions on it.

I am not trying to make a moral judgement on it, but I am jut saying you seem to continually be saying the bail outs were free money and a windfall for investors, and they made the investment risk free for shareholders, but they didn't, its a perfect example of shareholders capital taking hits to protect the customers.

AIG dilute its shares, reducing it to the equivalent of 8% for the bailout right?

From $7 to $67 in 9 years... has there been any share consolidation or the diluted share is still outstanding?

hmmm... to call CEOs and other executives "employees" is technically true, but in the real world, things tend to not work like it's written right?

btw, how many of them goes to prison? Prosecuted? None.

No crimes or fraud were committed?


How were shareholders capital taking a hit to "protect the customers"?
If we define customers as other big investment banks, yea. Customers as those whose mortgage got slice and diced and how they're being kicked out of their home and losing their lifes savings...

anyway

 

[kid hustlr]

Incredible how Craft can make so many good points in one short post only to have it glossed over by people talking about trying to buy a company which needs to be bailed out

 

[OmegaTrader]

AIG dilute its shares, reducing it to the equivalent of 8% for the bailout right?

From $7 to $67 in 9 years... has there been any share consolidation or the diluted share is still outstanding?

hmmm... to call CEOs and other executives "employees" is technically true, but in the real world, things tend to not work like it's written right?

btw, how many of them goes to prison? Prosecuted? None.

No crimes or fraud were committed?


How were shareholders capital taking a hit to "protect the customers"?
If we define customers as other big investment banks, yea. Customers as those whose mortgage got slice and diced and how they're being kicked out of their home and losing their lifes savings...

anyway

I think the point is timing.

We can argue all day about morality and corruption and who benefits but the proof is in the pudding.

If you bought after bailout in 2008 sept, $40 to about $60. If before goodbye charlie to your money.

Also further to rehash the points already made.

1) 40% is not an indicator of value, but I think the OP did not mean this number in a literal sense rather that a drop is indicate of a dislocation in the market.

2) As stated it depends on whether the crash continues onward or is temporary and supported by the government or a rebound in economic conditions

https://au.finance.yahoo.com/chart/AIG


If you bought at 40% drop you would have lost alot of money. After bailout about 50% gain over 9-10 years.

At the low of $8.4 that is a fortune to be made or at $870 a fortune to be lost.

AIG Prices https://au.finance.yahoo.com/chart/AIG

May 2007 high about $1450

40% drop ~ march 2008 $870

Bailout sept/oct 2008 at $40 mark

Feb 2009 low of $8.4


Current price 2017 $62.88

 

[luutzu]

Incredible how Craft can make so many good points in one short post only to have it glossed over by people talking about trying to buy a company which needs to be bailed out

You do realise I do not mean buying into failed company before its collapse right? That is, don't buy when it's high flying, nose bleed level stock prices.

Let me look up the companies that got bailed out and see if buying ones that got bailed out makes money or not.

 

[luutzu]

I think the point is timing.

We can argue all day about morality and corruption and who benefits but the proof is in the pudding.

If you bought after bailout in 2008 sept, $40 to about $60. If before goodbye charlie to your money.

Also further to rehash the points already made.

1) 40% is not an indicator of value, but I think the OP did not mean this number in a literal sense rather that a drop is indicate of a dislocation in the market.

2) As stated it depends on whether the crash continues onward or is temporary and supported by the government or a rebound in economic conditions

https://au.finance.yahoo.com/chart/AIG


If you bought at 40% drop you would have lost alot of money. After bailout about 50% gain over 9-10 years.

At the low of $8.4 that is a fortune to be made or at $870 a fortune to be lost.

AIG Prices https://au.finance.yahoo.com/chart/AIG

May 2007 high about $1450

40% drop ~ march 2008 $870

Bailout sept/oct 2008 at $40 mark

Feb 2009 low of $8.4


Current price 2017 $62.88

Why do you assume that I simply buy when it hit 40%?

APA [the pipeline company] could be halved tomorrow and I wouldn't touch it. Go down three quarter and it might be interesting.

This is not to say that I, definitely not I, could ever predict the bottom or near bottom. But it is to say that when a crash happen, if the investor know an approximate value of the company, getting in at below what a reasonable value would be tend to work out well.

That does not mean picking the bottom; does not mean a stock going halved or 90% mean good value either.

 

[skc]

And the most like answer is nothing and if you do buy it probably won’t be much because you’ll be as scared as everybody else and if you do manage to buy a bit of something you’ll probably be pretty trigger happy to exit it and snatch a quick profit or cut a drawdown.

Totally agree. The US market was 40% cheaper back in 2013. If someone didn't buy back then, on the way up, it's difficult to picture them buying a 40% drop on the way down.

Those who think buying a 40% dip is a no brainer are making a mistake of using price as the holy grail. Something has fallen 40% so it must be cheap... but the true answer is, as always, it depends. Individual markets fall 40% all the time... be it single stock or commodity or country index. Yet in most instances we would assess the new situation as it stands, rather than make a blanket statement like "If market X falls 40% I would buy it without thinking, because surely nothing has changed."

I have asked myself this question numerous times: "Knowing what I know about market now, what would I have done during the GFC?". I only started trading around the GFC so I was pretty green back then... and the honest answer is that I would trade it super carefully (meaning exactly what Craft said - trigger happy to exit) rather than buying with eyes wide shut.

Correct me if I'm wrong on this one, but if everything uniformly dropped 40%, then the risk/return equation doesn't change in relation to other holdings, only to cash (everything gets 40% cheaper, hence '40% more attractive').

That would be true if risk/reward equations are linear in all stocks. Often times though they are not. A simplest example would be a stock with a pretty solid base line (e.g. cash backing). You may not buy it today when it is trading at cash backing, but you might make a case for it when it's trading @ 60c in a dollar.

Having said all that.... if every stock is 40% cheaper tomorrow, the one share I'd definitely buy would be BKN. Unconditional takeover offer @ $3.25, bought for $1.95.

 

[skc]

Buy ones that will get bailed out.

This statement implies that you are buying before a company gets bail out. This is what everyone is questioning about.

Let me look up the companies that got bailed out and see if buying ones that got bailed out makes money or not.

This statement suggests you are buying after a company got bailed out. So if this is what you meant then just make that clear.

 

[luutzu]

List of companies that got bailed out with the first $700B tranche bailout. There's trillions more coming, just you can't say it out loud and give it all at once.

But for our purpose, let's assume that the $700B is all that was unfairly given to bail capitalist/free market, not at all nanny state corporate welfare recipients.

See how they go with the bailout.

Bailout Recipients



SHARE PRICE PERFORMANCE:
Just straight line per share price performance from Yahoo finance.

i.e. not taking into consideration the possibility of massive, say, 1 for 10 dilution at GFC and no share consolidation since. I mean, if they diluted their shares and has not bring the numbers back down, you'd need to multiply the gain by whatever factor the dilution was right?

 

[luutzu]

This statement implies that you are buying before a company gets bail out. This is what everyone is questioning about.



This statement suggests you are buying after a company got bailed out. So if this is what you meant then just make that clear.

Yea, before it get bailed out does not mean when its stock price was sky high. Does it?

And why can't people buy in after the bail out announcement? That'd be a smarter play.

What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.

Main question you guys ought to challenge that premise is how will the investor know the about-to-go-broke company will or will not get bailed out.

Too Big to Fail might be the answer.

 

[OmegaTrader]

Yea, before it get bailed out does not mean when its stock price was sky high. Does it?

And why can't people buy in after the bail out announcement? That'd be a smarter play.

What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.

Main question you guys ought to challenge that premise is how will the investor know the about-to-go-broke company will or will not get bailed out.

Too Big to Fail might be the answer.

Pretend history repeats and we're in a similar situation to October 2008 (without knowing the future).

The market is down -40% during a financial crisis.

What types of stocks would you look to buy and why?

My thought might be a non-cyclical with high ROI like CSL.

Rehashing again:

The 40% was from the original poster.

cheers

 

[luutzu]

Rehashing again:

The 40% was from the original poster.

cheers

Fair enough.

I just took that -40% to simply mean a financial market crash. Not a literal stock down by 40%.

 

[skc]

Yea, before it get bailed out does not mean when its stock price was sky high. Does it?

And why can't people buy in after the bail out announcement? That'd be a smarter play.

What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.

Main question you guys ought to challenge that premise is how will the investor know the about-to-go-broke company will or will not get bailed out.

Too Big to Fail might be the answer.

The question was - what would you buy if everything was 40% off.

Your answer was - Buy ones that will get bailed out.

Wind the clock back to 2006, you identified that AIG was too big to fail. AIG's share price was ~$1450.

The GFC unfolded, AIG's share price fell 40% to $870. You executed your strategy "If share price is 40% off, buy ones that will get bailed out".

Congratulations on your splendid return using your strategy on AIG (last price $63).

No one is saying you can't buy after the bailout... but THAT IS NOT WHAT YOU SAID!