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

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.

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skc said:

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!

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luutzu said:

For those interested in the Bail Out:

The Big Bank Bailout
Most people think that the big bank bailout was the $700 billion that the treasury department used to save the banks during the financial crash in September of 2008. But this is a long way from the truth because the bailout is still ongoing. The Special Inspector General for TARP summary of the bailout says that the total commitment of government is $16.8 trillion dollars with the $4.6 trillion already paid out. Yes, it was trillions not billions and the banks are now larger and still too big to fail. But it isn’t just the government bailout money that tells the story of the bailout. This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.
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$200M would replace the lead and virus infested water system to Flint. Nope. Can't afford it so the people will have to learn to drink filtered water and bathed and cook in shiet.

$2 Trillion would create tens of millions of jobs rebuilding the US crumbling infrastructure - road, rail, bridges, water utilities... Nope! Can't afford it.

Affordable healthcare? Nope! Loan for higher education? Nope!

But the banksters crashing the economy... here's a few trillion dollars. Do whatever you want with it.

Then a few farkers turn around and sue the gov't for it too.

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OmegaTrader said:

1) people taking loans on non recourse they can't afford to repay is corrupt
2) borrowing 120% of GDP to spend on waste and bureaucracy is corrupt
3)Bailing out private capitalist institutions is corrupt
4) Ceo's pay levels is/are corrupt
5) Multinationals playing tax silly buggers is corrupt
6) politicians accepting donations from self interest groups is corrupt
7) Lawyers and medical professions cartel monolopy is corrupt
8) Opec is corrupt
9) energy and water companies are corrupt creating false scarcity
10) people are corrupt

The man gets in the way of the game.

But we still have hot water and food don't we. Plus reasonable wages to waste disposable income on consumer knick nacks. I can also walk down the street safely.


gg

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luutzu said:

Would it last?

We in the West are the very privileged few. To have enough savings/capital to invest in the stock market put us at a higher end of that already privileged few.

I'd count on it lasting forever the way I'd count on all previous imperial power lasting forever when they went down the same corrupt path.

So while it still last, of course the corrupt, polluted, unequal, increasingly violent world is all sweet for those with money. Money tend to do that - putting a bubble around our living space; pushing away all the shiets of the world to where they belong - somewhere else far far away.

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DeepState said:

I'm curious to know how someone can tell whether a critical piece of the financial infrastructure would be nationalised (Northern Rock, predecessors to Nordea), allowed to collapse (Lehman), recapitalised as a stand alone entity which recovers (AIG), recapitalised as a stand-alone entity which gets merged with another organisation at punitive levels or nationalised because it's not working out and political will or the federal balance sheet has been exhausted, recapitalised via preferred stock which is then used to completely dilute base equity if things don't work out, or forced to merge with another organisation at punitive rates (Bear Sterns, Merrill Lynch).

Isn't it amazing how much money you can make in special situations with perfect foresight and no emotions.

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OmegaTrader said:

Wars have decreased
equality has increased
corruption has decreased.

the tide raises all boats.

I think this is off topic enough from me

cheers

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DeepState said:

I'm curious to know how someone can tell whether a critical piece of the financial infrastructure would be nationalised (Northern Rock, predecessors to Nordea), allowed to collapse (Lehman), recapitalised as a stand alone entity which recovers (AIG), recapitalised as a stand-alone entity which gets merged with another organisation at punitive levels or nationalised because it's not working out and political will or the federal balance sheet has been exhausted, recapitalised via preferred stock which is then used to completely dilute base equity if things don't work out, or forced to merge with another organisation at punitive rates (Bear Sterns, Merrill Lynch).

Isn't it amazing how much money you can make in special situations with perfect foresight and no emotions.

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luutzu said:

I don't think it's off-topic at all.

While history suggests that the gov't will step in and correct whatever shiet storm the masters of the universe brought down on the world next time... there is no guarantee of it; there is no certainty that the gov't can do what they've done - bail out - and still keep the masses in check as they have.

So while a strong and established business will, in time, recover its business performance and share price... to jump on companies we know are now weak but are so connected that a bail out is but a formality. Such things might not be possible in the future.

But yes, it is off topic in that we're interested in stock recommendation more than the armchair geopolitical/macro bs we think we know.

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OmegaTrader said:

I doubt many governments would not act.As mentioned recent and past history has not shown that around the world.

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DeepState said:

AIG wasn't even thought to be systemically important a week before it had to be rescued. The issue of the size of CDS liabilities was not a feature on Geithner's agenda until quite late.

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As Dimon and Zubrow entered the Federal Reserve’s Eccles Building on Constitution Av-
enue, Zubrow sneaked a quick look at his BlackBerry before passing through the security X-
ray machine. He was alarmed at what he saw: Lehman’s stock had plunged 38 percent, dip-
ping to about $8.50 a share.
In Lower Manhattan’s financial district, Robert Willumstad, AIG’s CEO, sat on the thir-
teenth floor of the Federal Reserve Bank of New York waiting to meeting with Tim Geithner.
With the markets in turmoil, he had returned to see Geithner to press him again to consider
making the discount window available to his company. While Geithner may have spurned his
abstract request last month, this time Willumstad had come with a more detailed proposal to
turn AIG into the equivalent of a primary dealer like Goldman Sachs or Morgan Stanley—or
Lehman Brothers. “It’s going to be a few minutes. He’s on the phone,” Geithner’s assistant
told him.
“No problem, I have time,” Willumstad replied.
Five minutes passed, then ten. Willumstad looked at his watch, trying to keep from getting
annoyed. The meeting had been scheduled to start at 11:15.
After about fifteen minutes, one of Geithner’s staffers, clearly embarrassed, came to
speak with him. “I don’t want to hide the ball on you,” he said. “He’s on the phone with Mr.
Fuld,” he revealed with a knowing smile, as if to indicate that Willumstad might be waiting a
while longer. “He’s up to his eyeballs in Lehman.”
Finally, a half hour later, Geithner appeared and greeted Willumstad. Geithner was clearly
overwhelmed, his eyes darting around his office as he nervously twisted a pen between his
fingers. He had also just flown back from an international banking conference in Basel,
Switzerland.
After some pleasantries, Willumstad explained the purpose of his request for this meeting:
He wanted to change—no, very much needed to have—AIG’s role in the finance sector codi-
fied. He said that he wanted AIG to be anointed a primary dealer, which would give it access
to the emergency provision enacted after Bear Stearns’ sale, and thus enable it to tap the
same extremely low rates for loans available only to the government and other primary deal-
ers.
Geithner stared poker-faced at Willumstad and asked why AIG FP deserved access to the
Fed window, which, as Willumstad was well aware, was reserved for only the neediest of fin-
ancial institutions, of which there were now far more than usual.
Willumstad made his case again, this time with a litany of figures to back up his argument:
AIG was as important to the financial system as any other primary dealer—with $89 billion in
assets, it was actually larger than some of those dealers—and should therefore be granted
the same kind of license. And he mentioned that AIG FP owned $188 billion worth of govern-ment bonds. But most of all, he told Geithner, AIG had sold what was known as CDS protec-
tion—essentially unregulated insurance for investors—to all of the major Wall Street firms.
“Since I’ve been here, we’ve never issued any new primary dealer licenses, and I’m not
even sure what the process is,” Geithner said. “Let me talk to my guys and find out.” Before
Willumstad turned to leave, however, Geithner posed the question that really concerned him,
the one that had been occupying his thoughts all morning: “Is this a critical or emergency situ-
ation?”
Willumstad, fortunately, had been prepared to address this very topic. In meetings with
AIG’s lawyers and advisers, including Rodgin Cohen at Sullivan & Cromwell and Anthony M.
Santomero, the former president of the Federal Reserve Bank of Philadelphia, he had been
guided on how to fie ld the question with the advice, “Tread carefully.” If he acknowledged
that AIG had a true liquidity crisis, Geithner would almost certainly reject its petition to be-
come a primary dealer, denying the company access to the low-priced funds it so badly
needed.
“Well, you know, let me just say that it would be very benefic ial to AIG,” Willumstad care-
fully replied.
He left Geithner with two documents. One was a fact sheet that listed all the attributes of
AIG FP and argued why it should be given the status of a primary dealer. The other—a bomb-
shell that Willumstad was confident would draw Geithner’s attention—was a report on AIG’s
counterparty exposure around the world, which included “$2.7 trillion of notional derivative ex-
posures, with 12,000 individual contracts.” About halfway down the page, in bold, was the de-
tail that Willumstad hoped would strike Geithner as startling: “$1 trillion of exposures concen-
trated with 12 major financial institutions.” You didn’t have to be a Harvard MBA to instantly
comprehend the significance of that figure: If AIG went under, it could take the entire financial
system along with it.
Geithner, his mind still consumed with Lehman, glanced at the document cursorily and
then put it away.

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InsvestoBoy said:

What are you basing this statement on?

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InsvestoBoy said:

The book "Too Big to Fail" which has unprecedented insight into the timeline of events portrays a pretty different story, that Geithner was clearly made aware of AIG CDS exposure when Lehman was still trading (as you'll see below at $8.50 a share).

snippet from the book:

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sptrawler said:

Iuutzu all the charts you showed were banks, is that a hint or just random choice?
After the GFC WES did a capital raising at $12, I jumped in, sold out at $20, back in at $40.
Nab went down to around $15, jumped in, jumped out at $20, thinking second wave is coming, back in at $32.
It really is hard to jump in and jump out, you miss the dividends, then if it is a good company you buy in at a higher price.
To me that is the difference between charters and fundamental investors, one looks for the get in and get out price relative to historical trends, the other looks for underlying value and dividends.
Both have their merits, it really depends on the personality of the investor, as to which path suits them.

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luutzu said:

Even I knew that way back then... but as with the recent oil crash, jump in too early and be out of ammo long before the bottom is hit.

Though with Santos, I did managed to buy some $5K's worth at $2.50s... but let's ignore the average price I jumped in when I see it was a bargain. Still think it's a bargain though, just hindsight show it could have been better.

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