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Second Chances

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It is not often we are given second chances in life. However I believe this is exactly what we are experiencing right now. The question is who is going to identify and act on this seemingly obvious fact?

 

If we apply one of the most robust long term valuation models to the S&P 500 going back to 1870 that is more than 150 years of data we see that in  February this year we reached the second highest valuation of all time. We have a Shiller PE Ratio of 26.56 with an average of 16. In plain English despite all the current market gyrations we still have a very expensive market when looking from a valuation perspective.

 

 

When looking at the S&P500 and the Asian Indices year to date performance, we see that despite the sharp selloff in Feb/March the markets have bounced quite significantly with what is now a quite modest pullback. The S&P500 is down -12.11% YTD, Shanghai Composite – 7.92% with the Singapore STI off a more meaningful -24%.

 

 

On the economic front we have China reporting their first ever GDP contraction of -6.5% since reporting GDP from the early 1980’s. The US unemployment is between 15 – 20%. The US is expecting to report a – 20% GDP number on the 4th of May. We have WTI Crude Oil trading at negative -$36 for a period of time during April with current pricing of $16 at prices last seen 20+ years ago. We have a world largely shut down with a Corona Virus pandemic that has infected 2,995,757 people and killed more than 207,022 with no vaccine in sight and a world supply chain in shock and an equally shocked demand. We have a world considering a reopening of the economy to try and breathe some economic life into a world that is in recession staring down the abyss of a depression, with a threat of undoing all the economic and emotional pain with a second wave of virus contagion, we need not look much further than Singapore to see what happens when taking ones eye of the ball.

 

However with all of the above in full view of the world, investors are choosing to believe in the omnipotence of Central Banks and Governments to save the day and the consumer to bounce back in the “new normal”. Is this truly the case or are people simply too emotionally paralysed to do anything?

 

I would simply like the readers of this article to consider the above and ask themselves whether they should take some control of their financial destiny and accept a small loss now or should they take a gamble against the odds and run the risk of a major loss. Each person has their own particular circumstances with their own investment time horizon. Just consider once you have taken a deep breathe and looked at your financial investments right now and considered the wall of worry that you are likely facing, ask yourself the following question:

 

“have I been given a second chance worth grabbing or gambling?”

 

A Stoic's Approach to Contrarian Trading Learning from Mentors