March 2020

General Comment

Back in February I was talking about the COVID19 outbreak in Italy. A month after we are still talking about it and it looks like things have gone from bad to worse…

As it was predictable the disease spread to other countries, where unfortunately it’s meeting some unprepared countries that did not believe that the situation was quite dire in Italy.

Clearly even 1 death is terrible enough, we have had 15.000 since the beginning of the outbreak. There are some “grey areas” on the number reporting, but if we take them for “good” we are talking about the 0.025% of the population of Italy.

Seen under this perspective the virus can be hardly considered like the “plague”, which killed (by low estimates) 30% of the European population.

I am saying this because I for sure won’t step out of home until this is finished, but at the same time I am refusing to cry at the “end of the world” as some media spin the news on COVID19. Here in Italy it’s all about “was situations”, “was emergency”, “war economy”.

What do we learn from this situation? Clearly is that the world all interconnected and globalised poses an higher level of responsibility on each human being and each nation. You can’t just “do it like I like it” because nowadays you might end up affecting other people too, as people and goods travel faster and faster.

Social responsibility is something that runs scarce here in Pizzaland, and it’s really sad to see that despite government restrictions the number of infected people is FAR LESS than the number of people who have been fined by police for being outside their homes for no valid reason. We have more idiots than infected.

Hopefully we’ll learn that hospital and medical equipment is important and not just another voice in the budget that needs massive cuts to fund useless wars and other things like that… But that’s all “hopes”, I am losing faith in the human race after all these events…

LH FUND

Explanation of terminology and graphs is HERE.

Let’s see the numbers:

MonthTRYTERNYYoCForex
12.140.00%0.00%0.00%0.00%
12.15-3.33%1.22%-0.13%-1.00%
12.167.06%1.14%1.16%-4.35%
12.179.94%1.04%2.64%-5.94%
12.183.28%1.24%2.70%-3.53%
12.1923.50%1.35%2.72%-1.40%
01.2021.13%1.36%2.65%-0.45%
02.2013.04%1.35%2.67%-0.63%
03.20-5.82%1.27%2.51%-0.12%

TR is decreasing (vs. previous month) – All in all I cannot complain! markets tanked massively in March, so did the LH portfolio.

YTER is decreasing (vs. previous month) – Huge decrease mostly linked to the addition of cash from outside.

Net Yearly YoC is decreasing (vs. previous month) – Thanks to the addition of extra funds in the LH Portfolio this metric got worse, I expect the return to fall in 2020 thanks to more and more dividends being cancelled or postponed. It’s going to be a very hard year.

Forex is getting better (vs. previous month) – I think it’s the way I am calculating this data that needs revision, the addition of extra euro seems to have lowered this ration considerably.

Dividends and Options

February was positive but March got the PF to come “back to earth”. Actually dividends did spectacularly well, options suffered massively of what is going on in the markets…

March income was a meager 257 Euro.

Dividends accounted for 1095 Euro (+16.44% vs.2019) and Options ended up with a beautiful -838 Euro score (-1389% vs 2019).

Now, the aggregate result was poor, but that’s heavily influenced by the options results. They are all rolls for profit so I am not worried but this month I have to report the loss on closing the first leg of the option.

Considering that markets fell massively in March, getting the dividends above 2019 level is a great result. The real issue will come in the following months, I have to hope that not too many companies will cancel/suspend dividends, although I am expecting a fair number of them to do so…

List of Options closed in February

DCA/Increased Positions

Bought

I won’t comment any single trade as I usually do because there were quite a lot of them, but the fall was quite strong and opened up opportunities that I did not want to let go. Consider that I am not looking for a market bottom (although I would love to invest right when the market starts recovering!), so each trade was done judging that they potential yield was good and the company was sound too. Alas some of the trades have already gone through a dividend postponement/suspension that 1 month ago was totally unthinkable of…

100 MO @ 41 USD

100 BIT:ENI @ 8.6 EUR

200 LON:EDIN @ 5 GBP

45 ADM @ 35.5 USD

300 LON:CTY @ 3.59 GBP

1000 BIT:ISP @ 1.82 EUR

1000 BIT:SRG @ 3.72 EUR

10 MMM @ 135.5 USD

100 PBCT @ 11 USD

200 BIT:G @ 12.24 EUR

500 BIT:PST @ 6.2 EUR

100 SODJ @ 18.95 USD

100 KO @ 37 USD

250 BIT:ERG @ 13.9 EUR

140 LON:NG @ 8 GBP

140 LON:PRU @ 9.95 GBP

New Positions – Sold Position

Sold

I sold some positions to recoup cash and invest in other safer/stronger companies. All apart from RMG (who cancelled the dividend and the recovery plan, so I let it go with huge losses) were sales in profit.

25 DIS @ 106 USD

90 INTB (bond) @ 133.95 EUR

255 NRZ @ 11.4 USD

40 KMB @ 118 USD

1000 RMG @ 1.44 GBP

Conclusions

Here we go, let’s talk about the economy!

So, in short the COVID19 epidemic was the major culprit in a market crash that was quite unprecedented for the violence and speed of the decrease. VIX index jumped to highs never seen before, panic selling ruled the market until the 24th of March, where apparently things started gaining some grounding again.

I am not sure if this is a bottom or not, I will not venture into any prediction because it’s totally pointless, but surely a lot of buying opportunities opened up.

I was diligent enough not to spend too much cash in the previous months, so I had a little bit of dry powder to shoot, but alas I found myself shooting far too early than I should have.

No complaints or regrets, but the opportunities there started affecting dividend kings and aristocrats in a major way, and this is why after 2 years of no addition to the fund, I’ve decided to invest more funds. This is something that I’ve tried to avoid in the past, I figured that the amount of money originally invested was more than enough, but on the other side with a market downturn like this, not deploying some more cash would be wrong.

Why? Well, the target is a 20 years investment, not tomorrow. I am not chasing the “bottom” of this crisis, for what I know we might be just at the beginning and we are going to see market fall a further 50%… But right now there are good companies at a favourable price, so it makes sense to move in

If you belong to the investor type that thinks that “it’s the end of the world” then probably you are not invested right now and you took losses (or profits) already. Good for you.

I belong to the type of investor that doesn’t see a “different” economic setting in the future, so despite the fall in prices I also believe that the economic cycle will kick off its growth again… Not sure when, but sure that it will happen.

I also believe that this crisis is heavily “media fuelled”. And the way it came it might go away with a spectacular rally the moment a vaccine to the virus is announced. I expect people to party HARD when that happens, a bit for relief, a bit because after all this time of having set aside our “normal” life people will want to take it back big time.

Maybe I am an optimist (never been one to be honest), but I see this COVID19 event as something that can get the world to plan better for serious epidemics that might strike in the future…

Anyhow, back to the markets, now everyone is on the bear wagon and they think that there will be lower bottoms to the crisis. I agree with that view and I am keeping the extra cash for an event like that. One “positive” point of this market is that some of the companies that invest in sustainable businesses have come down in price too, making them a viable investment now, with or without dividends (they might cut their payments after all) I am investing in the future growth that they might bring.

I am not switching to a sustainable 100% approach, but I will increase my weighting on those areas of the market if I can.

So in the end, at the time of the writing (beg.April), we are in the middle of the storm, and we are going to go through this for much longer I feel. This is unless a “white swan” event materialises (vaccine, massive virus reduction, whatever) in that case the situation might change.

These are the markets, but the economy is going to suffer for much longer, tourism, luxury, retail, lots of areas that sustain the world GDP were massively affected, and it will take at least 1 year before things can go back to the old ways…

We’ll see what happens of course, but what is sure is that 2020 is going to be an hell of a ride…

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