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The Animator

(1,139 posts)
Fri Jul 27, 2018, 09:19 AM Jul 2018

Big Short 2.0

This is a note that I've written pretty much just for myself. I'm trying to get my shit together financially and want to be ready for the next financial crisis... I'm leaning towards stock options as an investment strategy... This is what I've come up with so far, and I'd love to get some feedback and share ideas...

So based on what you remember about the last republican catastrophuck, here are some industries that will probably take a huge hit.

If people don't have money to spend, they will pull back on anything they'd consider a luxury, and postpone any big financial commitments.


high-end retailers (Apple for example, Jewelry, tech toys)

Department store chains Like Sears and Macy's may drop off the earth entirely...


Travel, Tourism and Entertainment (Hotels, Airlines, Rental Car Companies)

Theme Park attendance will take a big hit, but since most are tied to major film/media companies they may be okay cause people will rely on less expensive entertainment for an escape. That said movie theaters will see a big dip if prices don't drop to accommodate their financially strapped customer base.


Fancy Restaurants (Darden Foods, Cheesecake Factory, etc)... Still mourning the loss of Bennigans... those Monte-Christos...


Auto Industry... Think also ATV's, Boats, Motorcyles

Yeah, this one is a given... GMC and Chrysler needed a lot of help last time and I doubt this administration is going to give a shit about helping Union workers... If I were to guess, I'd say Ford is setting themselves up for a big hurt with their decision to only sell Mustangs and huge SUV/Pickups in the US from now on... People are going to need less expensive/ economy cars of they'll have money for cars at all.


Construction and Real Estate
These guys are fucked... big time... (Home Depot and Lowe's... yeah Do It Yourself-ers and small time contractors are not going to be upgrading their shit anytime soon)


Banks... Also brokerages, hedge funds, and other financial institutions

Manafucked (Thank the Ferret for that one)... This will require a lot of research... Some may have actually learned their lessons from last time... doubt it, but if you can find the ones who haven't, eat their fucking lunch and smile 😊


Regarding Amazon, Netflix, Google, Facebook, and other social media

It's a mixed bag and not obvious... They may take a hit, maybe even a huge hit, but they have a lot going for them so it's not certain and I wouldn't bet against them if you've got limited funds for speculation.

Facebook, Twitter, whatever... It doesn't cost the average consumer anything extra to use social media, if it's free they'll be on it... maybe even more because they've got nothing else to do...

Netflix I'm hearing that they are over leveraged and over spending on their original content, but their subscriptions aren't that expensive and usage may even go up as people look for escape in entertainment...

Big budget Video Games and consoles are more expensive, but don't underestimate the power of escapism in shitty circumstances...

Amazon: a retailer in an environment where customers have no money is not a place where you want to be... however, with brick and mortar stores already on the verge of extinction they may very well be the last ones standing... them and fucking Walmart...


Speaking of which, companies who I'm pretty sure will do well...

Companies who are already recognized as catering to "Broke As Fuck" as a target demographic...

McDonalds , Walmart (although with so much of their cheap plastic crap coming from China, who knows how the Trade Wars will affect them), Dollar Stores...

Mobile Games... especially free to play...


All this will need research and lot of it... how companies fared during the last crisis, and whether or not they've adapted or taken precautions...

10 replies = new reply since forum marked as read
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3Hotdogs

(13,394 posts)
1. The question is, how long out are you gonna place the puts? How much will that cost you?
Fri Jul 27, 2018, 11:42 AM
Jul 2018

The only way I could figure this working out for you, is 2 years out and long, out of the money.

I agree, it is better than "red" or "black" but still, a long bet.

The Animator

(1,139 posts)
2. I'll probably stagger it...
Fri Jul 27, 2018, 01:25 PM
Jul 2018

I've only decided to get back into options trading, earlier this week and haven't had time to do much research...

For now I really only have DJX as an example. If I placed a Put on the Dow I'd need to save up a bit before I could sink enough in to make a difference, but I 'd start with a June 19 just outside the money. It looks cheap enough that I could afford three, maybe four contracts. Enough of a profit to make the initial risk worth it, especially if it drops the way it did in 2007.

Not betting the rent money on it. But I want to get in sooner rather than later. If the economy lasts another year as is, I'd be surprised, but I'll also have more time to save up for future investments. If I wait til I can afford a two year I might miss the chance.

Like I said, going to take more time digging into it over the weekend...

PoindexterOglethorpe

(26,727 posts)
3. Trying to time the market is essentially a fool's game.
Fri Jul 27, 2018, 09:21 PM
Jul 2018

Just remember that some people decided to sell everything the day after Trump was elected because the were certain the market would tank big time. It hasn't.

In the long run a balanced portfolio is your best hedge, preferably in good mutual funds.

Alternatively, investing in stocks that pay dividends can be a winning strategy. You can either re-invest the dividends, or use them to supplement your income. There are people here who have done that over the years and seem very happy with the results.

However, to answer your question: to research what companies or industries did badly in the 2008 debacle, would probably be a fairly simple matter of going to the local library and look at the daily stock tables from a newspaper for a six month period. You already have a handle on which companies you want to look at. The research will be tedious, and I doubt there's any quick way to get it done.

progree

(11,463 posts)
4. Or one can go to Yahoo Historic Quotes
Fri Jul 27, 2018, 09:40 PM
Jul 2018
to research what companies or industries did badly in the 2008 debacle, would probably be a fairly simple matter of going to the local library and look at the daily stock tables from a newspaper for a six month period.


For example, Amazon:

https://finance.yahoo.com/quote/GM/history?p=AMZN

Then set the time period to whatever one is interested in. Here is Amazon (AMZN) from 10/01/2007 to 03/10/2009, showing monthly (one can set to daily or weekly)

https://finance.yahoo.com/quote/AMZN/history?period1=1191214800&period2=1236661200&interval=1mo&filter=history&frequency=1mo

One can use the same URL for other stocks just by changing the AMZN to whatever the next stock's symbol is.

PoindexterOglethorpe

(26,727 posts)
5. Thank you for that information.
Fri Jul 27, 2018, 11:19 PM
Jul 2018

I had no idea that was out there!

More to the point, it means that the OP can quite readily research what he wants. Excellent!

progree

(11,463 posts)
6. The Yahoo Historic data Adjusted Close can be used to figure the total return (including dividends
Sat Jul 28, 2018, 08:51 AM
Jul 2018

Last edited Sat Jul 28, 2018, 09:25 AM - Edit history (1)

etc.)

I'm glad you found it useful! There's an even bigger secret -- the Adjusted Close is the Close, but adjusted for dividend and other distributions. So using the adjusted close, one can find the Total Return between any 2 dates. I haven't found any other way or website where I can do that.

For example: VFIAX, the Vanguard S&P 500 Admiral mutual fund.

https://finance.yahoo.com/quote/VFIAX/history?p=VFIAX

Looking at 10 years ending 7/27/18:

Date ` ` CLOSE ` Adjusted.Close
7/27/18: 260.52, 260.52
7/25/08: 115.92, 93.81 (the last close on or before 7/27/08)

The Close is simply the closing price. The Adjusted.Close is adjusted for dividends and other distributions, and splits.

Using just the closing price, the price went from 115.92 to 260.52, a 2.2474-fold increase which comes to a 8.435% annualized return
(1.08435^10 = 2.2474), where "^" is exponentiation.

To calculate the annualized return in Excel: =EXP( LN(260.52/115.92)/10 )-1 = 0.084346969 = 8.435%

That would be the return if one threw the dividends away.

But using the adjusted close, the total value including reinvested dividends and other distributions went from 93.81 to 260.52, a 2.7771-fold increase.
which comes to a 10.754% annualized return (1.10754^10 = 2.7771)

To check my work, Morningstar has the annualized total return for several n year periods ending 7/27/18 (that will disappear after Monday's close)
http://performance.morningstar.com/fund/performance-return.action?t=VFIAX&region=usa&culture=en_US

10 years ending 7/27/18: 10.75% (matches my calculation to 2 places to the right of the decimal).


(I've done this kind of calculation and checking against Morningstar and other total return sources many many times)

This also works for regular stocks and ETFs too. (Note Amazon doesn't pay dividends, so that's not a good example for this). XEL (Xcel Energy) does, for example.

Note: Yahoo shows a 10.16% annualized 10 year return,

https://finance.yahoo.com/quote/VFIAX/performance/

but I think they are using end of June figures for the n-month and n-year returns (the last time I was there they specified what the period was, now there is no indication, GRRRRRR Yahoo). Unlike Morningstar which is clear that it is 10 years as of 7/27/18.

I usually use Yahoo for the historic quotes and Morningstar for everything else.

Note: at the end of Monday, 7/30/18's close, the Morningstar as-of-7/27/18 return values will be gone forever, and will be replaced by as-of-7/30/18 figures.

progree

(11,463 posts)
8. Sorry, I don't understand your comment, "redundant information"
Tue Jul 31, 2018, 05:12 PM
Jul 2018

Adjusted Close is not the same as Close for stocks and ETFs and mutual funds that pay dividends and have other distributions --

For example, scroll down https://finance.yahoo.com/quote/XEL/history?p=XEL

Date, Close, Adjusted.Close

June 14: 42.87, 42.87 <-same for June 14 and later dates

June 14 distribution: 0.38

June 13: 42.50, 42.12 <- different for June 13 and earlier dates

Adjusted close is close but adjusted for the dividend.

If it's not that, what is it that you think is redundant?

A HERETIC I AM

(24,583 posts)
9. LOL...no, no....I posted redundant info!
Tue Jul 31, 2018, 07:19 PM
Jul 2018

I posted before fully reading your post above mine, that’s all.

I gave a link to Morningstar and then noticed I was “A day late and a dollar short” as my father would say! You had already done that.

It’s all good

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