Coronavirus: Navigating the Markets During the Sell-Off

Unless you’ve been living under a rock for the past month, you’re probably aware that Coronavirus is ravaging the stock market. The Dow Jones threw up all over its self, losing 12% of its value in a week. The S&P 500 jumped off a bridge and erased nearly all of the gains from the past 12 months.

This weekend some dude died in Washington State, Pope Francis has a “mysterious illness”, and China is shutting down. People are shitting their pants and I don’t think we’ve seen the end of the crash.

This is the gnarliest drop in the markets we’ve seen since the 2008 collapse so I think at this point it needs to addressed.

Who’s getting fucked the hardest?

Pretty much everything under the sun saw brutal losses last week. If you are holding securities that didn’t get hit hard, then you are one of the lucky ones. Here’s where we stand after this past week:

A lot of these are going to be common sense. Over here in America, it’s easy for us to look at the stats on Coronavirus and say that its barely worse than the seasonal flu, but Chinese workers are staying home, factories are shutting down, etc. It’s become clear that this is no longer a small scare that will blow over in a short period of time. This is the market correction that we all knew was coming. So who are the losers? How long will they lose for?

Hotels, Resorts, and Airlines

I know this may come as a surprise, but it turns out people are a little bit hesitant to travel internationally with a contagious virus ravaging the world. Being in an airtight tube on your way to Asia with people coughing everywhere is straight-up nightmare fuel. Delta, American, and United suspended all flights to and from China through late March. To give you an idea of the financial impact this may have, in 2017 there were 140 million inbound trips into China. That big-time revenue for these major airlines that’s going to be flushed right down the toilet.

I’m not saying that this massive fear and panic is justified, but people are legit canceling their international travel plans because of Corona. The tourism industry is trying to assure people that they will be fine as long as their destination is not affected by the virus, but fear is a motherfucker and people are not willing to take risks. Stocks in these sectors are going to continue to get slammed. When it comes to the stock market, you need to think about how institutional money will move to prevent losses. If hedge funds have billions of dollars in airline stocks, why the fuck would they hold them while it tanks. They are responsible for people’s retirement portfolios and 64-year-old Joe is not going to be too happy when they tell him that he just has to wait five more years for his portfolio to recover. The sell-off will continue in these industries until it hits a rock bottom. Below is a list of stocks that have been, and will continue to get face fucked by the sell off.

I’m all about buying low but I would stay away from these for now.

Apparel and Footwear

Apparel and footwear companies are also going to get boned. According to John Kernan, an analyst at Cowen, these companies source about 30% of their goods from China. China has become the supplier to the world over the past whatever amount of decades. With factories closing down, the supply chain is all screwed up which means that companies like Nike are going to have a hard time getting their products into America or anywhere else.

Stocks in this industry are ones that I would keep on your watch list to see if you can nab them at dirt cheap prices once this all blows over. Keep in mind that most of these companies were trading well above fair value before all this went down so they likely will get hit even harder because of that.

  • Nike (NKE)
  • Foot Locker (FL)
  • V.F. Designs (VFC)
  • Nordstrom (JWN)
  • Under Armour (UA)
  • Columbia (COLM)
  • Urban Outfitters (URBN)

Technology

Tech stocks already took their hit with the rest of the market during the past week. Big tech stocks lost more than 200 billion dollars in a single god damn trading session last week. Apple already warned investors that they expect to fall short of their revenue forecast for this quarter. Coronavirus is forcing tons of stores to close in China and is fucking up their supply chain. Think about all of those little microchips in your iPhone. Where do you think those are made?

Unlike the Airline and Entertainment industries, Tech will likely bounce back fairly quickly. These are some companies that took hits but will likely rebound. If you are looking to own some big Tech companies now may be your chance.

Just like I mentioned with the apparel stocks, many of these have been trading way above their fair value over the past year so they may have to drop even more to get a solid value play out of them. I see all of these as being great investments if you can get them at a good price.

What to do with your current holdings?

Okay so you are holding stocks currently. Should you sell them? Should you buy more? Should you hold?

I’ll give an example. I’ve been holding Apple stock for about 6 years now. I bought it right around $115 a share and am sitting on about 150% in gains. Why the hell would I sell Apple right now? It’s something that I’m going to hold for another ten years, maybe more. In 2018, Apple lost nearly 50% of its value and I held on. I’m glad I did. Admittedly this once at a point in my life when I completely forgot I owned stocks so I wasn’t checking my portfolio. If I had sold, I would have hated myself forever so I’m not going to make that mistake this time.

If you have stocks in your portfolio that you have been holding long term which are solid companies with great fundamentals, don’t be an idiot and sell because of this event. Let compound interest works its magic.

How much cash do you have?

If you are not sitting on any cash right now then I think you should probably fix that. If you just made some investments within the last year and all of your gains have been erased by this market sell off, then it may be a good idea to unload some shares at no gain to have ammo at the ready.

The last thing you want is to have to sit on the sidelines holding on to stocks that are deep in the red while everything is going on sale. Don’t let yourself fall into this tough spot. If you have no cash on hand and you have a few stocks with -3% to +3% return, it may be a good move to take a small gain or a small loss and wait to see how this all plays out. If you are still confident in the company after all of this blows over, you may be able to get right back in at a better price.

Hedging your bets with Options

If you don’t want to sell your stocks. It may be a good idea to buy some Put options for the securities that you are currently holding. A Put option is a contract that gives you the right to sell 100 shares of a stock at predetermined price any time prior to the expiration date. The worse thing that can happen is the stock goes up and the Put expires worthless. But who cares because that means your made capital gains on the underlying equity.

This way if your stock tanks, you still have the option to get out at a higher price. With all the uncertainty in the market, I highly recommend buying some insurance.

What’s coming next?

WHO THE HELL KNOWS. People will try to act like they can predict the market but they can’t. All of these predictions are based on what we’ve seen this past week coupled with the breaking news that has been coming out all weekend. My prediction is that the market either opens in a continued downward spiral picking right up where we left off, or we see a small rebound in early trading followed by a downward spiral.

Here’s what I will be doing for the forseeable future:

  • creating watch lists
  • saving money
  • trading options

Good luck out there.

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