2023-03-13 Will the government be able to save us? (Monday post SIVB-havoc thoughts)

Nothing repeated here about this weekend's/today's action, too many other sources for that. I'm just here to ask some questions, wondering who has reliably informative answers to them.

Can we sound the all-clear now that the government has stepped in? (If so, PACW, WAL, and FRC shareholders might beg to differ.)

Is a recession imminent? (Who knows?)

Prior to this past week, rates were on the rise to fight inflation. Now that a couple of banks have failed, some are calling for a pause. Did the previous problem suddenly disappear with those bank failures?

There are tons of smart people weighing in on every potential angle of our current situation. Which one of these is the smartest? How do you know? Will they be right on their next analysis? Can you rely upon any other opinion other than the market's? How do you determine the market's opinion? Should you even try?

What should you do now?

If you own banking stocks, you may want to consider where is your "uncle!" point. Most of these stock prices have fallen in the past couple of days. At some point they will, theoretically, have fallen to a point where your original entry thesis has been proven wrong. If you don't have such a point, and you are simply LTB&Hing it, may I kindly suggest you determine at what point you'll sell. There is no excuse for entering a stock without knowing when and why you will exit it. Are you simply going to say "my great-grandchildren are going to sell this stock"? Or will you parrot the LTB&H pledge that "my favorite holding period is forever"? (From what I've read, Berkshire Hathaway does sell stock.) If so, you are simply not practicing sound risk management.

Take this as gospel from some random guy on the Internet who has been there. Unfortunately.

Remember: the market isn't just bank stocks (you don't have to focus just on one area in the market)

If you have dry powder, consider looking elsewhere for potential buy candidates.

Yes, there will be some winners that emerge from this wreckage. Do you think you'll be the one to identify those, as the sub-industries (Pacific vs. Northeast vs. Southwest vs. S&Ls, etc.) crater and the Banking industry craters?

Or might you be better served looking elsewhere in the overall market for better returns - perhaps services, or technology, healthcare, or basic materials? If you are dead set on picking winners amidst the Banking rubble, there's nothing wrong with that. I am simply suggesting that as the industry recovers - however long that takes - there might be more productive areas in the market on which you could focus. If you pick an eventual banking winner but it takes five years to start to come to fruition, will that be good enough for you? Or might you be better served looking for something moving NOW that could more quickly have a positive impact on your investment statement?

A potential strategy: while others look for value, instead look for strengthening (at the stock, sub-industry, and industry levels)

For those areas, one potential strategy is to pick strong/strengthening stocks in strong/strengthening sub-industries, perhaps in turn only in a strong/strengthening industry. This is no guarantee of success. But at least if you have the sub-industry providing a tailwind, and an industry providing a tailwind, you have clear proof that others are interested in this stocks and this area of the market. That clear proof could easily motivate others to become interested.

(And all this interest generally offers a virtuous cycle element that could help the position. Unless others come onto the same bandwagon you are riding - and the more and faster the better - it doesn't do you any good. While GME and AMC were certainly not long term hold candidates, no one can argue against these stocks as beneficiaries of a good dog-pile into a stock. So what if they didn't keep rising to the moon? For a short period, they offered strong quick returns to holders. There are no style points in the market. There is no one looking over your shoulder at a post-sale analysis asking "so, exactly why did you get into this stock?" and docking you profit because you didn't do the appropriate fundamental analysis.)

Absent a sub-industry or industry angle, why else other than others getting interested do you think Bitcoin had its rise from the teens up into the high $60,000s range? (Ostensibly, one could consider crypto in general a sub-industry, but my primary definition is more like Retail REITs being a sub-industry of the Real Estate industry.) Many scoff at the notion of strength leading to strength (wanting to focus on buying $1.00 for $0.80 or less, and using deep analysis of competitive market position, management strength, and financial ratios to find large margins of safety), yet Bitcoin offers an excellent recent world example of what gains are possible without fundamental characteristics to analyze.

Risk management - know when you'll press the eject button before you get in the pilot's seat

The issue with those who paper-gained from Bitcoins rise then gave much/everything back in the decline to below $20,000 isn't that they didn't do fundamental analysis. (Is there really any to do on crypto?) The issue is that they didn't manage their risk well enough. They didn't have an "uncle!" point at which they unquestionably pushed the eject button because their holding thesis was proven wrong.

Another way of looking at it... they married a speculative vehicle when they just should have dated it.

Final word on banks - for this post at least

Some believe the government actions have solved the problem.

Others believe this is just the start.

Where we sit right now there's no telling who is right. What we can know with reasonable certainty is that this will not get resolved immediately, and there will be decent volatility as the correct descriptor of the situation becomes more clear.

(Some delight in pointing out that if you miss the XX best days in the market over a given period, you'll give up some huge proportion of the gains from that given period. What these same people universally fail to point out, because they are attempting to push a LTB&H narrative, is that big up days are typically mixed in with big down days and the odds of enjoying the big up days without suffering the big down days are zero. Anyone who has been watching the market for any length of time and paying decent attention knows that volatility is cyclical, and when it comes the volatility is both up AND down. So you cannot and will not - especially if you are LTB&Hing - ever be able to only enjoy big up days in any given period.)

Back to the current bank stock situation... we are all passengers in a muscle car being driven by a teenager but the car is fishtailing, the road is pointing downhill and is covered in oil, and it is starting to rain.

Will the driver get control? And what is your plan for while this is getting sorted out?