As expected, the financial markets are having a very crazy week. Starting Monday, with a shocking -3,000 point DJIA drop (-13%), the week was filled with volatility. It wasn’t the environment I expected to find any opportunity in, but on St Patrick’s Day (Tuesday), I think I found the ‘Luck of the Irish’.
Longtime readers have heard my woeful tale of crashed MegaCorp stock options over the last 4 years. They lost more than half of their value in 2017 & 2018, soon after I early retired. Surprisingly, this week, I found an unexpected gift. When the market was at it’s worst – down 30% year-to-date – my old MegaCorp’s stock suddenly shot UP 10%. With the leverage on my options, that was equal to an amazing 40% jump in value.
MegaCorp is a very defensive, high-dividend, food stock. The whole packaged goods sector benefited from increased investment as Wall Street noticed grocery store shelves emptying out last weekend with panic buying for the COVID-19 shutdown. In a recession, you might skip breakfast, but by lunch the food industry will have you back at the table. Grocery stocks especially benefit as restaurants close and those food dollars shift to at-home eating.
This market shift to grocery stocks reminded me of the market meltdown in 2008. The S&P 500 crashed -40% and my MegaCorp was one of just 5 stocks in the S&P 500 to still grow for the year (+7%).
I’ve always called that moment ‘The Great Inflection Point’ . My wife and I sold a lot of MegaCorp stock options in late 2008 that we then invested in building our dream house and buying S&P 500 index funds when the market was so low. While 2008/2009 were woeful for most Americans, it was conversely fantastic financially for us and set up our FIRE plan in a big way.
I’m hoping to parlay the same luck right now. A second ‘Great Inflection Point’ would be huge.
So, on St Patrick’s Day, I talked with my financial advisor and made a big move to sell 2 tranches of MegaCorp stock options that expire over the next 15 months. I took those proceeds and bought into a Fidelity S&P 500 index fund the next two days (buying at 2,400 and 2,350).
The benefits of the move are many:
1) We got a very good price on my MegaCorp sale (well above our original FIRE plan) – at least a 3 year high.
2) It diversified our portfolio by spreading our dollars across the whole S&P 500, instead of just one single company.
3. It gives us time more wait for a COVID-19 recovery, since the options had to be sold in the next 3 & 15 months.
4. It allowed us to stick a little more cash into our savings account to protect against a lengthy COVID-19 recession.
5. It helped us book a big chunk of income in 2020, in case Democrats win in the November election and move to repeal the Trump tax cuts in 2021.
The biggest upside opportunity is if the economy successfully fights through COVID-19 and the market / S&P 500 has a good, quick recovery. I’m playing the Warren Buffett game that “when others cry, it’s time to buy”. We can wait quite a while – at least 5 years – for the recovery to happen.
The opportunity cost of the move is if MegaCorp flies even higher than they it did this week. While they had a solid quarterly earnings report on Wednesday, it wasn’t as good as the run-up had hoped and the stock lost almost all of the 10% gain it had over the last 2 days.
I’m sorry if this post sounds like someone relating their last golf outing hole-by-hole and shot-by-shot. I’m excited because it’s the biggest move I’ve made with our portfolio in more than a decade. Frankly, I’m shocked to find such an opportunity amid the market crash.
It was still a rough week overall on Wall Street (and Main Street). Despite this move, our overall portfolio is down about 7% for the year. Cash, bonds, and some fixed notes have kept us from seeing the worst of it (so far).
Hopefully you too are finding your portfolio weathering the storm as much as it can this week. We are in some strange times, but FIRE investors need to keep playing their hand for the long-term. In the end, here’s hoping God helps the entire world come through this devastating pandemic soon!
Image Credit: Pixabay
10 thoughts on “Lucky Inflection Point?”
Great move. We have doing Roth conversions over the last week. Also putting some cash to work the last couple of days. Hope to finish moving money around early next week and then turn off the financial news for 6 months. Stay Safe!
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The market took another beating today, so it looks like you have a little time. They said this is now the worst month since 1931! Yikes.
Hah, nice. Your patience and a little luck paid off handsomely. I think as of closing 23 Mar, I’m down about 36%. I’m almost all equities minus some cash. If I had some dry powder, I would have taken advantage of the fire sale on wall street as well. No regrets, knew it would happen someday and since I’m not reliant on my investment income, it just means we wont travel as much and will hold back on major projects we were planning for the house.
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Hopefully you have enough in cash that you don’t have to tap into your equities. If you can sit out 6-12 months, things should look a lot better than right now.
I agree, I dont think it will last as long as 2008 recession to get back this time. 2.5T stimulus plus this being an event driven drop, I think we will bounce back. We have 2.5 years of cash for discretionary expenses and if need be, can live on our pensions. Cheers
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