Silver Lining
Turning crisis into opportunity
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Buy American. I am. - Warren Buffett
In many ways, the 2008 global financial crisis would have been a defining moment for the majority of investors. What started as a housing slowdown in 2007 ended up bringing down the global financial markets by 2009, with the Dow Jones dropping more than 50%. More than half a trillion dollars were used to bail out companies so that the entire system would not collapse.
It was in the midst of this crisis when even seasoned investors were trying to somehow get out of the market, that Warren Buffett published his legendary op-ed in NY Times: Buy American. I am. [emphasis added throughout]
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Buffet backed his words by investing $5 Billion in Goldman Sachs, helping finance the $23 Billion purchase of Wrigley, and investing in many other blue chips like Bank of America, and Dow Chemical. It’s estimated that Buffett made ~$10 Billion in profits once the market turned by late 2011.
To be clear, I am not asking you to invest everything into the current dip. But, there will always be opportunities hidden in the crisis that we should be on the lookout for!
Tax Loss Harvesting
To put it mildly, 2022 has been brutal for growth stocks. As the Fed keeps raising its rates, we will see a further drop in valuation for these companies. But, not all is lost - in terms of timing, now would be a great time to cut your losses.
Tax loss harvesting is a strategy that allows you to sell stocks that have lost money, which then offsets the tax you would owe on the stocks that made you money. This is an incredibly common tax strategy that a lot of investors utilize at the end of each calendar year, and - if you have some gains and losses that you don’t mind trimming - now could be a great opportunity to do exactly that.
The Fed Pivot?
As expected, the Federal Reserve announced a 50 basis point interest rate hike on Tuesday. This has increased the effective rates to the highest we have seen since 2007 - But, this time, it’s a good thing.
In a miraculous turn of events, The Federal Reserve has begun to slow down and reduce their rate hikes - signaling the beginning of a new change of policies that’s about to affect literally everything - from stocks and housing prices to treasuries, and even the interest that you get paid in a savings account.
2023 Housing Market
As we move into the new year, one of my biggest worries is the current state of the housing market. The latest research from BlackKnight shows that national housing values have currently lost an average of 7.6% throughout Q3 of this year, which, is the largest decline since 2009. Due to this, many recent homebuyers are now underwater on their mortgages.
The silver lining here is that the delinquency rates are still the lowest they’ve been in history and I think the current drawdown can lead to some really good buying opportunities throughout the next year.
So that’s it for my Sunday round-up. For the new folks here, in this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.
See you next week with another bunch of exciting videos!
This is being fact-checked right now, but studies show that if you smash that like button, markets will end in green this week :)
I have found much of the benefits of tax loss harvesting over stated. Definitely worth trimming $3k in ordinary income or making it easier to realize gains that will let you diversify. I wouldn’t go crazy beyond that though, the net benefits tend to be fairly marginal.