Time to go "All in"

Marcus Padley

Marcus Today

Some fund managers celebrate a 1% outperformance of their benchmark over a year. The Marcus Today Growth SMA has outperformed its very demanding ASX 300 Accumulation benchmark by 23% in a month and is down just 6.1% from the top before the bounce this morning. Most of that performance has come courtesy of a 70% plus cash holding on the way down.

The timing has been impeccable and I hope you have followed us out. Now we are getting back in and we suggest you think about doing the same thing.

Below we talk about being on the Spectrum - from Super Bear to Super Bull - and the need, in this uncertainty, to have no view at all. We also reiterate today that we have not taken a view that this is the bottom, we know we could be wrong, and in light of that we are fully prepared to go to 100% cash again if we see the need. We'll just keep waking up every morning and making decisions.

As Marcus Today Members found out earlier this week, on Tuesday (24/3/2020) we reduced the cash asset allocation from 70% to 40% and on Wednesday (25/3/2020) we went (almost) “All in”. 93% invested is pretty much all in.

Net result - Cash is down from 70% to 7%.

Don’t worry, I am as smart as you, I know this could be the hokey pokey, I understand that this could be a dead cat spike, a false dawn, I know there is a very good chance that the bottoming we are seeing this week could be reversed the next and I understand that there is a road to be travelled with COVID-19 that we have only just stepped upon.

Every bear market is punctuated by large spikes, the biggest rallies occur in a bear market not a bull market and here's another. The Dow had its biggest ever one day points gain this week and the biggest percentage rally since 1933.

But maybe this is the bottom.

It is very important at this time that you watch the herd not become part of it. I keep having to pull up my Team for running with the pack (buying toilet paper because everyone else is…Chris!). You will not make any great decisions if your head is in the same space as all the other headless chickens. Stand aside. Watch, listen. Nod. This is a time for Spock like cold assessment, not emotion. Be Spock, not some bogan buying bog paper, not some short term trader bragging about their one day gains in Afterpay.

As you can see from the comments on the bottom of every COVID-19 article, in the middle of these moments of extreme uncertainty there is a spectrum and everyone is on it. It runs from Super Bear (we're all going to die) to Super Bull. The people at both extremes can't help but express their strong views. But we believe that having a view (about COVID-19) is the biggest mistake you can make at the moment. You cannot afford to have one. It requires faith based on shifting data and faith is a failure in the stock market. We try to avoid being on the specturm at all, having no view. Instead we are watching everyone else on the spectrum and remaining cold, like Spock, unemotionally watching the volatility in sentiment and making decisions when the collective sentiment shifts. Investors should not be taking a view on how bad the COVID-19 crisis is going to be, because you don't know. Instead we try to observe and react to the market.

Listen to any financial market commentator. You will hear two types. Those that are talking about COVID-19 and how bad it is going to be which requires them to guess (they are not medical experts), and those that are talking about market sentiment. You can ignore those with a view about COVID-19. They don't know they don't know. Fund managers need to stick to what they know - watching the market not passing medical opinion.  


There is no doubt that we are seeing the first significant technical bottoming in the markets (see charts below) and that alone would have been enough for us to at least reduce our very aggressive cash position, but we have gone further, we have gone fully invested.

Let’s be clear - We are not after clicks, we are not grandstanding, we are guessing as every other fund manager buying in the last month is guessing. Every decision in the stock market has to made with an element of the unknown but if you are perpetually timid you doom yourself to underperformance. Chickens don’t make money and as I wrote on Tuesday, fund managers are not demi-Gods, we like you, "don’t know", but we are charged with the responsibility of making decisions on experience that some investors can't make, or don't make, but we have to make. Timing the bottom is not possible using science or fundamentals (earnings numbers are in flux anyway), it is going to take 'feel'. We have that feeling and have done something about it.

But we are not doing it on a whim, we have our reasons.


  • We know we don't know, but we have an insurance policy. We are a small fund. If this is a false dawn we can easily reverse it.
  • There is a very good chance the market has over-reacted to COVID-19. The market fell 38% from top to bottom and some of the banks 56%, more than they fell in the GFC, in just a month. Investors have decided this chapter will destroy 40% of the stock market's value. They do not have evidence of that yet. It may prove to be, and we can sell again if it continues to unfold, but if not these prices will prove to be a very rare opportunity we cannot miss. This is a table (26/3/2020) showing market performances since the top:

  • The market is pricing in an economic catastrophe based on months of business lockdowns. The CEO of Starbucks reports this week that they are reopening stores in China and are “on the uptick”. That’s 9 weeks from start to finish. Wuhan is out of lockdown. Hubei has eased travel restrictions. Railways are now offering 45% discounts to actively encourage the Chinese to travel again (!)
  • The number of daily deaths in Italy shows signs of slowing. The markets will be led by the Italian experience. One broker writes "Using mathematical modelling techniques to try and track the progress of the virus in different countries reveals Italy is flattening the curve substantially and after 23 days we will see active cases reflect previous infection data".
  • There is a good article on Livewire from Christopher Joye talking about “Peak Virus”. It’s a statistical look at the spread of the virus - it says "Assuming that the US and Australia are only 50% as effective at containment as South Korea and China, infection numbers should start rolling over in early to mid April". We're already in late March.
  • There is noise about the FDA approving anti-viral drugs that alleviate symptoms and reduce mortality rates which would significantly relax COVID-19 paranoia.
  • The central bank action (overreaction) has made sure that when the "All Clear" sounds the global economy is going to be on "steroid" settings and the stock market will price that in.
  • The US has fired a two trillion dollar 'bazooka'  - it is potentially overkill.
  • The fear will peak. At the moment the UK and Australia are at ‘peak fear’. In Italy they are past fear into the serious stage. When Loo paper, pasta, flour, rice, sanitiser and soap re-appear on the shelves, our ‘fear’ is going to turn from headless paranoia, to acceptance, serious address, then boredom and on to impatience. Then be forgotten. One headline says "How much of the farm do we have to burn to contain this thing". We are going to be throwing away COVID-19 test kits in a year’s time. Look up from the frenzy.
  • The biggest driver in the stock market at the moment is sentiment not earnings. The sentiment swings are fast and extreme. There is a good chance we are coming off a negative sentiment extreme which means we cannot wait for fundamentals to prove us right, this sentiment improvement could be a step change move and it could be over in two minutes. We are fearful of missing out on a very sharp market rally.
  • Everyone ready to buy - Almost all fund managers know this is a once in a decade buying opportunity the only question they differ on is "when". With a consensus that at some point everyone will want to buy, by the time that moment becomes obvious it will be far too late. We have to move early.
  • The stock market will anticipate an improvement in the virus experience well in advance of the human experience. The markets will bottom whilst we are at home with COVID-19. We have to buy before the all clear.
  • We are supposed to buy when others are fearful. The VIX Volatility index has just peaked – see charts below.
  • The Italian market, some European markets and some of our large stocks are turning, some technical indicators are even throwing out buy signals. See charts below.
  • Our Members, and the investors in our fund, expect us to do things they can’t or won't do, like making the decision to buy when all around us are losing their heads. And sell again if we are wrong.
Peak negativity will only be obvious in hindsight, we know we may not be there yet, but our judgement is that we have discounted an Armageddon that may not happen, the market is not going to wait on ceremony and if we don’t act quickly we’ll get left behind.

This is not a big call, its not a declaration that "this is the bottom". We are not trying to get clicks. We know this could be wrong, of course it could. This is simply the transparent admission to you that earlier this week we saw the risk of a short sharp large rally in the market and we didn't want to miss it

Finally - We are utterly prepared to go to 100% cash again tomorrow if we need to. The best you can do in this uncertainty is to wake up every morning and make decisions. There is no play book for this historic moment in the market. .

SOME CHARTS (From 24/3/2020)

The Italians have led the Western World COVID-19 experience and their market has had its first significant bounce. There is an RSI and a MACD buy signal on this daily chart.

The German market has also seen MACD and RSI buy signals. As an export market weighted to motor manufacturers that have been disrupted by a lack of components because of COVID-19 they are also a barometer of COVID-19 stock market sentiment.

Boeing is proving to be the bellwether stock of the financial crisis fears and that too has bottomed in the very short term.

The VIX volatility index has topped out from GFC levels. Another signal that sentiment has bottomed. If you are supposed to buy when others are fearful then this is telling you that that moment has come, and is going.

The Australian dollar is a barometer of global economic growth prospects – it falls when global growth prospects weaken and it has fallen 17.6% in just eight days. It is now bottoming.

The 8% bounce in the US market on Monday was an early technical signal. MACD suggested the momentum of the fall had peaked (Moving Average Convergence Divergence – the blue histogram – a buy signal is when it crosses from below to above zero).

Our market popped 4.2% with MACD bottoming and an RSI buy signal close.


We spent Tuesday getting back to market weight in some of the big index stocks and on Wednesday added other large quality stocks that are not in the front line come COVID-19 fall out. Buying cruise line stocks (some were up 40% in a day in the US) is for braver managers than us. There are plenty of quality growth stocks that are not directly at risk from COVID-19. Healthcare is a focus.

This might help. this is a list of the TOP 50 and NEXT 50 stocks and their performance from the high just over a month ago and their performance from the high to the close on Tuesday 24/3/2020.

Top fifty:

Next Fifty:


One of the lowest risk trades in the GFC was buying Hybrids that got smashed on concerns that the major banks would go out of business. In the end the banks didn’t miss a payment and the hybrids came back from 25-60c in the dollar to par. When our financial crisis fears are contained they will do so again. Here is a table showing the performance of the major hybrids movers over various time periods. Over a month most are down over 20% - 30%. In hindsight, this could once again prove to be the lowest risk trade in the whole market (don’t shoot me if the major banks go bust!).

SECTORS IN THIS SELL OFF as of 24/3/2020

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Marcus Padley
Marcus Today

Marcus Padley founded Marcus Today in 1998 and leads the team of analysts and market commentators that publishes a daily stock market newsletter, presents four podcasts and runs an $80m Australian equity fund. He is passionate about educating and...

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