13 Stocks I Bought For My Retirement Portfolio When The Market Crashed 8% In A Day

Summary

• Market fear has turned to outright market panic over COVID-19 and the worst oil crash in 30 years.
• Monday March 9th, stocks suffered their 7th worst day in 70 years, plunging nearly 8%.
• I maxed out my buying power when dozens of limits filled in the flash crash at the open on 13 companies.
• I ended up buying EPD, MPLX, FL, CCL, OZK, SPG, ET, CAT, TROW, AAN, VIAC, AMZN, and AVGO at an average yield of 7.2%, PE of 7.9, and PEG ratio of 0.81.
• The oil crash and COVID-19 pandemic are far from over. This might be a bear market. But I don't care because, as Baron Rothschild said: "buy when there's blood in the street, even if the blood is your own."
• Looking for a helping hand in the market? Members of The Dividend Kings get exclusive ideas and guidance to navigate any climate. Get started today »

(Source: Imgflip)

What a wild time it's been for investors!

It's important to remember stocks never go up or down in a straight line. It's also important to accept that they often react violently and irrationally.

• 5th worst week of all time was followed by a 4.6% rally on hopes of rate cuts on Monday, March 2nd
• Fed cut rates on Tuesday, March 3rd, and stocks fell 2.8% but were down as much as 5% intra-day
• After Biden became the favorite on Super Tuesday, stocks rallied 4.2% Wednesday, March 4th
• Thursday, March 5th stocks fell 4.0% due to more scary COVID-19 headlines
• Monday, March 9th, stocks fell 7.6%, 7th worst decline since 1950 due to new oil price war
• Tuesday, March 10th President Trump proposed eliminating payroll tax through the end of the year, stocks up 4.9%
• Wednesday, March 11th stocks down 3.3% as I write this (COVID-19 headlines and possibly because no payroll tax cut is likely to make it through the House).

Over time the stock market is the lowest risk/highest probability way to compound your income and wealth.

But historical data is statistical in nature, and the long-term is made up of lots of short-term periods like we're seeing now.

(Source: Wikipedia)

Monday, March 9th was the 7th worst day since 1950 and the 17th worst of all time.

Volatility has skyrocketed to its second-highest levels in 30 years.

(Source: Ycharts)

A few weeks ago investor sentiment, as measured by the seven technical indicators of CNN's fear and greed index, was at record highs (93). That was when the market peaked at a forward PE of 19.3, 18% historically overvalued (and the highest PE in 18 years).

(Source: CNN)

Just a few weeks later and we're now at 4, a level of extreme fear not seen since December 2018, when the market fell 17% in three weeks and the fear/greed index bottomed at 2.

Naturally, a lot of people are not just scared right now, but downright terrified.

"When will the pain stop and the market bottom?" is the question on most investor's minds.

So let's try to answer that as best as any analyst can (who actually understands how Wall Street works).

Why The Market Crashed On Monday

(Source: Reuters')

Besides the obvious backdrop of the COVID-19 pandemic, Monday saw crude fall 25% (31% decline was at the open Sunday night).

Here's the timeline of why oil crashed to a level so low that Raymond James wrote in a note that

Monday will go down as one of the bleakest market days in the history of the energy sector...Was this capitulation day? It certainly feels like it... it is hard to imagine how much worse sentiment can get.”

Friday, March 6th Russia says it will not back Saudi Arabia's plan for 1.5 million bpd in new cuts, to add to the 2.1 million bpd already in effect through April 1st.

Saturday Saudi Arabia declared a price war, slashing the price of its crude and declaring it would raise its production from 9.7 million bpd to over 10 million.

Monday came the oil crash, as a global economy expected to grow at 2% to 2.5% in 2020 (a technical global recession is 2.5% or less) is now potentially set to see the first year of negative oil demand growth in 11 years.

Tuesday came the news that Saudi Arabia was targeting 12.3 million bpd production, which is basically its full capacity.

Russia responded saying it plans to increase production 200,000 to 300,000 in the short-term but potentially 500,000 bpd in the long-term.

Wednesday Saudi Arabia responded with claims that it might eventually (no timeline specified) go to 13 million bpd. That would require tapping its emergency production reserves, not something it can do for long.

But the point is that the US energy industry is now facing a short-medium-term crisis, that's expected to last 12 to 24 months.

Not one company in our coverage can keep production flat for more than a few months while spending within cash flow at $35 WTI.” - Charles Meade of Johnson Rice & Co

We are preparing for two years of low prices and will make the necessary adjustments to maintain our great balance sheet,” Pioneer Natural Resources’ CEO Scott Sheffield

How bad could the 2020 oil crash become? That depends on two factors.

First, is OPEC+, which is not officially dissolved yet.

But the end-game here is not low oil prices, but rather forcing Russia back to the negotiating table. The question is how long - if at all - that will take. "We would stress that it is not in any OPEC+ nations' interest to have sustained oil prices below US$50, and hence we see this solely as a strategic move from the Saudis," RBC says." - Seeking Alpha (emphasis added)

Saudi Arabia needs about $87 crude to balance its budget.

(Source: IMF)

Russia needs about $42.

Both countries are going to rely on their foreign currency reserves during this oil war.

(Source: Investopedia) data as of January 2020

Russia has about $560 billion in reserves and says it's prepared for a long fight.

Russia says it can withstand the price war at $25 to $30 per barrel for 6 to 10 years. Neither side appears willing to budge." - Nick Cunningham

On the Saudi side of things ($500 billion in reserves), the news so far is also not good.

Saudi Arabia is preparing budget scenarios that envisage benchmark Brent crude prices dropping into a $12-$20 per barrel range after launching an oil price war over the weekend that triggered a 24% slump in crude prices on Monday, sources familiar with the matter told Energy Intelligence." - Energy Intelligence

The UAE, OPEC's 3rd largest producer, just announced it was joining the price war, with plans to increase production by 1 million bpd.

This means that relatively soon oil supply might increase a total of 3 to 3.5 million bpd (4 million over the long-term). All in a year that

• OPEC expects global oil demand to grow by 90,000 bpd (down from 1.1 million in Dec)
• IEA expects global oil demand to fall by 90,000 bpd (first year of negative growth since 2009)

There's also the US shale industry to consider.

According to Rystad Energy, 80% of breakeven prices on US drilled but uncompleted or DUC wells are $25 or less.

As the market searches for a floor, Rystad Energy believes prices will experience extreme levels of volatility in the coming days and will have to go even lower than the current $35 Brent, as the potential 2 million barrels per day (bpd) surplus in the market in the second quarter of 2020 may grow even larger depending on the production response from OPEC and Russia...

However, we suspect that the OPEC+ alliance could still survive this impasse. Russia has successfully made the point that it is prepared to face the consequences of a “no-deal” scenario. As the effect of the virus outbreak on the global economy becomes increasingly clear, we find it likely that OPEC+ will meet again in June and try to reach a new agreement to balance the market. " - Rystad Energy (emphasis added)

Theoretically, leveraged oil producers, many who have about 50% of production hedged at $50 or more, could continue pumping even if oil falls to $25 (DUC breakeven price).

Rystad Energy’s shale team has modeled three alternative price scenarios reflecting how the US shale industry could respond to lower WTI prices. In this analysis, under the $30 WTI scenario, which is the one closest to the current price levels, oil production in the Lower 48 states would continue to grow towards July-August by around 200,000 to 300,000 bpd versus current output levels.

Production would then start to decline during the year’s fourth quarter. The volumes at risk versus our previous base case grow by as much as 1 million bpd for December 2020 production if oil prices stay at $30 WTI a barrel. In this scenario, Lower 48 oil production would end the year more or less flat from where it started." -Rystad Energy (emphasis added)

The good news is that US oil companies have already announced big cuts in capex (OXY just did a 32% cut as part of its dividend cut announcement).

Further good news is that the cure for low oil prices is low oil prices, as Raymond James explains

Oil should bottom out when producers begin physically shutting in wells, which is indeed what set the floor four years ago."

Further good news is that OPEC+ hasn't officially collapsed, at least according to Russia.

The fact that the agreement was not extended beyond April 1 doesn’t mean that we cannot cooperate with OPEC and non-OPEC producers in the future. We signed a charter last year and we will continue cooperation as part of it.” - Russian energy minister Novak

Is Rystad Energy right in thinking that both sides will come to the table during the June OPEC meeting and agree to end the price war? Possibly, though the world will be awash in oil given that the COVID-19 economic impacts are not expected to reverse until next year.

In the meantime, only the strongest energy companies are likely safe from high risk of short-term term-financial distress.

(Source: Michael Boyd)

You can see that Occidental (OXY) was at high risk before the oil crash because of high debt/capital, very high leverage and $9 billion in short-term debt maturities.

I've downgraded OXY to 6/11 quality, removed it from the Dividend Kings' Master List and will be updating all energy companies in a few months once we have more clarity about how low crude could go in the short-term.

My updates are based on the latest consensus data and without question FCF forecasts are going to plummet for 2020 and 2021. Most likely every oil producer will get a downgrade of at least 1 level, meaning that an aristocrat like Exxon (XOM) will go from 10/11 SWAN to 9/11 blue chip quality (possibly 8/11 depending on how much consensus estimates are lowered).

In the short-term, I've updated all the safe midstream companies on the DK Master List (13 names) and continue to update Energy Transfer (ET), Enterprise Products Partners (EPD) and MPLX (MPLX) on a weekly basis.

That's part of my Monday update of all 26 companies on the Dividend Sensei correction list (what I've been buying). The correction watchlist is a new tool for our members.

If cash flow estimates for midstream start falling, then I'll update that list on a weekly basis if necessary.

The reason there are just 13 midstream/MLPs on the safe list is because of our focus on quality and safety.

Here's why I chose the 13 names I did.

• all self-funding business models (zero reliance on equity to fund growth plans)
• all investment-grade balance sheets
• no IDRs
• all with above-average or better safety
• low and falling debt/EBITDA ratios
• low costs of capital (and strong access to bond markets)
• highly diversified cash flow streams (no small MLPs with single customer concentration)
• high coverage ratios (most 1.5+)

The long-term contracted nature of midstream contracts, most with minimum volume commitments, means FAR more stable cash flow than any oil producer.

This is also why I personally only own big, quality midstreams as my energy exposure (20% of my portfolio). I do have a small 0.3% stake in Antero Midstream (AM) but wouldn't recommend anyone buy that speculative name right now.

AR has 86% of its production hedged (most through 2022) but also high debt and almost $2 billion in short-medium-term debt coming due.

If something like EPD, with a 1.7 coverage ratio, were to see cash flow temporarily decline by 10%, 20% or even 30% (if hundreds of shale producers went bankrupt at once), it's distribution would likely remain safe.

Bankrupt energy companies would have their assets sold at auction for pennies on the dollar to the likes of the survivors (PXD, EOG, XOM, CVX, etc.).

When production began to rise again, midstreams would once more get the cash flow back, though possible at slightly reduced rates.

This is why 1.4+ coverage ratios, required for FCF self-funding are the hallmark of every safe midstream on our list (other than MMP at 1.26). MMP invented self-funding back in 2010 and has been safely raising its payout for a decade at 1.2+ coverage.

Barring a significant decrease in cash flow forecasts in the coming weeks, I doubt MMP or any safe midstream stock on our list will get a downgrade.

If cash flow projections do fall, then the effected names would see their safety fall in proportion to the level of expected decline (1 to 2 levels). This is why having a high coverage ratio is so important.

If an MLP's coverage ratio falls from 1.7 to 1.5 that's still a very safe level. If it falls from 1.5 to 1.3? Then safety declines from 4 or 5/5 to 3/5 on my quality scoring system.

In the meantime, as an EPD investor, I am not losing sleep over fears of a distribution cut.

EPD Insider Buying

(Source: Openinsider)

Management, which owns over $12 billion worth of the stock and is collecting $1.3 billion per year in distributions, has been buying aggressively. That's both before and after the oil crash on Monday.

The same is true of Energy Transfer, where management has been buying stock by the tens of millions during the energy crash.

Energy Transfer Insider Buying

(Source: Openinsider)

ET management has bought over $90 million worth of stock since the correction began and ET CEO and founder Kelcy Warren owns 260 million units paying him $317 million per year. His salary is $1 and he literally lives off the distributions.

ET has 1.9 coverage and plans for full FCF self-funding by 2021. It has $3 billion in annual retained (post-distribution) cash flow to fund its 2020 growth plans.

• self-funding = growth spending funded with retained cash flow + safe amounts of low-cost debt
• FCF self-funding = all growth funding is paid for with retained cash flow, zero new debt issuances (just refinancing existing bonds) - leverage falls steadily from already safe levels

Other MLPs/midstream corporations have also seen a lot of insider buying recently.

WMB Insider Buying

(Source: Openinsider)

KMI Insider Buying

(Source: Openinsider)

PAGP Insider Buying

(Source: Openinsider)

OKE Insider Buying

(Source: Openinsider)

The point is that I'm working 14 to 18 hours per day during this correction, updating the Master List and Dividend Kings' members about the rapid-fire updates happening with energy prices, economic data/forecasts, and COVID-19.

I have also created a COVID-19 Case Forecasting Tool for Dividend Kings that is going up on Friday, that I'll update every day to track the pandemic.

COVID-19 Base Case Final Case Forecast

Country	Population	Cases	Population/Cases	Projected Final Cases
China	1386000000	80967	17118	NA
US	327200000	1039	314918	19114
Italy	60480000	10149	5959	3533
Iran	81160000	9000	9018	4741
South Korea	51470000	7755	6637	3007
Spain	46660000	2083	22400	2726
France	66990000	1784	37550	3913
Germany	82790000	1622	51042	4836
Switzerland	8570000	613	13980	501
Japan	126800000	581	218244	7407
Norway	5368000	429	12513	314
Netherlands	17180000	382	44974	1004
UK	66440000	382	173927	3881
Sweden	10120000	355	28507	591
World	7700000000	121098	63585	449817

Click to enlarge

(Sources: Johns Hopkins, World of Meters, World Bank, US Census Bureau)

The way this tool works is by looking at the only country in which the pandemic appears to be ending.

(Source: Johns Hopkins) orange line = China cases, green line = recoveries, yellow like = non-China cases.

China is down to less than 100 new cases per day and has maintained that level for over a week. Travel restrictions are starting to be lifted, even if Wuhan, where this pandemic began.

In China 1 in 17,100 people were infected. China was the 51st most prepared country for a pandemic. (Source: Johns Hopkins)

Assuming that the inability to crack down as aggressively in developed countries counterbalances their better preparedness the base case forecasting tool assumes that 1 in 17,100 humans will get the virus (based on Tuesday's China case figures).

Some countries will get a higher infection rate (Italy is 1 in 6000 right now) others much lower (the US is 1 in 315K right now). But if the overall China rate of infection holds, then about 450,000 total cases could be expected by the time this is over.

What if that's too conservative a model? I also have the conservative model, which assumes the highest rate of infection of the 14 most-affected countries. That would be Italy, where 1 in 6000 people have thus far been infected.

I use the highest infection rate of any major country to make the realistic worst-case forecasting model.

COVID-19 Worst-Case Final Case Forecast

Country	Population	Cases	Population/Cases	Projected Final Cases
China	1386000000	80967	17118	NA
US	327200000	1039	314918	54907
Italy	60480000	10149	5959	NA
Iran	81160000	9000	9018	13619
South Korea	51470000	7755	6637	8637
Spain	46660000	2083	22400	7830
France	66990000	1784	37550	11241
Germany	82790000	1622	51042	13893
Switzerland	8570000	613	13980	1438
Japan	126800000	581	218244	21278
Norway	5368000	429	12513	901
Netherlands	17180000	382	44974	2883
UK	66440000	382	173927	11149
Sweden	10120000	355	28507	1698
World	7700000000	121098	63585	1292118

Click to enlarge

(Sources: Johns Hopkins, World of Meters, World Bank, US Census Bureau)

Remember the models change every day. The idea is to "be only as afraid as the best available data says is appropriate."

Given the current data, the final COVID-19 case totals could reasonably be expected to be between 450,000 and 1.3 million. The upper end of that forecast is going to go up as Italy's cases continue to increase.

The worst-case estimate will stabilize when Italy (or some other major country) stabilizes its pandemic as China has.

Why create and maintain such tools? Because the media is hyping doomsday forecasts including that billions will be infected and tens of millions could die.

I'm not saying this might not prove to be the case. I'm saying the best available objective facts currently say that 500K or so global cases are far more likely than 5 billion.

The mortality rate as measured by deaths/closed cases appears to be stabilizing at 6%. That's 4% lower than SARs and could mean about 30,000 global deaths from this virus.

That's a tragedy for the families involved, of course, but before you panic consider this.

In China alone, about 25,000 people die of all causes...every single day.

About 150,000 people die around the world...every single day.

Even in the worst-case scenario, given the current data, COVID-19 might end up killing about 100,000 people. Or the equivalent that dies every 16 hours all year long.

Each year about 650,000 people die of the flu.

Am I saying to not worry about COVID-19 at all? No. I'm saying watch the data and don't make knee jerk reactions with your portfolios based on a pandemic that is 100% certain to end eventually.

What if it doesn't? What if it comes back every year like the flu or the 4 coronaviruses that circulate every year? Those cause 25% of common colds.

Does the media freak out over seasonal flu? Does the fact that we've had circulating coronaviruses with us since the dawn of time cause economic recessions or bear markets?

My point is that the massive effects of COVID-19 are almost certainly a "one and done." Whether or not it ever comes back, a vaccine will likely be ready in 12 to 18 months and we won't likely see any long-term effects to global economic growth or corporate earnings.

Goldman Sachs, using the best available date currently available estimates that by Q3 there won't be any supply chain disruption remaining from the pandemic.

By Q4 it estimates there won't be any negative effects from the virus on our economy at all.

(Source: MarketWatch)

Currently, there is about a 48% probability of a recession according to both Jeff Miller and Moody's. Goldman's COVID-19 model is the most pessimistic I've seen, forecasting a POTENTIAL 6 month, very mild recession. At worst Goldman's model says a -1.5% GDP peak decline recession might be coming.

I update DK members each week on the COVID pandemic/economy/markets and I track all this data very closely. 1.4% peak GDP decline is what we had in the 1990 Gulf War recession, which lasted 8 months and caused a 20% bear market.

Goldman Sachs just put out a new research note which states

• it expects -5% EPS growth for the S&P 500 this year (about $156.75)
• it expects the S&P 500 to bottom at 2,450 in the middle of the year
• 2450 on S&P 500 represents a 15% decline from today's levels
• it represents a forward PE of 15.6 vs 16.3 25-year average (about 4% undervalued)

Goldman expects earnings growth to "collapse" in the second and third quarters of 2020 before rebounding through the end of the year and into 2021. The S&P 500 will bottom out at 2,450 in the middle of the year, roughly 15% lower than its current level, the analysts projected. The fresh low will give way to a fourth-quarter surge and push the benchmark index to 3,200 by the end of 2020, they added." - Business Insider

Is Goldman right about this being a bear market that will bottom about 27% below February's all-time high of 3,385? There is no way to tell.

Is it nice to believe that the market will basically finish the year flat at 3,200 even if we get a bear market? Sure, but we don't know if this model will prove accurate.

It's an educated guesstimate based on Goldman's interpretation of the best available data it's quants have right now.

It's a plausible-sounding model based on realistic sounding though still speculative assumptions. That's the best anyone can offer you right now.

My point is that good long-term investing isn't based on panic or fear.

Here's Ben Carlson to provide further context.

The S&P is now down nearly 19% in just 13 trading sessions. These losses aren’t astronomical in a historical context but they’ve happened so quickly that I’m willing to call this a market crash. The problem with market crashes is it always feels like it’s too late to sell but too early to buy.

“Waiting for the dust to settle” is not a legitimate investment strategy.

My only suggestion for today is to make sure you have a plan, even if it’s a suboptimal plan. No one survives this type of volatility without a plan in place. Even a suboptimal plan is better than nothing because at least it gives you some rules and guidelines to follow." - Ben Carlson (emphasis added)

I have a plan I put in place before this correction began and I am sticking with it. This is why, when the market had its 7th worst day since 1950, I put the last of my savings to work.

The 13 Companies I Bought On "Black Gold Monday"

On Monday the rush of limits tapped out all my buying power so I am done buying for now until tax day. In the future, I'll use limits on fewer companies in order to avoid having to potentially sit out the next few weeks of bargains.

But I am not too disappointed...because look at the bargains I bought on Monday before I had to cancel all my other limits.

Company	Lowest Price I Bought This Correction	Highest Yield I Locked In	2020 PE/cash flow consensus	Forward PE/cash flow	Earnings/Cash flow yield	Risk Premium	Reward/Risk Ratio
Simon Property Group (SPG)	$110.53	7.60%	$12.41	8.91	11.2%	10.4%	2.8
Broadcom (AVGO)	$250.01	5.20%	$22.97	10.88	9.2%	8.4%	2.3
MPLX (MPLX)	$13.60	20.22%	$3.97	3.43	29.2%	28.4%	7.7
ViacomCBS (VIAC)	$20.00	4.80%	$5.36	3.73	26.8%	26.0%	7.0
Carnival (CCL)	$24.39	8.20%	$4.16	5.86	17.1%	16.3%	4.4
Energy Transfer (ET)	$7.10	17.18%	$3.01	2.36	42.4%	41.6%	11.2
Enterprise Products Partners (EPD)	$15.10	11.79%	$3.15	4.79	20.9%	20.1%	5.4
Aaron's (AAN)	$32.77	0.49%	$3.90	8.40	11.9%	11.1%	3.0
Amazon (AMZN)	$1,774.00	0%	$99.25 (EBITDA)	17.87	5.6%	4.8%	1.3
Caterpillar (CAT)	$111.35	3.70%	$9.30	11.97	8.4%	7.6%	2.0
T. Rowe Price (TROW)	$105.88	3.40%	$8.99	11.78	8.5%	7.7%	2.1
Foot Locker (FL)	$28.57	5.60%	$5.10	5.60	17.9%	17.1%	4.6
Bank OZK (OZK)	$21.67	4.80%	$2.92	7.42	13.5%	12.7%	3.4
Average		7.15%		7.92	17.1%	16.3%	4.4

Click to enlarge

Did I get most of these stocks at their bottom? So far ET, MPLX, and EPD are holding up or positive despite ongoing carnage and panic in the energy market.

The rest I didn't get at the bottom. But I did lock in safe 7.2% yield, an average PE of 7.9, and an earnings yield-risk premium of 16.3% representing a 4.4 reward/risk ratio.

The reward/risk ratio is earnings-yield risk-premium (earnings yield - 10-year US Treasury yield)/3.7%, the average risk premium for the S&P 500 since 2000.

Graham/Dodd/Carnevale recommends a 15 PE for most companies, the "reasonable and sound" valuation for anything growing at 3.25% to 15% CAGR over time. That's based on 200 years of market data in which stocks generated about 7% annual returns.

• 15 PE = 6.7% earnings yield
• 6.7% - 0.8% 10-year yield = 5.9% earnings yield risk premium
• 5.9%/3.7% market average risk premium = 1.6 reward/risk ratio

Basically, Graham, Dodd, and Carnevale consider it reasonable or prudent to get 1.6 times the risk premium for owning a single company vs the entire market.

I got 4.4 times the reward/risk ratio or nearly three times the recommended amount.

Why these 13 companies? Well, that's whose limits filled first in Monday's panic open, which was the 3rd worst in modern times behind 9/11 and the Financial Crisis. It tripped a circuit breaker that shut down trading for 15 minutes.

But here are the reasons these 13 companies were on my correction watchlist in the first place.

Fundamental Stats On These 13 Companies

• average quality: 9.3/11 blue chip quality vs. 9.7 average dividend aristocrat and 7.0 average S&P 500 company
• average dividend safety: 4.4/5 very safe = 4.7 average aristocrat and 3.0 S&P 500 average
• average yield: 7.7% vs. 2.1% S&P 500 and 2.5% most dividend growth ETFs
• average valuation: 48% undervalued vs fairly valued S&P 500
• average dividend growth streak: 12.8 = dividend achiever
• average 5-year dividend growth rate: 14.9% CAGR
• average analyst long-term growth consensus: 9.7% CAGR vs. 6.3% S&P since 2000
• average forward PE ratio: 7.7 vs 10.3 S&P 500 bottom on March 9th, 2009
• average PEG ratio: 0.8 vs. 1.98 S&P 500
• average return on capital: 56% = 71st industry percentile (high-quality by Greenblatt's definition)
• average 13-year median ROC: 61% (relative stable moats/quality)
• average 5-year ROC trend: +14% CAGR (improving moats/quality)
• average credit rating: BBB+ (investment grade, high quality)
• average annual volatility: 32.5% vs. 15.3% S&P 500, 26% Master List Average, 22% average aristocrat
• average market cap: $94 billion vs. $135 billion S&P 500 average
• average 5-year total return potential: 7.7% yield + 9.7% growth +13.9% CAGR valuation boost = 31.3% CAGR (23% to 40% CAGR with 25% margin of error)

Bottom Line: Whatever Happens Next With The Market I Am Very Happy With The Deals I Did

(Source: imgflip)

Do I care that I might potentially miss out on the bear market bottom for the broader market (if it happens over the next few weeks)? Nope. Because I got my stocks at a 7.7 PE which is literally 25% below where the broader market bottomed on March 9th, 2009.

Do I care that my portfolio is getting gored along with everyone else right now?

(Source: Advisor Perspectives)

Nope, because I take the LONG-TERM view. Even if you had bought at the pre-Great Recession high, and even factoring in the 57% Financial Crisis crash and the current correction, long-term investors would have made a fortune.

I own objectively higher-quality companies, as seen by their quality scores, returns on capital and credit ratings.

I paid 7.7 times earnings which prices in -2% CAGR growth forever according to the Graham/Dodd fair value formula.

In reality, analysts expect my companies will grow almost 10% CAGR over time.

I paid anti-bubble valuations for those 13 stocks, meaning that even if they collectively deliver zero growth forever, here is my expected total return.

• 7.7% yield + zero growth + 2.1% CAGR valuation boost = 9.8% CAGR (7% to 13% CAGR with 25% margin of error)

For context, the market since 1871 (using Schiller's database) has delivered 9.2% CAGR total returns.

I'm set to beat that over time, while collecting a safe 7.7% yield, even with zero growth. If my companies grow as expected? Then over the next five years, from today's prices (below where I bought most of them), 31% CAGR total returns are possible.

Over the long-term, the deals I got have the potential to deliver returns on par with the greatest investors in history.

Will it take time to recover the paper losses that are mounting up right now? Sure. But remember that even index investors who bought in 2007 are up 400% today, after a 57% market crash and including this current correction.

What if Goldman Sachs' is right and the market ends up falling 27%?

That's not unreasonable even if we avoid a recession in 2020. The average non-recessionary bear market since WWII has seen a 24% market decline.

(Source: Guggenheim Partners, Ned Davis Research)

But guess what, "this too shall pass". The economy isn't going to implode, COVID-19 isn't going to wipe out humanity, and in 2021 and beyond the economy will rebound and grow at its normal rate.

Even including recessionary bear markets, which average 37% declines, the average recovery from market bottom to new record highs is 15 months since 1945.

In other words, say Goldman is right, and by mid-2020 the market bottoms at 27%. Say it even falls to -37%, if we get a brief recession. Historically speaking, by late 2021, stocks would be back to record highs.

Meanwhile, I'd have locked in a massive amount of safe high-yield.

Total Portfolio Income	Average Monthly Income	Average Daily Income	Yield On Invested Capital
$42,167	$3,514	$115.53	11.1%

Click to enlarge

I'm getting over $100 per day in dividends that Morningstar's forecast saying will grow about 8.0% CAGR over time.

What does that mean for the future? That I'll be able to live off 50% of my post-tax dividends alone, which is my definition of financial independence.

Inflation-Adjusted Dividend Forecast

Years From Now	Annual Dividends	Daily Dividends	Hourly Dividends
5	$56,429	$154.6	$6.44
10	$75,514	$206.9	$8.62
15	$101,055	$276.9	$11.54
20	$135,234	$370.5	$15.44
25	$180,974	$495.8	$20.66
30	$242,184	$663.5	$27.65
35	$324,097	$887.9	$37.00
40	$433,715	$1,188.3	$49.51
45	$580,409	$1,590.2	$66.26
50	$776,718	$2,128.0	$88.67
55	$1,039,424	$2,847.7	$118.66
60	$1,390,983	$3,810.9	$158.79
65	$1,861,450	$5,099.9	$212.49
70	$2,491,039	$6,824.8	$284.37
75	$3,333,573	$9,133.1	$380.54
80	$4,461,072	$12,222.1	$509.25
85	$5,969,921	$16,355.9	$681.50
90	$7,989,101	$21,887.9	$912.00
95	$10,691,219	$29,291.0	$1,220.46
100	$14,307,263	$39,198.0	$1,633.25

Click to enlarge

This forecast assumes zero additional reinvestment, no dividend reinvestment and 2% CAGR long-term inflation (below what long-term bonds are pricing in for the next 10 to 30 years).

And to everyone who will comment about how I was a fool for buying too early, remember that no one rings a bell at the top or bottom of the market.

Here's Ritholtz Wealth Management's CEO, Joshua Brown with what he's telling his clients about market timing right now.

Why don’t we just sell everything and wait this out? Get back in when the dust settles?”

This is the question every financial advisor is getting this week, from at least one or two clients. They’re asking out of genuine curiosity, not just panic or fear. And it’s a great question.

The great answer is that you won’t know when the dust settles. There’s no airplane writing the “all clear” in the sky above your neighborhood. And when the dust settles, do you think stocks will be at their lows? Or will they have already rallied furiously, in anticipation of this? Let me give you an example.

Today is March 9th. Precisely eleven years ago today, in 2009, the stock market stopped going down. There was no reason. The dust had settled, without fanfare or any sort of official announcement. If you had polled people that day, or week or even month, most would not have agreed that we had seen the worst.

The economic headlines were not improving. But there it was. And by June 1st, less than 3 months later, the stock market had climbed 41% from that March low. And even with that having happened, the majority of participants still weren’t clear that the dust had fully settled. That we had, in fact, seen the worst.

There were still people calling us 3, 5 and 7 years later who had gone to cash and still hadn’t gotten back into stocks. They missed a new record-high a few years later and hundreds of percentage points in compounding on their assets." - Joshua Brown, CEO Ritholtz Wealth Management (emphasis added)

Can you predict the market during panics? Jim Simons couldn't during the late 2018 correction.

(Source: Michael Batnick)

Why do I point out Simmons asking a colleague whether they should short the market literally at the bottom of the worst correction in seven years?

Renaissance Technologies' Medallion Fund Has The Best Investing Record In History

(Source: Ben Carlson)

Because the quantitative hedge fund, Renaissance Technologies, Simmons founded, has the best investment track record in history.

What's his strategy? Obviously, the details are a closely guarded secret worth tens of billions. But according to The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution, the basics of Renaissance's strategy is as follows

• use an army of highly paid specialists (including rocket scientists, economists, and PhDs from MIT, Caltech, and the best research universities in the world) to program ultra-short-term quant strategies
• strategies run by numerous supercomputers
• using the most real-time data available (for which Renaissance pays a fortune to get with fiber optics, microseconds ahead of its rivals)
• Make millions of small trades per day
• lose or gain 1% on each trade
• be right 52% of the time

Simmons is literally the Warren Buffett of short-term traders. He's objectively the best that ever was or likely ever will be.

He's also someone who considered changing his strategy, by shorting billions on Dec 24th, 2018. Fortunately for him, his colleague talked him out of abandoning a proven strategy that had made his investors over $100 billion over the decades.

But the point is if the best trader in history can't time the bottom for stocks, do you truly think you have a chance?

I don't need to time the bottom. I just need to make good to great investments over time, and then watch my companies grow their earnings, cash flow, and dividends, and eventually return to fair value.

(Source: Imgflip)

I don't care how much my stocks are currently down, I don't check my portfolio because I'm focused on the long-term, meaning 5+ years.

If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes. - Warren Buffett

Am I confident that in 5+ years COVID-19 will be a distant memory? Yes. Am I confident that the global economy, corporate earnings and the fundamentals of my companies will be much higher? Yes.

(Source: AZ quotes)

I don't have to rely on luck with market timing, because on Monday, March 9th, 2020, when the market suffered its' 17th worst day of all time, I made my own long-term luck.

Disclosure: I am/we are long EPD, MPLX, FL, CCL, OZK, SPG, ET, CAT, TROW, AAN, VIAC, AMZN, AVGO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.