Buying Into a Stock Market Crash


No, I am not insane. The markets are in free-fall, crash mode, whatever term you want to use. Fear reigns supreme as everyone is talking about another recession, depression, etc. Hedge funds are collapsing as we speak. So what is the trade? It is quite simple: buy. That's right you want to be a buyer of top quality tobacco stocks and MLPs which do not have any commodity price risk. I have also decided to sell volatility (through a call spread) at around 40. Placing a trade like this makes me want to vomit, but historically this is a high probability trade.

During a market crash--which we are experiencing, everything falls regardless of fundamentals. This represents an opportunity for the few smart investors.

Stocks I am buying:

Nustar Energy--stable toll like revenue with a 7% plus yield. So if this is such a great stock, why is it falling so much? Because this is a favorite of hedge funds who like the postive carry. They borrow from their prime broker at 50 bps (if that) and buy Nustar and other MLPS which yield 6-8%. When there is a market crash, these hedge funds are forced to liquidate to meet margin calls.

Altria(MO)--this company sells an addictive product. People have to have their nicotine fix, regardless of economics. Even if you think we are entering a depression, this is still a good stock. They have complete pricing power and control 50% of the market. Current yield 6%.

Gold (GLD)--Over 50% of my portfolio remains in gold (see here). I will not be selling despite the huge move in gold.

Good luck.

Black Swan Insights

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2 comments:

  1. Each of these excess stock buyers has different objectives and motivations.

    ReplyDelete