Contrarian Investment - Which Sectors have the Greatest Beat-Down?

[Culture]

For those of use with some spare dollars to risk in sector bets, which sectors of the economy have experienced the greatest price beat-down from their peaks? Sectors that I see as possibilities are:

Paper and Forest Products, down about 55-60%.
Energy Services, down about 65%.
REITs, down about down about 60% (Yikes, debt and leverage!).
Emerging markets, down about 55-60%.
Metals and mining, down about 60-65%

For reference the S&P 500 is down about 42% from its peak. What other asset classes have experienced a greater than average beat-down?

BTW, I am not saying these are good investments. Just areas that need to be examined.

 

[Urchina]

Mortgage derivatives?
Financial sector stocks?

 

[ziggy29]

Foreign REITs?

 

[jIMOh]

My wife's Roth is 100% sector funds and right now we are overweighting purchases in both Financial services and in Global Real estate.

 

[Culture]

Financial sector stocks?

Actually, unless I am misreading things, financial sector stocks have not been hit nearly as hard as commodities-based sector stocks.

 

[brewer12345]

Junk bonds, bank loans and commodities producers (especially miners).

 

[tomintucson]

I don't understand why a timely thread such as this gets so little attention, in terms of the small number of replies. I'm always interested in buying sectors or regions "when there's blood in the streets". My only hesitation is that I have about six years worth of living expenses in cash, and not knowing whether my beaten-up stock portfolio will have enjoyed some serious recovery within that time frame, I'm very reluctant to double down with precious cash at this time.

A question for Culture, Brewer or anyone else: what is the simplest way to get current information, online, regarding how much a particular sector or country has fallen from its highs?

By the way, I'm loving Asia ex-Japan, miners, precious metals and energy. Their butts have all been kicked up and down the block, but I still like their stories.

Tom

 

[REWahoo]

I don't understand why a timely thread such as this gets so little attention, in terms of the small number of replies. I'm always interested in buying sectors or regions "when there's blood in the streets".

Maybe because many of us are the ones who shed that blood and are conservative investors with no interest in chasing the latest 'buying opportunity'.

And before you accuse us of having low testosterone levels, let me remind you many of our posters are female.

 

[clifp]

I don't understand why a timely thread such as this gets so little attention, i

A question for Culture, Brewer or anyone else: what is the simplest way to get current information, online, regarding how much a particular sector or country has fallen from its highs?

By the way, I'm loving Asia ex-Japan, miners, precious metals and energy. Their butts have all been kicked up and down the block, but I still like their stories.

Tom

I think the answer to your first question is your 2nd question. While there is lots of sources of information on sectors Morningstar, WSJ, Marketwatch (and for the lucky few probably Bloomberg) there is lots of disagreement about how to classify sectors. What sector is GE in, is Apple a computer company or a consumer electronics? Personally, I either buy broad index funds, or individual stocks and so I stay away from individual sectors.

 

[tomintucson]

Mr. REWahoo,

Did I say something to offend you?

I'm not biting.

Tom

 

[REWahoo]

Mr. REWahoo,

Did I say something to offend you?

No, not at all. You asked why people weren't responding to this thread and I gave you my opinion. Nothing more, no offense taken or given.

I'm not biting.

Good! I've got lousy medical insurance and I'm not sure my Tetanus shot is up to date.

 

[brewer12345]

A question for Culture, Brewer or anyone else: what is the simplest way to get current information, online, regarding how much a particular sector or country has fallen from its highs?

By the way, I'm loving Asia ex-Japan, miners, precious metals and energy. Their butts have all been kicked up and down the block, but I still like their stories.

Tom

To be clear: I've no idea where to see the most beaten down sectors because its not a great guide to what will do well. Just because something has been crushed doesn't mean its a good investment. Subprime mortgage bonds, anyone? How about some automaker equity?

I do like the sectors you mention. Does anyone really think arecession will permanently end Chinese economic expansion? India gonna stay unindustrialized? Nobody will want oil or natural gas? But there are also lots of other areas that look attractive. Most any kind of corporate credit exposure, for example. Reinsurers. And so on.

 

[ikubak]

REITS....to keep my allocation in the right proportion, I am having to contribute much of our retirement contributions to REITS. I don't profess any particular insight as to why one would choose to buy REITS at this time, but from a purely mechanical process, I have to buy REITS to keep my allocations right. It's kind of a forced "buy low" implementation.

 

[Koolau]

When it comes to this subject, I'm a complete hack. However, it seems to me that the drug stocks have been beaten down to an unreasonable degree - considering their underlying value, cash, etc.

Not sure I want to make a "bet" on them, but if I were to bet, I guess this is where I'd consider putting money.

YMMV

 

[NW-Bound]

Every sector has been down, and there are so much to chose from. However, I personally have no interest in sectors like home building and consumer discretionary for example. Same as others, I like mining (industrial metals, not gold), agricultural products (seed, farm equipment, fertilizer), energy exploration, and chemical companies.

About copper, the US per capita consumption of copper has been a fairly constant amount of 20lbs/year from 1965. With the US as a developed country, I guess that is mainly for replacement. Yet, China and India are not yet fully industrialized, and their economy and consumer base still have a lot of room for growth. Recently I needed to buy a length of copper pipe at Home Depot and was shocked at the price, not having bought any for more than 10 years.

Commodity metal mining is a fairly safe bet, in my view.

How 'bout dry bulk shipping? The thread on this sector has pretty much been abandoned. When people are no longer excited about this sector being so cheap, perhaps it's time to get some.

 

[haha]

I don't understand why a timely thread such as this gets so little attention, in terms of the small number of replies. I'm always interested in buying sectors or regions "when there's blood in the streets".

These topics have been discussed in other recent threads. Also, most investors here are asset allocating index investors. They see no need or benefit to studying things that they would not invest in anyway, other than as part of a relatively broad index.

For those who are interested, Fidelity used to have a lot of sector funds. If they still exist, looking them up would give you a quick read on what is in the toilet. I do agree with Brewer that ugly sectors don't always get pretty, but given enough time they usually recover somewhat.

Ha

 

[brewer12345]

How 'bout dry bulk shipping? The thread on this sector has pretty much been abandoned. When people are no longer excited about this sector being so cheap, perhaps it's time to get some.

I bought a huge amount of NM in the 1s and 2s, and also bought a large wad of ULTR (which does more than dry bulk). The BDI is starting to mive up, although it is still really, really low. The freight derivatives market is suggesting that dry bulk rates will roughly double by mid '09, although this derivatives market has not been a great predictor in the past.

I recently have been scooping up bonds that have been beaten up. There are some very attractively priced ones out there. By way of example, I recently bought one each of BBB rated and BBB+ rated issues that mature in 2014. The underlying credits are solid (IMO), and the YTM I bought at was 12+% for one and 10+% for the other. I also bought two issues from a BBB+ issuer that the market is terrified of, but which I believe will survive. I got one 2014 bond at 45 cents on the dollar and a 2018 issue at 36 cents on the dollar. If I am right about the credit and hold the bonds to maturity, I will get a yield north of 20%. I ma trying to find some junk rated bonds from issuers I know and like that have large coupons and trade at big discounts to par, but liquidity is proving to be tough.

Not that there isn't risk in these sorts of bonds, but they offer equity-like returns with potentially a lot less risk than equities.

 

[tomintucson]

Common sense alone dictates that a low price doesn't assure a "good deal". This truth applies at my local dollar store, to the world of beaten-down equities, and all points in between. Those of us who retired at quite young ages through the steady and deliberate accumulation of assets, coupled with LBYM, are cozy with this concept. Catching a falling knife and all that.

That said, I love my dollar store. And I love buying investments scorned by others. Note that I didn't say all of them. Only some. Just as I'm also only interested in some of what my dollar store sells. Buying mostly what other investors also want to own feels somewhat counter-intuitive. I'm fully aware that many others don't invest in any sort of contrarian manner, instead sticking to fixed allocation models, and I have great respect for that model as well. I trust that there's room for all of us here on this board.

Yes, Brewer, corporates as well, I forgot that asset class. Seems like almost everyone's bonds are priced for bankruptcy.

Tom

 

[brewer12345]

Seems like almost everyone's bonds are priced for bankruptcy.

Tom

I see lots of bonds that I would be thrilled to see default. It would be about the cheapest way to buy a stake in an otherwise fine company.

 

[NW-Bound]

Maybe because many of us are the ones who shed that blood and are conservative investors with no interest in chasing the latest 'buying opportunity'.

As I have often written before, from top of 2000 to bottom of 2003, I lost 50%. And no, I joined the tech boom late in 1999, hence did not have all that tremendous tech gain of 1995-2000 to give back.

Now, that's real blood, not a mere finger paper cut.

By abandoning tech and widening my investment horizon, I have recovered, and at this point, still have more than the old top in 2000. (knock on wood).

A qualifier: We still had some income from 2003 to 2008, which was higher than our normal living expenses. But on the other hand, we spent plenty on travel galore in those years, after being free from a job, and propelled by a boom market. I still have not added up the numbers to see if we were net savers or spenders in those years.

About less active investment strategies, I do not knock that. As long as one maintains an AA and rebalances, that may work well enough. Who's to say my more active style can beat them, meaning I can do a repeat of my earlier performance.

Can I perform a repeat? One can never be sure of those things, but the fact is I have been to a 50% loss (and don't care to revisit). It never pays to be arrogant in the market place. The market god hates braggadocio. Besides, my loss from the 2008 top is only 28% as of today, so I don't need to push it. Shh... what if it is different this time?

Perversely, I invest actively for the joy of it. No, I am not a gambler, do not go to horse or greyhound races, do not play any card game. I do not even play Solitaire on my PC.

 

[tomintucson]

NW-Bound, I relate to all that you have said. When I read, "maybe because many of us are the ones who shed that blood"...dude... I lost 550K in what felt like about ten minutes, but was actually over a very short 4-month period from my high in July 2008 to the trough in October 2008. Jaw-dropping losses representing years of saving and living below my means. I'm not crying. I did very well on the way up, and I've just given back a bunch on the way down. I pays my money, I takes my chances. At this point, I'm not rich, nor am I poor, and I remain very grateful for any financial success I have achieved in life.

In 1999 I made a contrarian move by opening a small business in my hometown that many people felt would quickly fail. I worked hard, found myself with a bit of a cash cow, and sold the business and retired at age 48 in March 2007. After the recent market debacle, I've felt like a whupped dog, and have freely acknowledged that I know nothing about investing. One might also conclude that the folks with names like Lehman Brothers and Bear Stearns shared my same skill level, or lack thereof. But recently I've seen some recovery in my stock portfolio, and I'm finding myself interested again. On the one hand, this is my future I'm talking about. On the other hand, it's all just part of the game of life. And NW-Bound, like you, I never gamble. I go to Las Vegas once a year for the damn film festival!

Tom