The markets $SPX500 opens a little higher today. Same for our portfolio with big gains from $POLY.L and $AGN . Losses from $SWKS $CXO and $PE prevents us, however, from having a great day. As far as $GME is concerned, the stock remains volatile after falling by 14% yesterday.
Is my Portfolio Recession Proof? 🤔
Banks with more than $50 billion in assets are required to run a Stress Test by the Fed every year. JPMorgan Chase $JPM runs hundreds of these stress tests a month. What about us, investors? Should we run stress tests to see how our portfolio will do in a bear market or recession? We should according to Charlie Munger, Vice Chairman of Berkshire Hathaway $BRK.B who says that he always looks at the worst case scenario then reverse engineer it to avoid that.
How will my portfolio do if the market crashes by 50% like in 2008-2009?
Fitbit $FIT and Allergan $AGN won't be affected that much as they will be acquired soon by Google $GOOG and AbbVie $ABBV respectively. That's why it is important to have arbitrage trades in your portfolio, they can always hedge you against bad times.
As for the tech companies in my portfolio, Apple $AAPL , Facebook $FB and Skyworks Solutions $SWKS , they will be harshly hit by a bear market and can fall by more than 60%. Skyworks Solutions may recover the fastest depending on how good the sales of 5G iPhones are.
GameStop $GME will have the worst time during a recession. The stock is already crashing now. Imagine if there is a bear market. But the stock will rebound when the new consoles come out, the Xbox from Microsoft $MSFT and the Playstation from $SNE .
The commodity stocks, Polymetal International $POLY.L , a Russian gold $GOLD miner, and the two $OIL companies, Concho Resources $CXO and Parsley Energy $PE are going to perform the best during a bear market as oil and gold prices usually rise.
Diageo $DGE and Disney $DIS are the two most recession-proof businesses but their stock prices will crash along with the market. We can expect a crash of more than 50% from both of them.
The financial companies $JPM and Travelers Companies $TRV are going to be hit the most falling by 60%.
The maximum that my portfolio will fall is 15% if the $SPX500 falls by 57% like in 2008-2009. This is great. I would have beaten the market. But of course, this is not certain. It is only a test. In reality, this will not happen. And you should also realize that my portfolio is dynamic. I can always take cash from the merger of Allergan and Fitbit to buy stocks at a discount. When oil prices peak, I'll sell my oil stocks.
This is not the only stress test that I did. The key is to make sure that we can lower the risk of a disaster as much as possible.
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You can see how I do Stress Tests for my portfolio on my investment research partnership:
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