“Let’s say you buy a bank—community bank, regional bank—and it goes down 25%,” I pose to Rick Rule in this week’s Session. “What do you do? Take some Maalox or something?” Rule:

If you understand the discrepancy between price and value—which is to say that you think that the price understates the value—and one of the positions is down by 25%… it doesn’t change my decision as to what to have for breakfast.

If the price falls further, if you have the ability to buy more, that’s precisely what you do.
This idea—the double-down—is an interesting one, and could be described as a sort of gambler’s dissolution.

It could also be viewed as incredibly smart, when described in the light of the “time-value of money”; a difficult concept to understand, and one that requires experience and an appetite for risk.

The opportunity arises only in bear markets, when the stakes are high and the threat to lose is real.

“Generally, if you’re looking for yard sale prices, you want to find the bottom,” I press. “How do you judge where we are in the crisis?” Rule, again:

There is this wonderful quote from Bernard Baruch to the effect of: ‘The only guy who ever bought stocks at the bottom and sold at the top was a liar. It didn’t happen.’

Sometimes things just have to be cheap enough. Buffett has famously said that. He said that, ‘Price becomes irrelevant to him if he believes he’s getting a good deal.’ A good deal to him is buying a share for a price that he would buy every share in the company for if he could, and have the stock cease trading.

In other words, it isn’t the price of the stock, it’s the relationship between price and value that matters to him.

This becomes even more of play with brokerages offering the ability to buy micro-shares. That said, those are psychologically very tough parameters. “I’ve tested Buffett’s maxim about buying stocks and seeing them go down, dozens of times in my career,” he smiles. He concludes:

While it hasn’t been pleasant at the time, it’s usually worked out for me over time. I’m beginning to deploy in community banks now… and the fact that I’m beginning to deploy in them almost certainly guarantees that they’re going to go lower, because I’m looking at absolute values, not narrative values.

Bank investors, particularly ETF investors, don’t look at banks, they look at banking.

Michael Burry bought shares in a slew of regional banks last quarter amid the banking crisis fear. “He has been very quiet in recent weeks,” writes the Street, meaning he hasn’t tweeted for a while.

Burry, of Big Short fame, acquired shares of 12 additional companies in the first quarter of 2023. Seven of the 12 are banks. The banking sector now makes up a third of his portfolio.

Whether Burry still holds those shares is unclear; he may indeed have sold them since his last statement. But if he didn’t dump, the great financier is sitting on heaps of unrealized losses. First Republic Bank folded into JPMorgan on May 1, wiping out most shareholder value, for example… Can’t double-down when the price is zero.

So it goes,

Addison Wiggin
The Wiggin Sessions

P.S. Here’s what Bloomberg says about “What it takes to join the top 1%”:

In the US, $5.1 million will get you over the threshold. The findings underscore how the pandemic and surging living costs are widening the gap between rich and poor nations. The entry point for Monaco’s richest is more than 200 times greater than the $57,000 needed to join the 1% in the Philippines, which is one of the lowest ranked of 25 locations in Knight Frank’s study.

We’re not sure “joining the top 1%” is or should be anyone’s financial goal. But it is a popular idea bandied about by people who use the term as if they know what it means.

Better, my opinion, learn the essentials of good investing. You’ll be able to establish your own benchmarks of success. If you are making your goals, you won’t care about how you measure up to other investors. The phrase “top 1%” is a nebulous phrase meant to compare one set of wealthy fortunes against another. But, to our mind, it doesn’t mean anything and isn’t really worth thinking about at all.