72 - Binary Investing Outcomes: How the Coronavirus is impacting stock portfolios
The DIY Investing Podcast · Trey Henninger: Private Investor, Portfolio Manager, Business Strategist, and Value Investing Expert
Audio is streamed directly from the publisher (pdcn.co) as published in their RSS feed. Play Podcasts does not host this file. Rights-holders can request removal through the copyright & takedown page.
Show Notes
- Normal Distribution (Statistics)
- Resulting (Read: Annie Duke's book)
- Efficient Market Hypothesis
If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.
Follow me on Twitter and YouTubeTwitter Handle: @TreyHenninger
YouTube Channel: DIY Investing
Support the Podcast on PatreonThis is a podcast supported by listeners like you. If you'd like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.
You can find out more information by listening to episode 11 of this podcast.
Show OutlineThe full show notes for this episode are available at https://www.diyinvesting.org/Episode72
How coronavirus has modified the distribution of investment returns- Typical investing outcomes - single distribution of possibilities
- High likelihood of a single point of returns (say 6%)
- Low probability of super high returns (>12%)
- Low probability of super-low returns (
- Today's environment has a bimodal outcome for many companies directly impacted by the coronavirus shutdown.
- Instead of a single point of high probability outcomes, we have two center points. (15% and -80%)
- One may be around 15-20% annualized returns, but the other is highly negative and bounded by the zero-based outcome of the bankruptcy of the company.
- "The market has priced it in."
- It is almost impossible for the market to accurately price in a bimodal distribution of potential returns.
Investors today are likely underestimating the potential for bankruptcy of their favorite companies. Regardless of the long-term return of underlying assets, bankruptcy is possible when debt covenants are breached or a negative liquidity event occurs.
Both are possible outcomes in today's investing environment as most companies are not well situated for handling a long period of zero revenues. (Not zero profits, but zero revenues)