Stock Market Corrections

How long from peak to trough in recent corrections?

Compilation of information about stock market corrections.

A Field Guide to Stock Market Corrections, Joshua Brown {
- 10% drop is a correction,  20% bear market, 50% crash, 80% depression.
- Since the end of World War II (1945), there have been 27 corrections of 10% or more, versus only 12 full-blown bear markets (with losses of 20% +).
- The average decline during these 27 episodes has been 13.3% and they’ve taken an average of 71 days to play out (just over three months).
- From the beginning of the secular bull market in 1982 through the 1987 crash, there was just one correction of 10% or more. Between the Crash of 1987 and the secular bull market’s peak in March 2000, there were just two corrections, according to Ed Yardeni.
}

As of August 2015, the current bull market is about 6 years old. The last time we had such a long stretch was the 5 year run-up to the 1987 crash.

Google Finance graph of 1987 crash

The current correction started July 20, 2015 and is 35 days old as of August 24, 2015.

The CNN Fear & Greed Index is scoring 13/100 (heightened fear) as of August 28th, 2015.

Buy LC, Sell AAPL

I added to my Lending Club (LC) position for the following reasons.
- Quarterly results announced last night beat expectations.
- Guidance raised for second quarter in a row.
- Continued confirmations that LC is the largest online marketplace for peer-to-peer lending.
- I personally because a lender verifying amazing on-boarding process, see article.
- Stock continues to trade 40% of yearly highs.
- LC market cap of ~5.5B$ compared to JPM 255.8B$
 Price: $14.72
 Trade/Portfolio: 0.89%
 Position/Portfolio: 6.31%

 I sold remaining shares of Apple (AAPL) for the following reasons.
- Apple's massive lead is a strong inhibitor to innovation.
- Second generation management won't be able to make tough decisions when necessary.
- Lack luster sales of iWatch beyond Apple groupies.
- Saturation of iPhone makes growth difficult to sustain.
- Ubiquity of iPhones creates desire for "something new" in youth segment.
- Apple crossed below 200-day moving average.

Price: $112.33
Trade/Portfolio: Closed position
Gain: +38.67%

Lending Club, Death Dive or Buying Opportunity?

Lending Club (LC) stock has been getting pummeled over last six months. LC is underperforming the market and the other big banks like JPMorgan. Is this a buying opportunity or a dive into oblivion? Here is what I found...

Renaud Laplanche, CEO of LC is doing a lot of sailing these days but it appears to be for the right reasons. See Spotlight on Renaud Laplanche. 

Goldman Sachs has announced it is entering the peer-to-peer lending space. Some see this as trouble for LC, as if Lending Club will have a hard time competing with Goldman Sachs. Bullshit. Goldman Sachs is the greatest investment bank on the planet but that doesn't make them a great retail lending operator. This only proves there is giant money to be made in disrupting the banking sector.

Jamie Dimon of JPMorgan recently alerted shareholders in his latest annual letter that “Silicon Valley is coming” to the lending industry. JPMorgan paid a $13B fine to the United States or America with petty cash. More proof that disrupting the banking sector is a huge opportunity.

Barrons published on article entitled Lending Club and On Deck Stocks Too Rich to Buy on June 6, 2015. See excerpts below with {my comments}.

“We plan to enable about $7.6 billion in loans this year,” says Lending Club CEO Renaud Laplanche. “That’s essentially as much as our past eight years combined.”

Even investors who don’t mind paying crazy multiples for a fast-growing Internet business like Lending Club should step to the sidelines as the IPO lockup—the period in which insiders agree not to sell their stock—expires for most shares on June 9.  {If you are long on LC then the end of a lock-up period is a gift from God, not a reason to "step to the sidelines".}

The “peer to peer” lending style of sites like Lending Club is analogous to Uber’s matching of independent drivers with riders. {Uber's market cap is $40B disrupting cabbies, compare that to disrupting bankers.}

A pure marketplace like Lending Club makes money by charging borrowers an origination fee of 1% to 5% of the loan amount and by charging investors a fee of about 1%. {Calling this a "pure marketplace" means it will tend to a winner-take-all. As mentioned in the same article, LC is the "largest lending outfit". Numerous articles confirm that LC is the 800lb Gorilla in the peer-to-peer lending space. If LC continues to dominate the space, they could surpass the market cap of the incumbents like Chase JPMorgan in the not so distant future. Considering JPMorgan has a market cap of over $250B and LC is hovering around $5B (3jul15), that's a lot of upside potential.}

Most importantly, I invested $10k through Lending Club this morning.  I chose a basket of over 100 loans with an estimated yield of over 8%. The entire process took me less than 10 minutes. Are you f'in kidding me? That's amazing!!! 

Finger is on the trigger and twitching...

Spotlight on Renaud Laplanche, CEO of Lending Club

Lending Club (LC) stock is down about 45% from its high (30jun15). Is it a sell signal or a buying opportunity? A lot will depend on how Lending Club's CEO navigates the company through these troubled waters.  

"In the wee hours of April 19, Laplanche was skippering Lending Club 2, his 105-foot maxi-trimaran, on a 635-nautical-mile journey from Newport, Rhode Island, to Bermuda. The goal: to break the speed record for one of ocean sailing’s marquee courses...

It’s also quite a change from Laplanche’s day job running Lending Club, which he founded in 2006 and took public in December in the largest Internet IPO of 2014...

Laplanche grew up in Hyères, a small French town halfway between Marseille and Nice that’s known as a sailing destination. He began the sport when he was 7. By age 12, he began sailing on an Optimist. His parents sent him to a special school where he attended classes three days a week and sailed the other four. By age 15, he began racing, and three years later he won his first national competition. Two years after that, once Laplanche had won a second French national title, he faced a decision: to train for a spot in the 1992 Olympic Games in Barcelona or go to law school.

“I chose law school,” he says with a smile... {ouch, -1}*

Laplanche attended law school in Montpellier and two elite business schools, in Paris and London, before landing a job at the U.S. law firm Cleary Gottlieb Steen & Hamilton, in its Paris office, where he specialized in mergers and acquisitions and securities. In the late 1990s, with the dot-com boom in full swing, the firm sent him to New York. Like many others at the time, Laplanche caught the entrepreneurial bug. He founded a software company called TripleHop Technologies, which Oracle acquired in 2005. {quitting law to start a company +4} 

Shortly after, Laplanche moved to Silicon Valley to work for Oracle but quit a year later {I worked at Oracle, it was evil +3}, planning to take a sabbatical. Instead, he started Lending Club." {would rather start a company than lie on a beach +5}

Source: Forbes 16jun15

* {my comments}

Buy Lending Club (LC)

I added to my Lending Club (LC) position for the following reasons.
- The end of the lock-up period was June 9th so selling is artificially high.
- Upgrades at Morgan Stanley and Pacific Crest.
- No change to Lending Club's position as 800lb Gorilla of peer-to-peer lending.
- CEO Renaud Laplanche appears to be workaholic and investing heavily in long term.

Price: $17.37 
Trade/Portfolio: 1.12% 
Position/Portfolio: 6.70%

Buy India Fund (IFN)

I bought India Fund (IFN) today for following reasons.

- India has underperformed other emerging markets for several years, making purchase price attractive.

- Election of Modi in May 2014 on economic modernization platform. BJP's majority in Lok Sabhaon has facilitated passing budget, renewable energy projects, high speed rail project and reforms to help middle class purchasing power.

- India surpassed China as fastest growing economy last quarter which should unleash national pride and motivation.

- Friend who has worked in India for 10 years confirms enthusiasm is palpable. "People are going out more, restaurants are packed, they are buying cars and houses. Haven't seen this kind of optimism for years."

Price: $27.385 / share
Amount: 2.78% of portfolio
Position: 7.98% of portfolio

Buy FB, Buy LC, Buy IFN, Sell ITB

Buy Facebook $75
+ Dominant player, "7 footer" in Buffet speak
+ Zucherberg has long term perspective
+/- Teens leaving (93% -> 88%) Facebook are going to Instagram (+25%), because...
+ More parents spending time on Facebook
+ If Facebook does search for products right it will be a huge revenue stream

Buy Lending Club $21
+ Down 30% in 1 month without any bad news
+ Appears to be forming a low
+ Awesome prospects for disrupting the incredibly profitable banking sector

Buy India Fund $28
+ India now the world's fastest growing economy, surpassing China
+ Early innings of a long bull run
+ Indians voting for financial reform, Modi delivering

Sell ITB
+ Housing run in the late innings
+ Unemployment already low 5.7% so waning potential for improvement
+ Rates are low but probably will move up in mid-2015