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Forget Quick Recovery, Expect 30% Drop Before Market Finds Bottom, Says Satori's Dan Niles

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Forget Quick Recovery, Expect 30% Drop Before Market Finds Bottom, Says Satori's Dan Niles

Dan Niles, founder and portfolio manager of the Satori fund, says the market may drop another 30% before it can find a bottom. 

Damage From COVID-19 Hidden

Satori, a US-focused, technology biased, large-cap fund closed in the green even when the Dow Jones Industrial Average had its worst-ever quarter.

MarketWatch cited Niles’ February letter to investors in which the fund manager revealed he was “increasingly worried” that global central bank accommodative policies were hiding the damage that COVID-19 is causing the world economy.

History Sets Precedents

Talking about a major drop from present levels, Niles points out that valuations are well above historical norms, even after a pullback. The market has “sold off about 30% or so” nine times since the 1920s, so it’s “pretty normal,” according to the portfolio manager.

Advising prudence, he says, “You get one of these every 10 years or so and if you look at every one of them, you always get these bear market rallies.”

Nowhere Near A Bottom

The bottom is not in sight yet, “Just to get to average, you would have to have the market go down 30%.” He added, “It is very easy to figure out the market probably goes down 30% before we’re even near fair valuation.”

V-Shape Recovery Is Laughable 

A quick recovery is improbable, according to Niles, “I sort of laugh when I hear people talking about a V-shaped recovery because we are going to have at least 10% unemployment, my guess is closer to 20% before all of this is said and done.” With so many people left unemployed in the United States and elsewhere, it is unlikely there is an easy way out. 

Heavy On Entertainment

Niles is focussing on stocks, which he believes will survive the next sell-off.

His favorites are Activision Blizzard Inc. (NASDAQ: ATVI), a standalone interactive entertainment company, Take-Two Interactive Software, Inc. (NASDAQ: TTWO), a video game holding company, and Amazon.com, Inc. (NASDAQ: AMZN).

He says to be adding positions in these companies and going long on these stocks.

 

Related Articles (AMZN + ATVI)

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