I invest almost entirely in broad market index funds. I don’t spend all my time figuring out how to beat the market, and most really smart people who do still get killed half the time. I believe the average person is best off investing with Jack Bogle – betting on the market as a whole, and keeping fees low.
That said I still try to understand what’s driving the market and individual sectors. I was right five years ago about airline stocks. And I suggested many months ago that if you were a vaccine optimist then cruise lines would be a good investment, no matter how much they should be beaten down if vaccines came soon and were safe and efficacious then they’d been beaten up too much. Since we started getting readings from phase 3 trials we’ve seen a pop in those stocks.
Still, I was surprised by the overall performance of the market during the pandemic. I called recession at the start of March and that was correct, when betting markets only gave it a 50% chance. But I also thought the late March drop in stocks would persist. I assume the quick recovery in stocks was driven by the massive liquidity injections from the Federal Reserve (and by other central banks around the world) but there’s also research suggesting otherwise.
What I really don’t understand is hotel chain stock prices. How on earth are the market caps of hotel chains back to just about pre-pandemic levels?
U.S. hotel occupancy in November, by the way, was just 40.3%, down 34.5% year-over-year, with revenue per available room down 52.6%.
The discounted net present value of their future income streams has to be lower than people thought it was at the beginning of 2020, if for no other reason than post-pandemic business travel will be slow to return and some portion of business travel won’t come back at all. The vaccine trade alone can’t explain valuing hotels like the Before Times.
And surely Airbnb’s public offering, coming out with a bang, underscores that there’s more competition for transient lodging than had already been priced in. Airbnb is getting better for short stays, as they’ve pushed contactless check-in. And they don’t even have a loyalty program yet, so there’s still upside in that space alone.
I thought the housing market would collapse and cause a recession – back in 2006. My timing was off by two years. You don’t just need to know the eventual direction of a market to make money, you need to know timing too, or you’ll lose (at least on a relative basis).
I believe hotel chains must be overvalued now, since I have a hard time building a story that explains their return to pre-pandemic levels. But that doesn’t give me any kind of an edge in making money. Even if I’m right, does that mean hotel stocks will fall – or just rise more slowly than they otherwise would have? And even if they do fall, when will that happen? I have no idea. But I still wouldn’t buy them at current prices.