The Best Sources of Investor Information

Markets are, as yet, unhealed from the devasting rout of 2022. News continues to be frustrating regarding inflation, the Russia-Ukraine war, computer chips and covid in China, uncertain November elections, and the likelihood of recession. But rather than double-down (triple?) on my dreary prattle, I thought I would freshen the feed and give you something you might actually be able to use: Homework! Who doesn’t love homework?

 

Most folks who think they know what I do for a living assume I’m a financial analyst of some kind, as most stock market types we read about or see on TV are numbers people. They pore over balance sheets and income statements, they study charts and generate multi-page spreadsheets and create pivot tables (still don’t know what those are) to discern whether a particular stock will continue on the downslope or rise in the coming months. 

 

I do precious little of that. I really don’t study the numbers and I almost never create spreadsheets; if I looked primarily at the numbers I’d see only what happened last quarter, and what they hope will happen next quarter. Instead, I study the businesses: their brands, their product lines, their executives, their regulators, their challenges, their competitors. Are they coming out with a brilliant new service? Do they possess a significant competitive advantage— a wide ‘moat’? How loyal are their customers? Are they working through a reciprocal deal with another business? Are there more or less of their products on the street, or in the store? I’m trying to see around the corner and down the next block. I want to what will happen over the next 10 years. 

 

To do that I read a huge volume of business news, market news, economic news, political news, even pop culture news. I read reports and articles from analysts, the opinions of seasoned investor-columnists and the recommendations of financial consultants. I read business origin and growth stories, and profiles of founders and executives. I want to see that a business is thinking long term, as I am, and is increasingly dominant in its industry and against its competitors. 

 

But where do I find all this information? Here are my sources:

  

The Motley Fool is a stock and financial advisory based in Alexandria, VA. They are not a brokerage or money manager; instead they will guide your investing with an eye towards the longest of long terms— which is the only kind of financial advice you want. Despite the goofball name, they are very serious and extremely talented. Their analysts provide in-depth reporting via detailed business stories and company updates, and they will routinely recommend specific courses of action. I am a particular proponent of the brief daily podcasts, such as Motley Fool Money. Much of their content is free with ads, but subscribing to just one of their more specialized investor services will kick open their doors to you for nearly all the rest of their content.

The Wall Street Journal. The gold standard for financial news, economic news and in-depth investigative journalism around businesses and business leaders. Most of their content is behind a paywall, but there are always 1- or 2-year specials available to new subscribers. WSJ also has a free daily morning briefing email, The 10-Point, in which you can read the headlines for an overview, or click through to stories (usually behind the paywall).

 

The New York Times. While business and finance are not the Times’ first concern, there is simply so much useful content, not only about the markets, that it’s simply indispensible. Again, much is behind the paywall. But the NYT is the first stop for prime ministers, presidents, queens and despots, as well as the leaders every field of private and public enterprise. The Times also offers several daily emails of curated headlines and story summaries which I find invaluable; check out Andrew Ross Sorkin’s DealBook, and sign up here.

 

Bloomberg is another news source I can’t praise highly enough. Sure it’s aimed at Wall Streeters— but with to-the-point news updates, profiles, merger explanations, financial opinion columns, global business perspective and broader market news divisions provide a succinct and relevant perspective on what’s happening and what it means. Like the publications above, Bloomberg also has several highly readable and digestable daily and weekly email overviews. Again, much content is behind the paywall. But if you asked which financial media outlet was more critical to my work, Bloomberg or the WSJ, I’d have a tough time answering.

 

Yahoo! Finance offers bar none the best compilation of financial news available at any price. Yahoo offers broad stories about the global economy and tiny news items featuring small-cap public companies, and everything between. You can find real-time stock quotes, click through to full articles across dozens of source publications, examine millions of customizable charts and tables, even find up to date balance sheets and cash flow statements from any public company. It’s all here— and it’s free (advertising-supported, so be ready). 

 

On top of those sites I check regularly, I get about 10 daily emails with business news and market updates. I mentioned some above, but I also subscribe to a handful of blogs— some of which have their own daily email updates— written and curated by some of the best (and most conscientious) minds in finance today:

 

Abnormal Returns, by Tadas Vinskata, the primary function of which is to collect and disseminate links to smart, interesting financial articles from across the web every day. There is always something here I want to read that I wouldn’t have found otherwise.

 

The Irrelevant Investor is written by Michael Batnick of Ritholtz Wealth Management. Intelligent short takes and occasional deep dives on the economic and market news of the day. Michael loves dissecting charts.

 

Downtown Josh Brown penned by Batnick’s colleague at Ritholtz, Josh Brown, is a real-world perspective on markets, the economy, business news, professional money managers, investing habits and sometimes his own shortcomings. It’s on-point, relatable, sharp and eyes-open.

 

Morgan Housel, at the Collaborative Fund, writes a weekly blog post to interpret investing and economics in light of human psychology. It’s like nothing I’ve ever seen. Morgan is simply one of the finest financial writers working today, taking complex subjects and boiling them down for readability and comprehension. I’ve also found his first book, The Psychology of Money, to be an addictive read. You want to be a better investor, you want to understand your own habits and patterns around money? Read Morgan’s book.

 

Yes, that’s a lot to read. Don’t try to tackle it all; maybe every day pick one source, or even one story, which piques your interest. Investing is a marathon, a habit developed across a lifetime. Learning and growing is a part of that, but there is no rush. Develop good practices and keep them up. Stretch yourself, slowly.

 

As always, reach out to chat about reactions, thoughts, ideas, questions. I’m around and love to talk shop.

 

A Dreary and Fearful Down Market Stumbles On

Last I wrote you, all our favorite stocks were way, way down since late 2021. Russia was tearing down Ukraine and its people. China was on the rise, but Covid was still wreaking havoc on supply chains. Inflation was coming fast, and Americans seemed anxious about … well, everything.

Little has changed.

By and large, the major indecies haven’t declined much further. The S&P500 is still down about 20% year-to-date, and the Nasdaq is -27%. I’m down quite a bit more because I generally have a tech-heavy portfolio and am overweighted on a number of businesses, a few of which have dropped as much as 70% since last fall. 

Inflation has arrived and now dominates our news cycles— at least until New York tops 100º for several days, as is happening right now in the UK. Then we’ll swing back to talking about global warming and, predictably, why Congress hasn’t done anything about it. (Spoiler: because Congress can’t do anything).

It appears investors are waiting to see what will come next. A number of economists and market analysts would say we are in fact already in a recession, albeit a relatively mild one featuring strong employment and surging corporate profits. Consumers are still buying, but real estate may have peaked, many companies are carrying too much costly inventory, and a number of critical industrial and manufacturing components remain in short supply. Add in constantly retreating and resurging coronavirus variants, and where it all goes from here becomes anyone’s guess. 

So as before, I urge you to largely stand still on your portfolio. Don’t sell now, you’ll be locking in big losses. Should you have cash you don’t need for the next couple of years, stock prices remain low overall and opportunities abound. Picking up a few shares of a big index like an S&P500 ETF would be even safer. But be conservative if you’re buying: accelerating into recession would mean markets continue to fall— though considering how far many stocks have dropped in the last 10 months, I suspect we won’t see huge additional declines. Could happen, but at current prices you’d still be getting a decent deal over the long long term. If, like me, you do not have excess cash, try to just wait all this out. Eventually we’ll know more and some Wall Street types will decide the deals are just too good to ignore, they’ll start buying strong businesses with beat-down valuations, and markets will begin to climb back up. Eventually. 

In the meantime go outside enjoy your summer. Don’t sweat the red in your portfolio— remember, you weren’t planning to use that money for years. Markets have to go down (risk) to justify those big gains we’ve become accustomed to. This is all a part of it.

Below I’ve copied an excellent recent piece from the Wall Street Journal. Sound advice we all need to hear from time to time.

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What Smart Investors Do in Bear Markets

Since you can’t predict the unpredictable, try to control the controllable

Jason ZweigJuly 8, 2022 11:00 am ET

Part of what makes bear markets so unbearable is that nobody—and I mean nobody—knows when or how they will end. 

That doesn’t stop everyone on Wall Street from flogging measures, hunches and folklore purporting to foretell when stocks will finally stop falling.

However, intelligent investors don’t bother trying to predict the unpredictable; they focus on controlling the controllable. That’s the psychological key to surviving this—and any—bear market, no matter how long it lasts.

To see clearly why it’s so important to get your priorities straight, let’s look quickly at three beliefs about when bear markets end. 

Ask any market veteran when stocks will start to recover, and you’re likely to hear something like this: Bear markets don’t end until individual investors throw in the towel, fear hits new heights or stocks finally get cheap again.

Taking each in turn, here’s why they’re myths. 

Retail investors have to capitulate. Financial professionals love to argue that bear markets hit bottom when individual investors give up on stocks in a crescendo or “capitulation” of panic selling. 

Only trouble is, that isn’t what happened in 1932, 1974, 1982 or 2002, among many examples. Bear markets sometimes end in a selling frenzy, but they often end in an indifferent stupor. 

Fear has to spike. Many professionals contend that the Cboe Volatility Index, or VIX, is “too low” right now, says Nicholas Colas, co-founder of DataTrek Research, an investment newsletter in New York. 

The VIX, commonly called Wall Street’s “fear gauge,” spiked to then-record highs in October 2008, during the global financial crisis—but stocks still fell more than 19% before the bear market finally ended in March 2009.

“When markets are trying to reprice their expectations of the future, they only nibble away at that truth,” says Mr. Colas. No single indicator like the VIX can capture the moment when those expectations are about to shift.

Stocks have to get a lot cheaper. Many investors believe bear markets end only after formerly overvalued stocks finally become bargains again. 

It just isn’t so.

In March 2009, in the pit of the global financial crisis, stocks traded at more than 13 times their longer-term earnings, adjusted for inflation, according to data from Yale University finance professor Robert Shiller. That was only about 20% cheaper than the average all the way back to 1881. 

Although stocks didn’t seem like a statistical bargain at the time, they went on to gain roughly 15% annually over the next decade.

All this shows the folly of trying to figure out when stocks have hit bottom.

So you should distinguish what you can control from what you can’t. Instead of wasting your time trying to read the market’s tea leaves, take charge of the risks you run, the taxes you incur and your investing time horizon.

Being a buy-and-hold investor doesn’t obligate you to use a death grip. If some of your stocks or funds have performed abysmally in this downturn, you can sell them and reap significant benefits.

First, selling extreme losers will reduce your risk—and your anxiety about further losses in the future.

You probably regard your losers as liabilities because they can be so painful and embarrassing. In fact, you can readily turn them into assets.

Dumping your most dismal investments should enable you to book a loss. You typically can use this to offset capital-gains taxes on investments you sell at a profit, either this year or in later years. 

As markets react to interest-rate hikes and the threat of a recession, stocks are dropping closer to bear-market territory. WSJ’s Gunjan Banerji explains what it takes to push stocks back into a bull market and why it’s hard to predict when they’ll turn around. Illustration: Jacob Reynolds

You can also deduct up to $3,000 of those losses each year against your ordinary income, carrying any losses in excess of $3,000 forward to use as offsets against your taxable income in future years.

Another decisive step investors can take in a bear market is to consider converting a traditional individual retirement account into a Roth IRA.

In a Roth, your assets can grow without being currently taxed, just as in a traditional IRA. But withdrawals from a Roth are also tax-free, unlike in the traditional account, where your payouts are typically taxed at your ordinary-income rate.

That means a Roth could make sense for you if you expect your tax rates to be higher in the future. 

The value of an IRA converted to a Roth “can blossom over time without any tax liability,” says Amy Barrett of Barrett Wealth Connection LLC, an investment adviser in Spring Grove, Ill.

You can also pass a Roth IRA to your heirs, who will be able to own and withdraw from it tax-free, effectively extending your investment lifetime for some years beyond your own.

Normally, the deterrent to converting a traditional IRA to a Roth is that the conversion is taxable at your ordinary-income rate. 

Now that so many investments are down 10% to 20% or more, however, the amount on which you will be taxed is significantly lower, points out Melissa Labant, a tax principal at CLA LLP, an accounting and professional-services firm in Arlington, Va.

A Roth conversion is definitely not for everyone, though, and it can raise complicated tax technicalities. Make sure you walk carefully through all the implications with your accountant, tax adviser or financial planner before you pull the trigger.

So forget about squinting into a crystal ball to try figuring out when the bear market will end. Instead, control what you can.

Write to Jason Zweig at intelligentinvestor@wsj.com

"Average Investors Should Try and Time Markets. Just a Little."

It doesn’t mean going all in or out but rather tweaking allocations in response to telltale signals. 

Novice investors are constantly told to never – never! - time the market. Just buy and hold stocks, dollar-cost averaging over time. That is good advice. I know some novice investors who have done very well through various economic cycles, buying stocks in both good and bad times – especially the bad times. They have unshakable faith that the market will always come back. If you didn’t have such faith, you wouldn’t be able to invest in this fashion. 

I am a professional investor and have timed the market with some success, but not too much because it is very hard to do. But I think novice investors should attempt to time the market once or twice in their investing careers. Sacrilege, I know. I’m not talking about getting totally in or out of the market, but rather about making changes in asset allocation that have the potential to boost returns substantially over time.

Here is how it works. Imagine you have your money in index funds in a traditional 60/40 portfolio. That means 60% in a stock index fund and 40% in a bond index fund. The moment when you are feeling the most ebullient about your portfolio, when it seems like it’s going up most every day and you can’t believe how much you are making, that is the point at which you want to adjust your stock allocation down to 50%.

A friend of mine, Brent Donnelly, president of Spectra Markets, calls this “The Cheer Hedge.”  It was from his days working on a foreign-exchange trading desk where he observed that the moment someone made a lot of money and started high-fiving others was the moment at which the position stopped working. If at the moment you were happiest about your investments you reduced risk, you would probably come pretty close to getting out of the market at the highs. When you feel the urge to tell everyone how much you are making is usually when the piano is about to fall on your head. This would have worked exceptionally well during the dot-com bubble and 2021.

Likewise, when you are feeling the worst about your portfolio, when you have abandoned all hope and are considering just liquidating everything to stop the pain, it is probably time to be taking more risk. If you increased your allocation to stocks from 60% to 70%, you would have more exposure when the market inevitably rallied. During the depths of the financial crisis, if people increased risk rather than liquidated, they would have been much better off today.

For example, in a year when stocks return 15% and bonds return 5% in a 60/40 portfolio, the blended return would be 11%. By adjusting the stock portion up to 70% and bonds down to 30%, the return rises to 12%. A small, but noticeable difference. Of course, in the early days of the post-financial crisis market, equity returns were much higher, with the S&P 500 Index gaining 23.5% in 2009. Alas, many missed out on such gains. Surveys by the American Association of Individual Investors showed that most novices only had 41% allocated to stocks at the time.

Financial advisers say it’s impossible to time the market, but it really isn’t. If you can sense big turning points in sentiment, you can make subtle changes to your asset allocation and increase returns over time. But it requires people to go against their intuition, which is hard because when people feel good about their portfolio, they usually want to buy more stocks, and sell when they feel terrible. Humans are hardwired to be terrible investors. So, if you were to do the opposite of what your instincts told you, you would probably be better off.  This is not heretical advice. The legendary Warren Buffett has often said to be a successful investor once must be fearful when others are greedy, and greedy when others are fearful.

Some people might interpret this advice as a license to trade actively, but it’s not. I’m talking about extremes in sentiment that happen only about once every 10 or 15 years. One of those came in the first half of last year, when meme stocks were spinning off into space and crypto millionaires were being minted by the thousands. You can monitor magazine covers and the like, but the best way to gauge sentiment is to talk to your neighbors. If they tell you they’re making or losing haystacks of cash in the market, it’s probably time to tweak your portfolio.

This latest downturn in the stock market would not qualify as an extreme in sentiment - at least not yet. We need to get to the point where people believe that the economy is going into a depression and the stock market will go to zero, and it doesn’t feel like there is any sort of mass capitulation happening. Sure, the latest AAII data shows the percentage of bulls hanging right around the lowest levels of the last 30 years, but it’s also notable that Cathie Wood’s flagship ARK Innovation ETF – seen as the pandemic era’s ultimate barometer of investor exuberance - has posted its longest streak of weekly inflows in over a year.

The point isn’t to pick tops or bottoms with precision; the point is to take a little less risk when others are taking more, and vice versa. People try to accomplish this in different ways, such as by studying things like valuations or charts, but the best method is by using sentiment. Novice investors have a voice in their heads that tells them to do the exact wrong thing at the exact wrong time. If you can step back and have some self-awareness of your own emotions, that is what produces outperformance in the long run.

Jared Dillian,

June 28, 2022

Jared Dillian is the editor and publisher of the Daily Dirtnap. An investment strategist at Mauldin Economics, he is author of "All the Evil of This World." He may have a stake in the areas he writes about. @dailydirtnap

Are you more like Warren Buffet or Cathie Wood? Or neither?

 

Happy Sunday and Happy Father's Day. Tale of the Tape: Warren Buffett and Cathie Wood Last Monday, the S&P 500 nearly took the rarest of tumbles. Every single one of the 504 stocks on the index was trading in the red. Only once since 1990 had such a uniform drop lasted to the end of a trading day.   The painful trading session acted as a microcosm of markets in 2022 — just about everything is down.   Stock picking can be a nightmarishly tough game, even in the best of markets. This year, scrutiny on the financial world’s most famous quasi-celebrity stock pickers has reached a fever pitch. Perhaps no two names are bandied about more than Warren Buffett and Cathie Wood.   They are two wildly different and uniquely successful investors. One is an old-school stock-picking legend, a sage Nebraskan who still lives in the modest Omaha house he bought in 1958 and has a fondness for railroads, utilities, and his beloved Dairy Queen. The other is a tech-savvy Californian, an investor in bleeding-edge innovation who uprooted her Wall Street fund from its Manhattan digs to sunny Florida last year.   Many place them on opposite poles of the investing spectrum, but their influence is so profound that analysts often cite their portfolios as economic indicators. And that’s what we’re looking at today — a tale of the tape between two heavyweights, why they inspire dedication from fans on par with Justin Bieber, and how their investing strategies led them to fame.   A Trip to the Buffett Warren Buffett, as you probably know, is considered by many to be an investing genius. Tens of thousands of people — fans — flock to Nebraska to attend the annual general meeting of his company Berkshire Hathaway for the chance to hear Buffett, and his straight-talking lieutenant Charlie Munger, pontificate on the state of markets. One fan, in particular, agreed to pay $19 million this past weekend just to have lunch with Buffett, a record for a charity auction he has held since 2000. Buffett, whose high school yearbook entry presciently called him “a future stock broker,” was born in Omaha in 1930 into relative privilege — his father was a four-term US congressman. But he built his business empire through sheer hard work. After selling chewing gum and magazines door-to-door as a kid in the 1940s, he and a friend in high school bought a used pinball machine and put it in a barbershop. They used the earnings to buy more machines, put them in other salons, and then sold the business for $1,200 in 1947.   By 1962, after graduating from the University of Nebraska and Columbia Business School and forming three investment partnerships, he was a millionaire. Over the next few years, Buffett used his various investment vehicles to take out soon-to-be-lucrative stakes in American Express and Disney, the latter after a personal meeting with Walt himself. He also built up a 29% stake in a floundering textile business called Berkshire Hathaway, which he advised to start taking out positions in the insurance industry. In 1970, he became the company’s chair and CEO. The rest, of course, is history: With holdings in everything from batteries to undershirts to diamonds and private aviation, Buffett’s empire is a $600 billion behemoth that serves as a barometer for the overall US economy. And he keeps finding success: In the twelve months ending in March 2022, Berkshire generated $276 billion in revenue, marking the second consecutive year of 12% or better year-over-year growth from the company’s core business — plus $78.5 billion of additional investment gains from Buffett and Munger’s steady bets like Bank of America, American Express, and Apple. Knock on Wood Like Warren Buffett, Cathie Wood has superfans, but rather than flocking to rockstar-style AGMs they express their love at a different venue: Reddit, Twitter, and TikTok. The CEO of Ark Investment is one of the most popular investors among retail traders on social media, and her strategies have probably launched more memes than the Marvel Cinematic Universe. But Wood’s path to being at the vanguard of online, tech-savvy investors followed a conventional Wall Street pattern… until it didn’t.   Born a generation after Buffett in Los Angeles, Wood graduated from the University of Southern California in 1981 after studying economics. By age 25, she moved to New York to join the investment shop Jennison Associates as chief economist.   In 1998, Wood took on the role of active investor, co-founding the hedge fund Tupelo Capital. In 2001, global asset firm AllianceBernstein named her chief investment officer of global thematic strategies, and she oversaw $5 billion in assets. And then, in 2012, the epiphany came.   Wood was inspired to start a firm of actively managed exchange-traded funds (ETFs) focused on disruptive innovation. The idea was to create an investment vehicle that harnessed the potential of high-growth companies and use ETFs — which anyone can buy like a stock — to make it accessible to everyday investors. AllianceBernstein thought it was too risky, so Wood left, put $5 million of her own savings into the venture, and Ark Invest was born.   The rest, of course, is (recent) history: By 2020, a Bloomberg News headline dubbed Wood the "best investor you've never heard of," with Ark taking significant stakes in growth-focused stocks like Zoom, Roku, Square, and Shopify. The ETF share price increased over 300% in the 11 months from March 2020 to February 2021, peaking at $152 per share. As of May, Wood’s flagship ARK Innovation ETF had $14 billion in assets under management and has become a barometer for high-growth sectors of the economy after Wood placed smart early bets on firms like Tesla. But 2022 has been a different beast entirely for the growth-focused tech firms populating Wood’s funds, testing the faith of die-hard Ark believers.   Fork in the Road In the two years leading up to this year’s market downturn, Buffett’s Berkshire and Wood’s Ark ETF performed surprisingly similarly, despite their radically different investment approaches. Both delivered returns of roughly 35% in the 24 months leading to January.   But then the economic picture flipped. Interest rates started to go up, inflation crept up (more like shot up), and the global economy was done no favors by the war in Ukraine and a new round of Covid lockdowns in China. Suddenly, Buffett’s value investing approach, where a company’s fundamentals and a solid margin of safety matter above all else, was in vogue once again. Meanwhile, Wood’s strategy of concentrating on innovative tech firms focused on growth at the expense of profits —  which thrived during the era of ultra-low interest rates — was exposed to an economic storm: Berkshire Hathaway, down just 6% this year, has weathered that storm. The S&P 500, down 21% on the year, has flirted with bear market territory in recent weeks. The Ark Innovation Fund is down 57%. Arks’ $14 billion may be a fraction of the $40 billion it had in March, but Wood’s war chest is still on par with major hedge funds like Bill Ackman’s Pershing Square. Investors are also keeping the faith: Wood's nine ETFs at Ark brought in $167 million worth of capital inflows this year, according to Bloomberg. Can History Repeat? Wood, for one, sure hopes so. In the early 1980s, while still at Jennison, her bosses would bring in leading economists like Henry Kaufman — who believed the double-digit interest rates and inflation of the time were there to stay — to debate Wood, who thought interest rates had peaked.   Flash forward to earlier this month, when Wood said huge inventories now piling up at US companies after months of supply chain disruptions suggest inflation is ready to die down (retail giant Target cut its profit outlook twice recently, citing too much inventory). She’s also doubled down on the pandemic tech darlings that helped burnish her reputation as an investor — in April, Wood bought over 100,000 shares of e-commerce firm Shopify, 330,000 of Zoom, 740,000 of gaming site Roblox, and 575,000 of streaming device maker Roku after the stocks plummeted.   So Who’s Right? Whether Wood can recapture the spark of the last few years remains to be seen, but her commitment to innovation remains admirable (or admirably stubborn, depending on your view).   Take earlier this year, when Buffett said he believes Berkshire’s railway investments, namely its ownership of BNSF Railway, the largest US railroad by revenue, “will be a key asset for Berkshire and our country a century from now.”   But Wood's Ark Invest sees the railroad business differently. Ark published a “Bad Ideas Report” which included freight rail investment — and argued autonomous electric driving trucks were the future of shipping goods.   And, while it may be Wood who is down now, Buffett has been there before. Berkshire has taken its fair share of bitcoin-sized tumbles over the years. In 1999 just as the internet economy was emerging in full force, Berkshire’s stock was down 20% and the Oracle of Omaha’s beloved S&P 500 up the same amount. A Barron’s article famously asked “What’s Wrong, Warren?” and quoted an internet forum user who called Berkshire a "middlebrow insurance company studded with a bizarre melange of assets, including candy stores, hamburger stands, jewelry shops, a shoemaker and a third-rate encyclopedia company the World Book."   Buffett had the last laugh in that case, but it wouldn’t be his last tumble. Nor, would a reasonable market watcher say, that Cathie Wood’s current setback is likely to be her last.   Who will be right? In their own way, both investors are playing the long game. We’ll just have to check back in 100 years. Written by Sean Craig

Market Rout 2022

Well, I’m certainly not enjoying this. Today my portfolio fell another 6%. That means I’m down about 40% for this year so far, nearly twice as bad as the S&P 500. Is that worse than yours?

 

Hey folks. An update on market conditions, investment status, and general support.

 

This has been a terrible year for nearly every investor. Speaking for myself, my portfolio is now beaten down to a place I last saw in early April 2020. Two years of research, of analysis, of frugality to make funds available for investment, and of difficult decision making— all wiped out in a few months. This is a brutal experience requiring both grit to stay the course and self-care to soothe the pain. 

 

2022 is why we invest for the long term. It is why we only put money into stocks (or ETFs or bonds or funds) which we can live without for as much as 5 years: sometimes it falls and has to claw its way back. Remember that money in the market is meant to someday pay for your children’s college, or a far-off dream vacation, or seed a second career, or for your retirement.

 

But I expect that right now you have serious doubts. You’re reconsidering your decision to have ever invested at all. You want to ‘rescue’ your money, to salvage what’s left of your portfolio. I know, because I feel that pull too.

 

As fearful and frustrated as we are, however, we don’t know what’s coming. We can only suspect, with history as our guide. I suspect that 2022 is the forest fire which clears the deadwood and creates fertile soil for new growth. If you sell now, all that ugly red in your portfolio, which represents lost value, becomes actual realized losses. You take a big hit, but then you’re out and you think you’re safe. But with inflation nearing 9% annually (the worst since the early 1970s!) you obviously can’t just put your cash into savings; if you just piggy-bank your money today you would literally be losing nearly 9% of value every year. So investing is necessary to even try to stay even, never mind build a future.

 

And what if the market doesn’t continue to fall? What if things level out next week, if we begin a long slow climb back? If you’ve sold your stocks, when will you feel confident enough to buy back in? How much of that eventual market rise will you miss because you’re on the sidelines waiting to be certain?

 

Timing the market is throwing darts at a moving target. You better have perfect aim because you’ll have to be right twice: Right about when to sell, and right a second time about when to buy back in.

 

Instead, reassess your holdings: remember that the stock price is merely a momentary measure of the resale value of one share of a company. Is there something fundamentally wrong with that business? Are sales falling? Is your business being outmaneuvered by a competitor? Losing executives left and right? In legal or regulatory trouble? Making seemingly bad strategic decisions? Or is it just that the value has dropped for no clear reason specific to the company?

 

Staying put requires serious fortitude, no question. But do you know what’s even harder? Being greedy when others are fearful: recognizing that if the stock is down, it might represent a tremendous value looking forward. Deciding to buy deeper into the company at a time like this— now that’s hard. What would a truly great investor do?

 

It's Worse Still

 What a year 2022 has been so far. 

To be clear: I of course do not know if we’ve hit market bottom. But after the last several days of very harsh, near-panic selling across nearly all industries, today was a small bounce the other way. I really don’t think these conditions will last much longer. 

“Be fearful when others are greedy, and be greedy when others are fearful,” Buffett says. So I’m getting greedy and doing some bargain shopping. 

Shopify, DocuSign, PayPal, Moderna, Block (Square). What do these businesses have in common? Each is a hot tech business which leads or co-leads its industry; each offers a low-cost/low-debt operating structure; each is highly profitable. Most are household names, established brands with loyal customers. And as of end-of market today, May 10, they’re all over 70% below their 52-week high price. Shopify is 80% down. So even if these names were overpriced before— even if they were priced at double their ‘real’ value last year— then they’re still at a substantial discount today.

Moving down the list a little, there are more excellent businesses at clearance prices. Match.com, Nvidia, Ford, Volkswagen, Salesforce, Adobe, and AirBnB are known, firmly-entrenched market leaders. They are all profitable, growing, and capably run. And they’re all priced at 40-60% off their 2021 market highs. 

Have a taste for more risk? Netflix is off 75%, and Zoom is off 78%. I’m not a huge advocate of either at the moment, but neither do I think there’s anything fundamentally wrong with them and I don’t think they’re going anywhere.

Given what’s happening, buying shares in almost any business right now feels very very scary. What if the price continues to fall? What if these companies don’t turn it around? What if, because they’re so cheap, they get absorbed by another, larger business? The process of stock investing is never smooth, never easy. But if we lean into value when things look grimmest, facing down our fear of loss, and we are patient— the hardest thing to be— then we are rewarded handsomely.

As always, we’re talking about investment of cash you can’t imagine needing for 5 years. Because while the current market free fall can’t continue forever, we don’t know when it will reverse direction,or how bumpy the path back up might be.

I’m trying to be bold. And I am steadfast.