I wrote a lengthy post on my past portfolio drops. It really see the perspective, you need to see the charts which I can’t integrate into this post. Here’s my conclusion:
Big portfolio drops can be emotional, uncomfortable, or even terrifying. They have happened before, and they will happen again. That is a guarantee. The list of things that increase both comfort and confidence during such drops are the following:
Examining past drops: Seeing the past drops and their recoveries provides much needed perspective.
Owning high growth and high quality businesses: There’s no shortcut to analyzing businesses before buying the stock. Having done a thorough job on the analysis is a prerequisite to having confidence in the business. And having confidence in the business and its future prospects provides comfort in owning the stock during even the most severe drop.
Past valuation ranges: Examining the past valuation range is helpful in gauging where the stock is currently trading. The past doesn’t necessarily predict the future, but it does provides additional perspective.
After a full year of lockdown and economic suppression, we may be on the cusp of the greatest economic expansion ever. There is no recession in sight. Fiscal and monetary support is still full throttle supportive. Economic growth is good for stocks. Inflation is still low…in fact it’s been below the ideal target of central banks for many years. They have tried to increase inflation, and they have failed for years. Everyone is signaling that easy money will continue even if inflation rises above the 2.5% target. Stocks can do well with higher inflation and with higher interest rates. Rotation away from high growth stocks will not last forever, and investors will flock back to growth soon enough. Valuations of SaaS companies may reset at lower levels, but growth will overcome this with time.
To see the full post with the charts, here’s a link:
https://gauchorico.com/big-drops/
GR
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I think it’s really hard to rationalize the stock market. When the lock down happened, all of our stocks doubled in the face of a major recession
I think the only explanation for the drop today is the high growth stock prices have increased too much. Well above it’s valuation.
The reopening of economy just give investors a reason to sell
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Thank you GR. This post on your website is really helpful to me.
I joined TMF 2 months ago as I wanted to open up new avenues in my investing style. I am familiar to invest in well established companies (e.g., oil and gas majors, mining,…) that produce tangible assets. I invested a sizeable amount last year into those companies, and this is delivering sizeable profits now. However, when the market will be back to normal again, my plan was to get out and wait for a downturn again. While this has given me some nice gains, over time I was not beating the market as when I am full cash, I am losing big time against the market. I had this nagging feeling for some time already that this is not the right strategy. Therefore I joined TMF SA and RB to change my investing style to a more growth driven approach. And then I found this board which focuses on the top of the top only. I started to open positions in January / February in high revenue growth companies, and then this crash happens. I know many people call it a rotation out of this sector, or a simple correction. To me it feels like a big crash, I’ve never experienced this before and suffered from sleepless nights and stress related headaches (and still do). But I am trying hard to let logic prevail, I’m holding on and gradually adding to those positions to average my cost down. These kind of posts help me to persevere. Without this board, I would have exited my positions a few weeks ago!
In the meantime I am learning. Learning a lot. Reading quarterly reports, call transcripts, understanding the business, absorbing the knowledge from a lot of people who contribute to this board… This board and the knowledge base opened my eyes and I hope my shift in investing style will pay off and improve my financial position significantly.
Thanks again, and I hope over time I will have the confidence and knowledge to provide meaningful contribution to this great board.
Hephaestus
(please forgive me for my poor knowledge of the English language and the no doubt many grammatical errors)
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