At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history.
Heller responds,“Yes, but I have something he will never have — ENOUGH.”
For many, I guess we will never feel that we have enough… When we have losses, we feel pain. We envy those that made gains. When we made gains, we envy those that made more gains…
I guess I have been pushing back writing a post for some time. I also do not intend to make a Game Plan this year. After what happened in 2020, it kind of make me reflect on how fast things can change and how nimble we need to be as investors, despite my long standing belief in buy and hold.
I think it is an understatement to say that there is a sense of FOMO (Fear of missing out) in the air with the markets off to a great start in 2021. (Below: Red line is the STI index, while the blue line is the S&P500).
The concept of anchoring bias is very real when people see the past 2020 performance; or simply said – the left side of the price chart, it affects their projection for the returns going forward (which is the right side of the price chart – basically blank and unknown).
The is even more acute when we throw in more speculative stocks like Tesla, Nio, Pinduoduo, etc.
And how can we forget… Cryptocurrency (Bitcoin).
In addition, we start seeing a lot of people posting their massive positive gains in social media and more people discussing or rushing into stocks.
He began buying Tesla at just $7.50, and now he’s retiring at 39 years old with $12 million worth — he still refuses to sell a single share (read here)
How Elon Musk’s biography led to a Tesla investor retiring at 43 (read here)
Elon Musk Has Made Millionaires Out of His Most Loyal Fans (read here)
$2.3 million profit in 2020 (watch here)
Not to forget the memes and funny images related to Tesla stock price surge.
Even a simple tweet about Signal by Elon Musk can send the stock price of an unrelated Signal Advance soaring.
Signal Advance has soared 11,708% since an Elon Musk tweet recommending a similarly named privacy app spurred ticker confusion (read here)
Elon Musk tweeted ‘use Signal’, confused investors sent wrong stock soaring over 5,100% (read here)
For Crypto new rich, it seems that Lambo (Lamborghini) is the new language.
When Lambo? How Lamborghini became the status brand of the crypto boom (read here)
This crypto-millionaire bought a Lamborghini for $115 thanks to bitcoin (read here)
No doubt many of these speculative stocks have great narratives, and are changing the world with disruptive technologies… However, chances will come again, just likely not now.
Again, many of us suffer from the endowment effects whereby we deem our holdings as relatively more valuable (as compared to how people without such holdings perceive).
So back to the start of my post… I guess it really doesn’t matter to me what has happened in the past. I really can’t change that. None of us can.
Some of us did not invest, some did. Some made losses, some made gains… People who made gains in traditional industry stocks, look at people who made huge gains in healthcare, tech or glove stocks, then there also those who made huge gains looking at those who made even more massive gains in Crypto….
What really matter is what we do now and in the future. With the low interest rate environment, as what Howard Marks has mentioned recently, the projected yields of assets are generally brought down. People are moving up the risk ladder in search of the similar yield (as in the past).
I am not seating on huge gains, selling my stocks and retiring. For me, there will always be another crash with a slightly different scenario. Volatilities in the markets are getting more and more frequent, and are deeper and faster… I do hope I will be more prepared by then and my portfolio will perform better when the next crash blows over.
I think in every crisis I learn something. In this, I learn to be more receptive in observing and thinking of more possibilities and accepting more disruptive growth stocks in my portfolio, which are best bought when the markets crash (Superrrr…. hard psychologically).
For me, my stock portfolio contains mainly traditional industry / recovery stocks, with some tech stocks. Well, generally the portfolio has performed well with more than half of the counters in gains ranging from 20%+ (for REITs and then bank stocks) to 40% range with the outlier being 90%+ for Pinduoduo, others are still in the red (mainly the HK-listed counters, around negative 1% to 10%). Golden agri remains the worst at around negative 60%. With the slow rotation towards recovery stocks, from Nov 2020 onwards, I am seeing and hoping for more gains.
However, I am not doing much at the moment and I am still heavily invested in equities. The past few days and weeks are good.
I may pick up more PDD or Alibaba stocks if their stock prices dip, but nothing drastic.. Mainly DCA for my portfolio as a whole. The Price to Book ratios for the Straits Times Index and Hang Seng Index still appear attractive over the long term.
I can’t say the same for the Price to Earnings ratios for the US markets.
At the time of writing, the S&P 500 index is valued at a price-to-earnings (PE) ratio of 38.06. Its average PE ratio in the last decade was around 20x.
This shows that the S&P 500 is valued at around 90% above the mean.
Oh yes. Why use Price to Book ratio for the Straits Times Index and Hang Seng Index, and Price to Earning ratio for S&P 500? Well, STI and HSI have a bug weightage of heir components in old industry stocks eg, bank, property counters, hence P/B seems more appropriate as a valuation metric. Reits, etc. S&P on the other hand has a huge weightage in tech stocks (the mega techs), not so much on book value. Hence the P/E ratio seems more appropriate.
In Feb 2020, I mentioned in my post then that I reached a milestone in my net worth. The definition of my overall net worth is everything I have (my personal CPF, stocks, bonds, SRS, Cash, P2P, Insurance cash values, etc… excluding the value of our property). However, shortly after that, with the market crash in March 2020, my net worth quickly dropped below that milestone level. Yes, the joy was short-lived then.
Fast forward to today, I am surprised that my net worth has increased by approx. 18% in relation to that milestone value in Feb 2020. This is generally thanks to the rise in the stock markets till date.
Oh well, who knows what will happen in the near future.
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FOMO in the Air for Singapore property investors?
I think so too. But in Singapore’s case, not that extreme due to the cooling measures still in place. Many upgraders/investors are constrained by that. Not so much for first time buyers.