As stated in this post by Ben in A Wealth of Common Sense, titled “Easy Money is Money Easily Lost” (read here).
“Jason Zweig discovered in the year following the bottom from March 23, 2020 to March 23, 2021, 96% of U.S. stocks had positive returns. That was the highest percentage of winners over any 12-month period in history.
It was too easy.
Everyone was getting rich investing in stocks, crypto, SPACs, IPOs, collectibles, NFTs, you name it.
Most of those stocks have now completely given up those gains.
I compiled a list of 2020’s stock darlings to show the insane returns they had from the bottom in March 2020 along with the current drawdowns from the heights of those gains:
This was easy money that was money easily lost.” Unquote.
And not too long ago, we witnessed the crypto Terra Luna crash.
It isn’t easy swallowing losses, and many have been quietly taking the hits. Well, then there are others who chose to let it be known,
There is really no way to sugarcoat it, losing it all is darn painful. For myself, there was a time when I was heavily invested in certain individual speculative stocks and lost 5 figures sums. At that time, it was a huge sum for me.
So yeah it sucks big time, watching the stock prices drop weekly / monthly, and knowing deep in my heart that the turn-around will never happen. Whatever studies I made in the past will not change the stock price. The industry/company’s fundamentals (together with the stock prices) have changed for the worst.
I have been on the side line for the most part of the year 2022 so far. Partly because I have been dealing with the challenges at work and there have been a few big expenses required for my family. Hence my war chest is low.
In hindsight, it is perhaps a blessing… Since late last year, stock prices (mainly speculative growth stocks) have been in a generally downward trend. So I haven’t really missed much. I missed out on purchasing (a few months back) some Alphabet shares at around $2500 eg. the limit order did not get filled … and looking at the recent share prices of Alphabet now, it would seem like a bargain (compared to the $2500 to $3000 range back in the earlier part of the year).
However, we would never know really right?… what the short term price movements will be.
So why start buying, why start getting my feet wet again?
Well, in the long term stock prices for fundamentally good companies will always trend up.
JUST KEEP BUYING by Nick Maggiulli.
We can get a few pointers from the book JUST KEEP BUYING by Nick Maggiulli.
Most markets will go up over time.
The US markets have gone up by 160,000% since 1920.
There are primarily 2 fears keeping most people from buying stocks.
1) Fear 1: The market has peaked and may never recover.
Case in point: The Japanese stock market has yet to (ever) recover from its peak in 1989 (that is almost 33 years!). $1000 invested in 1989 would be worth $690 in 2022.
However, if one is to keep buying and investing $1000 per year over the last 33 years, The $33,000 will be worth $59,000 today. That is not a great return, but it sure beats keeping the cash in the bank and letting its value be eroded by inflation.
Im addition, there is no need to just stay in one market, one can invest across different stock markets (US, STI, HK, etc). After all, most markets go up over time, not one market.
In any 30 years period, 88% of the markets make a new high. If one is to invest across a range of markets, the chances of recovering from a crash over 30 years are almost 100%. Now with ETF / Index funds, it is easy to be sufficiently diversified (if one does not have the time nor the interest to study stocks).
Nick Maggiulli recommended income-producing assets that tend to have not that much volatility and the portfolio should not go through more than 15% decline.
2) Fear 2: The market is crashing, I will wait for things to get better before buying.
It is difficult for me to continue buying when stock prices are trending down – it feels like burning cash.
However, if one continues buying, over time, the money invested in a downturn will have supercharged returns,
For example, if the stock is down 20% and you bought it at the low point, and it recovers back to the original price, you don’t make a 20% profit, you make a 25% profit.
If the stock is down 33% and you bought it at the low point, and it recovers back to the original price, you don’t make a 33% profit, you make a 50% profit.
The bigger the percentage it goes down and recovers back up to the original price, the bigger the % increase.
It is tiny ‘victories’ like these overtime, that I feel would give us an edge. Sure nobody can accurately time and buy at the exact bottom, but spreading the purchases over a period of time when stocks are beaten down would in the long run gives us outsize returns.
However, personally, I must add, that this will probably relate to fundamentally sound / solid companies, or diversifiedl ETFs. If the underlying companies have issues and continue to be loss-making, stock prices might never ever recover.
If these are invested in speculative bets due to FOMO (with no underlying fundamentals)… cough … cough… Terra Luna… cough Peloton.. cough… Nikola…; then there is little hope that prices will bounce back up (By the way I have paid my fees numerous times personally).
In recent times, the stock market crashes rebounded faster. As in the case of the March 2020 and Dec 2018 crash, the former took 6 months to recover while the latter took just 4 months to recover.
if one is to hold off buying, one might just miss the bottom (or the crash altogether).
So what did I do recently?
Well, I made a couple of new purchases and did a tiny bit of reshuffling in my stock portfolio.
In May, I added to my positions in dividend stocks like Sun Hung Kai Properties and CK Asset holdings.
In addition, with the weakness in growth stocks, I added to my positions in Alphabet and Pinduoduo.
I also sold out of Alibaba and used that cash to purchase Tencent (which I think would have a better runway moving forward). Personally, I prefer companies with asset-light business models and higher profit margin growth stocks (and both Tencent and Pinduoduo are that compared to Alibaba). Having said that Alibaba is a force to be reckoned with, a solid company and in the long run, I am sure prices would recover.
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