The Moneyball Newsletters were first shared with our graduates of The Moneyball Investors Playbook course. They serve as a polished compendium of what we believe to be the most critical things an investor needs to know to understand what is happening with the stock market and how to navigate things over the next few months. However, enough time has now passed that they can be distributed to the general public. Note that certain portions of text or images may be blurred out or omitted altogether in this post that are covered during the courses.
Market Views And Updates
From The Desk Of TJI
A time for self-reflection
The markets at the start of 2022 have been brutal and gave global investors plenty to worry about. From Covid variants and lockdowns in China to the Federal Reserve raising interest rates in an attempt to fight off inflation, we see the term “recession” get thrown around in the financial media. And it never rains but pours when the invasion of Ukraine by Mr. Putin took place in late February 2022. Investors were told to trim down on their positions or get out of the markets altogether. Many of them either choose to crystallize their losses or inevitably had their portfolio wiped out from margin calls by being overleveraged. Horrifying performance in the financial markets just kept on unfolding weeks after weeks. The sectors that bear the brunt of the relentless sell-off were mainly the technology and consumer cyclicals which naturally led Nasdaq into a bear market and for a moment went to as low as about -30% from its previous highs, equivalent to the huge drawdowns back during the Covid-19 market crash. Drawdowns of such magnitudes are definitely painful and emotional although it is expected as part of the stock market cycle.
QQQ ETF Stock Chart
But as successful investors, we need to have the right temperament and mentality in order to be at your best. Seek to avoid common self-inflicting investing mistakes at all costs as a start. That said, external market situations can cause our portfolio to face drawdowns even of no fault of our own. So just like successful soccer clubs that may also have come from behind after their opponents take the early lead, as investors we have to also pick ourselves up quickly and make a comeback eventually. We shared in our 2022 stock market outlook on how to focus on the opportunities that could be the turning point in improving our portfolio. An investor with superior insights and the ideal personality will do well eventually.
It is a certainty that the bulls will return one day for the fundamentally sound stocks. We just have to be patient and be ready for that day. Put what we learn in the Moneyball Investing Playbook Course to good use by being able to accumulate more positions at the desired prices to bring down the average costs of your stocks which will enable you to start making profits earlier. It is very important to buy in tranches as we always emphasize and not go all-in at once for any stocks or ETFs. The ability to accumulate in a few tranches can come from either sizing up the positions (e.g. if we want to invest 10k in a stock, we can buy 2.5k worth for 4 times), from our warchest, aka our savings not for immediate needs (which we should have), by realizing profits and freeing up cash from other positions or a portion of it from our regular paycheck. We also illustrated in our Telegram chat group how we make such educated timing decisions in the markets with our approach and how we buy in stages.
Hopefully during this correction, you are still able to remain convicted to the stocks you were holding prior to the crash. The investment thesis remains intact for the positions we previously held and as updated in our logbook, we added heavily to the technology companies in US and China and a smaller portion goes to our income investing portfolio for Singapore REITs, in particular the industrial REITs which have yet to run up as much compared to the retail or hospitality REITs. As the overall tech sector in US and China is pretty much oversold, apart from individual stocks, we also added into US Tech ETF, QQQ at $320 and $296 and Chinese Tech ETF, 3033 at $3.88 and $3.66 the last few months which were price levels we identified to be a good and reasonable buy points in the long run. As long as we do not liquidate our existing stocks in panic, it is to our future advantage that the stock market revisits these prices so that we can have the chance to grab them now.
There is still a silver lining
No doubt, we are having one of the worst starts for the year in terms of the financial markets with the S&P 500 returning negative 13.3% by the end of April 2022. In the table above, based on historical data, so far for the 10 worst start we had, eventually 66% of the time we get a positive return for the rest of the remaining months after April where a good majority were double digits. Should the remaining months not deliver a positive return, the negative decline is of a single digit percentage.
With reference to another data below which was compiled in 2020, we can see that generally, big annual market declines are rare. Which means to expect the same rate of decline as we had in the first half of the month is very unlikely. We should expect some kind of rebound with reversion to the mean in the months to come. While past performance is not always indicative of future performance, it always serves as a good possible consideration of how far things may go as it did in the past.
For those of you that have already accumulated good stocks during the last few quarters and have positioned yourself well, the next two things you need are patience and conviction. The stock markets are always forward looking and climb a wall of worries. We can continue to anticipate that the headlines are there to encourage us to drop off halfway as the markets make their way up. Whatever happens in H1 2022 will not be the only negative news that catches our attention.
At the end of the day, whatever happens only matters as much as whether they affect the earnings of the companies that we are invested in. If we are invested in companies with a wide economic moat and pricing power to pass on the inflation cost to the consumers, there is nothing to worry about. But it is also a matter of time when inflation is going to peak out and supply chain eases which will then be a possible catalyst for a rally.
Cash is king during crashes
We hammer across this point every now and then because it has served us well. For all we may know, the upcoming bull market rally may be a quicker one than expected for some stocks. And when it comes where the technicals start to not be in our favor
We never fall in love with any companies or stocks. When the possibility of further upside diminishes, we hold cash or divest into other stocks that have a better potential as per our Moneyball way of thinking.
In our opinion, buy and hold is a method that used to work in the past because a larger proportion of investors believe in fundamental analysis. As long as it is a good company, they will have “strong hands” and hold onto it till the end of time. With the introduction of discount brokers in recent years, many investors are treating the stock market as a gambling house. In fact they are punters and not investors. These groups of people are less rational, have “weaker” hands and make the markets more volatile on the upside as well as the downside. They are willing to pay more to get a stock thinking that it is going to go up forever and equally ready to sell a stock much lower just to stay out of the markets when there is a correction. By this reasoning, that is also why the China markets have always been more volatile than the US markets where the investors are generally more “matured” and have more institutional investors.
Such a scenario also plays out well for our Moneyball Investing methodology because it thrives on extremes in sentiments. As long as more market participants are susceptible to greed and fear, we have a bigger margin to make out of it. Just be mindful to have bullets when the time comes.
There is no better teacher than experience itself
We have cautioned in the previous December 2021 newsletter that the US markets seem to have too much of a run up and that it is uncommon for the markets to trend so strongly
and that we should be prepared for a correction. We share this at a time where some investors believe that such momentum will last forever and buy on every single small dip or go all in.
While we can give a heads up on a possible correction, the emotional aspect of experiencing one when it happens is another subject altogether. Being able to invest in a bear market is an important skill to learn. During a bear market, it seems that the bad times will never come to an end. The financial media would either continue to talk about the doom and gloom scenarios which reflect the mass psychology of the markets or provide surface level commentary that justifies what has already happened which is of little value. Sometimes, they might even just change their narrative at a moment’s notice. Most investors would be left confused and are suffering so much pain until they finally uninstall their trading app. At times, the news can be really bad but most of the stars are aligned on the chart based on our technical analysis and is actually a great buying opportunity.
On the contrary, bear markets should not be feared and in fact it is during bear markets where the greatest transfer of wealth happens each time. As long term investors, understandably we may stay invested most of the time or all of the time since bull markets happen the majority of the time. But our job is to try to mitigate the impact bear markets have on us. We must learn to adjust and raise our cash holdings when the technicals on the charts become overstretched. The day you are able to welcome the bear markets with open arms is the day you reach nirvana.
These market cycles will repeat again and again. It is nothing new and is a result of greed and fear. Once we accept this fact and become aware, you will find that the Moneyball way of investing allows us to become happier investors and sleep better at night.
Let’s see how things go in the second half of 2022. Continue to stay safe as we navigate back to the old normal and get on with our usual lives.
Onward And Upward,
The Joyful Investors
The Moneyball Newsletters are published for graduates of The Moneyball Investors Playbook. Our graduates have access to more in-depth trade alerts and actionable insights in our private Telegram chat group. For the general public, you may join us on our free Telegram channel and follow us on our socials @thejoyfulinvestors for more frequent market updates and investing tips as well.
Important Information
This document is for information only and does not constitute an offer or solicitation nor be construed as a recommendation to buy or sell any of the investments mentioned. Neither The Joyful Investors Pte. Ltd. (“The Joyful Investors”) nor any of its officers or employees accepts any liability whatsoever for any loss arising from any use of this publication or its contents. The views expressed are solely the opinions of the author as of the date of this document and are subject to change based on market and other conditions.
The information provided regarding any individual securities is not intended to be used to form any basis upon which an investment decision is to be made. The information contained in this document, including any data, projections and underlying assumptions are based upon certain assumptions and analysis of information available as at the date of this document and reflects prevailing conditions, all of which are accordingly subject to change at any time without notice and The Joyful Investors is under no obligation to notify you of any of these changes.
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