When I first began investing, I approached it (as I imagine most people do) from a relatively simple perspective; “Buy low, sell high”. However, over time, I have began to realize just how difficult this is and anyone who began investing after 2009 (which is likely a bulk of those on FinTwit and Finance SubStack) have likely been shaken up in the worst, and longest, bear market since the GFC. Despite this prolonged bear market, I’ve remained focused and even doubled down. This game is more about the long game, personal psychology, not blowing up and discipline.
By leveraging these principles, investors can become aware of reality vs perception. For example, typically, I see the quote below when the NASDAQ is down 5% - 10% but after 10%, it’s pure terror, “cash is a position”, and selling because investors (not traders) think it’s just going to keep going down. This is, historically, a poor choice especially if approaching the markets from and investor perspective.
Today, I want to focus on this quote but not the “be fearful when others are greedy and greedy when others are fearful” part. Let’s focus on “I will tell you how to become rich. Close the doors.” I’d like to believe this is crowd I fall in, the ones who “close the door”. What’s important to know is that it has nothing to do with not understanding or blind ignorance toward the macro-economic, or, believing that “buy and sell is the only way”. Instead, this closing the door approach is more understanding where there’s actually danger or when the narrative has gone too far. I found the YouTube video below particularly insightful about the Fed’s narrative and jawboning of the markets.
Essentially, what I am trying to say is that things aren’t exactly what it seems. The Herd is full on dumb dumb mode, blind to the opportunity that exists today in game changing, fast growing, businesses. Despite what Wall Street wants you to believe, Oil (in the long run) is going to go away. Innovation will produce superior returns (as it always does) and this is a stock market, not a sector market.
This means that superior returns came from BUSINESSES that had three qualities. Over time, they all grew:
Revenue
Cash flow
Earnings
By holding just a few of these mega winners, investors will beat the S&P 500 (something 80% of fund managers can’t do). This doesn’t include the additional returns you receive when you buy these businesses on steep discounts, as we see here today. Definitely take a look at where multiples are today on SaaS businesses:
It wasn’t just software growth stocks either that have been bombed out. It has basically been every business that isn’t included in a major index. This has been a stealth bear market for the history books and in many ways, is worse than GFC (depending where you look) because of the over valuation on many stocks from the beginning of the crash till now. The damn Fed really made a mess of things in the financial markets.
Like I mentioned before, investors are completely blind to the opportunity that is present TODAY, right now. Especially in particular areas of the market.
What the Markets are Signaling in the Short Term. Are We at Bottom?
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