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What is your biggest investments question at the moment?

Please let me know by hitting reply!

 

I have got three:

• Is this a bear market rally or has the market turned around?
• How can I protect my investments from inflation?
• Is this a bottom or are we on the edge of a cliff, before another big fall?

 

Wild reactions to results

Another thing that's astounding is the wild price movements after result announcements.

After good results the stock jumps 10% and bad results leads to a 20% or more fall.

 

Meta Platforms results

A good example is the last week quarterly results by Meta Platforms (previously Facebook).

The stock price fell 25% after the announcing lower than expected net income as well as a 4% fall in sales and high capital expenditure.

I was never a big fan of the company but after this fall I stumbled onto this interesting article Meta Myths by Stratechery (it's a great blog to add to your reading list) that let me to take a detailed look at the company.

It obviously has problems but with a trailing 12-month Price to Earnings ratio of 9, and Price to  Free Cash Flow of 9.8 times, the stock is cheap. It also bought back over $40bn (17% of market value) in stock over the past 12 months. If this continues it is a wonderful way to return cash to investors.

Is the company cheap enough compared to how the business is developing? Who knows. It is a question that we cannot answer at the moment.

I have not decided if it is cheap enough to invest but I am definitely going to do more research.

 

What I have been doing in my portfolio

I have not been very active. I have sold two investments that fell below their trailing stop loss levels,  expanded my buy list with a few companies I have finished analysing.

This is mainly companies we've recommended in the crash portfolio. As you may know these are high quality companies, currently trading at ridiculously cheap prices.

 

I have selectively been buying a few investments where the downtrend has been broken.

I am careful with these positions and follow smaller 15% trailing stop loss than usual. The same as in the newsletter I normally follow a strict 20% trailing stop loss rule.

If I reduce it slightly it makes it easier for me to buy, as I know I can get out with a small loss. This is important because if I do not do this I do not invest - as I am worried about another big market fall.

Thinking about a big market fall all the time have kept me out of the market - after the financial crisis and the Covid market crash - which led to me lose out on big gains.

This gives me the courage to invest despite not knowing what will happen, as I know I can get out!

 

Now on to the Mind Game part…

 

The Mind Game

Rule #9: See volatility as a fee

 

I have learned to see volatility as a fee for high returns over long periods of time and I suggest you do the same. With volatility I mean small price movements DOWN, the same as the market, or that cannot be explained by any company specific news.

Let me ask you.

How many times have you seen drops of more than 3% with no explanation?

If your experiences been like mine this happens daily.

This led me to ask questions like:

• Does somebody know something I don’t?
• Do I need to sell?
• Is there an article or research report I missed?

 

This used to distract me until I realised, it happens all the time and can be ignored. There were just more sellers than buyers.

I do not think about it anymore or excessively look for explanations. I see it as a fee I have to pay, and I move on.

 

A stop loss helps

Following a strict trailing stop loss further helps me see down movements as a fee.

If the stock price continues to fall my 20% trailing stop loss will let me sell the stock and limit my losses. Most of the time this never happens as the price jumps up by 3% the next day as the seller is out of the market.

I hope you find this idea helpful to stay invested and not worry about small unexplained price falls.

 

Your helping you ignore investment noise analyst

 

PS I know markets are still uncertain BUT have you already started building your buy list? If not, why not sign up today and start now.

PPS It is so easy to forget and put things off why don’t you sign up right now?