People love to buy high and sell low, it's always been and will always be like this. In the best buying opportunities you will always find people telling you how "it's going lower". At the bottom is very easy to find good reasons for not buying.
I've experienced this on Dec 2018 during the Tariff Crash, in March 2020 during the Covid Meltdown, and now Sep 2022 during the "Inflation Panic". In all of these instances it looked like the world was coming to an end, and after the fact the minority who DCA into the lows became extremely wealthy.
But hey, according to the internet geniuses "This time is different". $SPY$QQQ$TSLA
One of the most difficult aspects of investing is sticking to a disciplined strategy and avoiding the pressure to sell when your positions are down. In general, I am a proponent of the "never sell" ideology as it eliminates this pressure and allows you to focus on the long-term. However, today I sold $MTTR at a substantial loss (~60% from initial cost basis). Luckily, the position was a relatively small size and only impacted my overall portfolio by ~2% (which arguably is much higher than it should have been given the speculative nature of the investment).
I didn't sell because I lost confidence in the long-term prospects of the business. I sold because I believed there were better places to park money given the crazy valuation at which I bought in to the company (~20x sales). The market drawdown has presented what I view to be some great opportunities to park long-term capital, and I preferred to orient my portfolio towards these more stable names ($GOOGL for one) rather than a more speculative investment such as Matterport.
Another important reason I sold is because of the mental drag I experienced owning the company. I believe in the technology, but I am far from an expert in the area. I found myself frequently fretting over the possibility of another company developing a better technology given the large market opportunity, early stages of penetration, and what I considered a lack of a deep moat. Selling, though painful, has removed these emotional stresses from my investing activity and allowed me to double my focus on finding great businesses to hold for the long term.
It's painful to sell a stock you planned to hold for a much longer period. However, I believe it's important to learn from your experiences and understand your emotional makeup in the context of your goals. My goal is to compound wealth over the long-term, and I felt I could accomplish this better by putting my money into more proven, established businesses.
Excellent decision. "Mental drag" is a very underrated factor in a sell decision. The baggage you carry places a burden the performance of your future decisions. Best to just let go and move on. An individual stock picker is like a Quarterback in football. You gotta have a short memory when a play goes bad. Move on to the next play. Every good investment process has a few poor outcomes once in a while. Identify the takeaway and get ready for the next play. Well done to you.
Today, the S&P 500 index closed at a new low for a bear market that started back in 3 January this year.
In my investing lifetime, I have now endured 5 bear markets (declines of > 20%) and 8 corrections (declines between 10% to 20%).
After the 2008 Global Financial Crisis, I vowed to track the progress of the S&P 500 index for every future bear market I would experience. It's not because I'm a masochist, far from it. It's because I find it helpful to put the falls I'm experiencing in context to what I've experienced in the past. This helps me mentally prepare for what could lie ahead. In other words, if I thought it's painful now, it could easily get a lot worse.
Here is a drawdown chart of the S&P 500 index for all bear markets (declines > 20%) since the 1987 crash:
It's a busy chart, but you can see the current bear market (red line) is still shallow and young of age compared to the 2000 Tech Wreck and 2008 GFC. The "aberration" has been the pandemic bear market of 2020 because it was over in a mere blink of an eye. I personally felt long-term investors weren't truly tested then because the decline and subsequent recovery so quick. Skittish investors may have fled, but long-term investor who bought the dip received an almost instantaneous payoff. From a stock investing perspective, it wasn't the generational wealth destroyer that the 2000 Tech Wreck and 2008 GFC were. What truly challenges you is when the "buy the dip" strategy doesn't seem to work and you watch your portfolio value continue an unrelenting march downward.
How long this bear market will continue and how deep it will go is unknowable. But if we compare today's bear market to previous ones, we need to be prepared for the possibility it could go much deeper and much longer. This is when having conviction in your investment process is most needed. How you behave in these times sets you up for your success later when the market eventually recovers and moves forward.
I'm always reminded of this great quote from Morgan Housel. I really wish he was around dishing out his insights when I first started investing back in '87.
All bear markets are painful. No one likes watching their portfolio decline as the months ebb by. If you're engaged in the market like I am, restricting yourself to looking at your portfolio once a year or once a month isn't really an option. We watch the market because we're always on the lookout for those big opportunities. Feeling pain is a natural part of the investing process. If you are fairly new to the stock market and hope you become inoculated to pain after you survive a few bear markets, prepared to be disappointed. I'm afraid it doesn't quite work like that. I STILL feel the pain of bear markets. You just get very adept at compartmentalising it so it doesn't affect the job at hand. You become much more confident sticking to your process because you know it has a long-term positive expectancy. The pain is still there, no matter how much you try to ignore or deny it. The longer you save and invest, the larger your portfolio gets. Those paper drawdowns start to get very, very large. On paper, I can easily lose an entire year's salary whenever we have a couple of bad days in the market like today. The recovery is almost always painfully slow which doesn't help. The "up the escalator and down the elevator" is a cliché for a reason.
Luckily, I've never lost sleep and it doesn't affect my mood because I know it's all part of the deal. I don't have a reliable system that gets me out of the market just before a large decline while avoiding the head fakes - i.e the dips that look precipitous, but recover in an instant to make higher highs. Those false positives can be very disruptive to growing your wealth. You can't afford to miss times when the market is lurching higher.
As a long-tenured investor, I don't really have any insightful words of wisdom that isn't already a cliché ... stay the course, this too shall pass, stick to your proven investment process, no reward without pain etc etc.
My only comment is to accept your emotions, they're there for a reason. We're not emotionless automatons. They'll tell you if you've taken on too much risk. Maybe you should lighten up on those speculative, non-profitable small cap stocks. Acknowledge your feelings but don't let them cause you to abandon your plans. Just remember to keep an even keel once the bull market returns because we tend to fall back into our bad habits and take on too much risk chasing returns. Your portfolio should align to your temperament. Be less preoccupied with maximising returns, and more focused on optimising your portfolio to suit your temperament. Your emotions is the temperature gauge for this. When you achieve that balance, you're less likely to succumb to bad investor behaviour.
I always love metaphors when it comes to long-term investing. One of my favourite is the ringside interview in Rocky 3 with Clubber Lang (Mr T). It perfectly encapsulates the journey of the long-term investor:
Ringside Interviewer: "what's your prediction for the fight?"
Fantastic piece. Housel-level words of wisdom. " Your portfolio should align to your temperament. Be less preoccupied with maximising returns, and more focused on optimising your portfolio to suit your temperament." This is such important advice for newer investor experiencing their first (elongated) stomach turns
Brace Yourselves: The Energy Crisis Stands To Get Much Worse
As the new month begins, the high-pressure systems over the Northern Hemisphere will advance. The forecast image below shows two main high-pressure areas trying to connect across the north pole. During Winter, this might have enough power to create cross-polar ridging, which is a very potent cold winter pattern.
SNOW COVER FROM OCTOBER TO WINTER
Fall weather can influence the Polar Vortex by building an extensive snow cover over Siberia. Multiple studies have proved that the snow cover extent in October over Siberia has an effect on the weakening of the stratospheric polar vortex.
A stronger winter high-pressure system can develop over the region due to snow cover. The high-pressure area affects the polar vortex, as it helps to send more vertical energy up into the Stratosphere. A weaker polar vortex naturally means weaker polar circulation and a greater chance of cold air outbreaks over the United States and Europe during Winter.
A higher North Hemispheric snow cover in Fall is linked with higher pressure over the polar regions in Winter. This shows a weak polar circulation, meaning that colder air has an easier path out of the arctic circle and down towards the United States and Europe.
Currently, we are already seeing more snowfall than usual over Siberia. The graph below shows the snow cover extent over Eurasia already above the normal levels, with more to come.
The image below shows the snow cover analysis, revealing the current snow extent across the Northern Hemisphere. A large batch is already present over Siberia, earlier than normal.
We can see that if we look at Rutgers‘s great snow cover analysis, showing the snow cover anomaly over the Northern Hemisphere. There is a large anomalous area of increased snow cover over Siberia.
Looking below at the 10-day snowfall forecast, we can see a substantial increase in snow cover. Blue colors indicate snowfall and snow depth increase. All areas from North America to Siberia will increase snow cover.
As pressure systems get stronger and more energy goes upwards into the Stratosphere, it can reach a point where the Polar Vortex can completely collapse. That is called a Sudden Stratospheric Warming event and basically means a strong warming event of the Stratosphere and a following collapse of the Polar Vortex.
The corresponding average temperature 0-30 days after an SSW event shows that most of the United States is typically colder than normal, along with Europe.
According to GoRozen's July 2019 Agricultural Markets post:
There is mounting evidence indicating we are entering a potential period of very low sunspot activity, caused by a confluence of overlapping Gleissberg and Suess-DeVries Cycles. If this is indeed the case, the impact on the earth’s climate and by extension growing conditions could be material.
We are putting forth two very controversial ideas. Before we begin, we would like to state that we are not trying to weigh in on the impact of CO2 to global warming. Instead, we would like to draw attention to a completely different factor impacting global temperatures. What’s remarkable about this other factor is that no one has paid any attention to it whatsoever. We are contrarian investors and pride ourselves on trying to identify trends that few others have considered. While we admit that the science is far from certain, the implications of what we are about to discuss are important enough that we believe the investment community needs to, at the very least, consider it.
We believe changes are now taking place on the sun’s surface that could ultimately usher in a significant shift in global weather patterns over the next 20 years. If the world were to enter a period of cooling for any reason, our research tells us that global growing conditions could become much more challenging and that the trend of relentlessly-advancing crop yields we have experienced for almost four generations could reverse.
Scientists, astrophysicists, and meteorologists all carry on a vigorous debate regarding the impact on terrestrial weather of the sun’s changing phases. There is no agreement on the subjects we are about to discuss, so please read to what we have to say with an open mind. All we ask is that you decide for yourself. Stories of the financial difficulties faced by farmers today abound. Low grain prices have reduced profits margins to zero while debt financing requirements continue to grow. If we are right about the upcoming change in global weather conditions, the seven-year bear market in grain prices could end in the not-too-distant future causing agricultural-related investments to surge.
In my Twitter post dated September 10, 2021, I discussed a speech given by renowned historical climatologist, Evelyn Browning-Garriss. I would like to reiterate that my views regarding the extent to which humans have impacted the climate are irrelevant. Natural processes have always affected both climate and weather from the beginning of time, that fact is inarguable.
One of the critical pieces of information I recall that was shared by Ms. Browning-Garriss was the significant impact of early snowfall in Siberia. As you can see from the Severe Weather Europe post above, snow has indeed arrived early in Siberia meaning a potentially severe winter for Europe.
The July 2019 GoRozen report above suggests even more trouble lies ahead for agricultural markets, already struggling with high energy prices and fertilizer shortages.
The coming months will likely prove to be devastating for those that must decide between heating their homes or feeding their families, small business owners forced to close as they battle high energy prices, and global food shortages causing famine in several countries.
A good time to be a commodity investor, but a heartbreaking time for humanity.
CEO David Michery just received 9.62 million shares as part of a "Performance Stock Award Agreement." Generally curious as to how he managed to get approved by the Board.
Meanwhile, share of $MULN are down 95% in the past five years and 94% YTD. Oh, did I mention that the company still doesn't have a single commercial vehicle on the road? On top of that, Michery has made several open market sales this year and 0 purchases.
So cool that you track average cash flow yield on the entire portfolio. Good portfolio-level thinking! How do you see that metric trending over time for your portfolio? When market sentiment shifts and things start to bounce back would you shift your focus away from cash?
It's actually good that in this situation we have strong buybacks. Insiders have a better view of the "real" situation when it comes to business and should be the best "buyers" of their stock because of that data.
The one thing I hope (to people who are investing right now) that they do not get discouraged with current market conditions and just quit and get the bad experience that they might later on put on the future generations.
Give it time, get detached from the market noise & just either a) invest in ETFs (set it & forget it) or b) invest in good well managed companies w/ positive cash flows
& keep learning via books & audio/video from credited sources like Warren Buffett or Peter Lynch or Phil Town
Love the conviction, Ben! Lots of buzz around Trex lately... I can see that @gordonsgecko and @capisce_capital also recently started and have added to positions in $TREX. And a handful of others on Commonstock have recently added to existing positions.
I've been writing an article on Texas Instruments and going into transcripts and reports, found out the company is going to be heavily investing in CapEx. This is not what surprised me but management's commentaries on their factories did.
Interesting! I had never heard of 130/130 but am familiar with the concept of a long-short portfolio. Looking through the PDF you shared... is 130/130 mainly for institutional investors or those managing big funds? Or do retail investors use this strategy too?
Great post! I have been invested in ASML for a while and the technological moat is second to none. Like you mentioned in the article, my biggest issues with the company is lack of skin in the game and management capital allocation. A dollar cost average strategy for buybacks is never a good idea in my opinion, just increase the dividend instead if you don't want to be opportunistic.
The dollar is strong, but its relative strength isn't new. Set against a broad basket of international currencies, Washington's have increased in value for the past decade.
While a higher dollar raises the immediate local cost of imports for non-Americans, the economic effects are short-lived and muted. Lawmakers and bosses will trot the dollar-is-up excuse around the show ring, but investors and voters won't buy it for long.
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