Taking it all in
As the markets enter "bear market" territory, we are all trying to find instances of when it happened the last time or during similar market/macro environments. I've always believed that something like investing has to be experienced yourself to be well understood.
In my very short investing career (3-4 years), I've only experienced a unidirectional market: up and to the right, as they say. Covid was probably my first experience of a recession, a crashing market and everything else that comes with it. I read and read a lot about similar instances in the past, but the expected outcomes were very different from the realised ones, to say the least. Experiencing it myself, thinking about what to do and what not to do, was probably the most useful. In hindsight, it was all over (in the markets) before you could do much so I ended up doing nothing.
But corrections like these are key to understanding the macro, the micro, the market, and the economy and how they work together but most importantly, to discover what philosophy and investing principles resonate with you the most.
This correction feels like another one of those experiences, where you are forced to go back to basics, play the game you want to play, and think for yourself. You're surrounded by (in my opinion) an over-bearish sentiment where prices for stocks on your watchlist are at levels you could only wish for in the last two years. Can you still hold enough conviction in the business and test/refine your thesis? Do the reasons you bought them or wanted to buy them still hold?
I'm still taking it all in, going back to basics, updating my core beliefs and refining what I thought I knew.
PS: Feels like there is a disconnect between the narratives that were thrown out there just a year ago and the prices you are paying for them today, like Covid never happened and didn't change a thing about business and human behavior. Are we buying?
While the numerator of the equation (the narrative) hasn't changed markedly, the denominator (the discount rate) has. I propose that many of the valuations we saw over the last two years were a mirage induced by low rates and declining risk spreads. And current prices are more in line with normality. Do you have any thoughts on this line of reasoning, Uday? It would be great to hear.
@valuabl Yes, thinking along the same lines here. Narratives were pushed into extreme territory as TINA (There is no alternative) took over in 2020-2021. Risk spreads were artificially compressed by the Fed and CBs I believe, and the pace of this expectations/narrative reset took everyone off guard (like always).
I think large cap names (mostly tech) which might be less affected by higher inflation/recession should be perceived as less risky in this environment, contrary to what their valuations and prices are telling. Trying to think of what happens when there is eventually a downturn in the economy and we are in a rate cutting cycle again.