Sharp Change in Tone
I’ve received messages this week from friends of mine who saw their portfolios fall sharply. Others who were on the sidelines with large cash positions saw a number of the world’s most promising companies drop by 20%, 30%, and as much as 50% in just a couple of weeks.
By looking at the major indices that are heavily influenced by Microsoft, Apple, Amazon, Alphabet, Facebook, Netflix, Nvidia, and Tesla, you’re not seeing the true scope of the situation.
Most retail investors and Wall Street funds don’t hold most of their wealth in the S&P 500. They own high-growth stocks, such as the ones that Cathie Wood has in her ETFs.
In 2020 and 2021, an entire generation of millennials and Generation Z demographics bought stocks for the first time. AMC, GME, and other meme stocks attracted tens of millions of people to the markets, and fundamentals didn’t matter (on the upside). It now seems valuations don’t matter (on the downside).
Look at the price drops in these well-loved names:
Lemonade (insurance disruptor): -76% since February, currently at an all-time low.
The Honest Company (founded by actress Jessica Alba): -66% since May, currently at an all-time low.
DocuSign (dominant e-signature platform): -56% since July, currently dropped 44% in ONE DAY following reports.
Affirm Holdings (FinTech disruptor): -36% this month.
Invitae (Cathie Wood darling pick): -73% since February, currently at 3-year lows.
Teladoc (telehealth disruptor): -68% since February, currently near 3-year lows.
All of the major Chinese stocks have been obliterated off the map as well!
A year like this proves, beyond any shadow of a doubt, the importance of investing in the indices alongside any stock-picking one does.
If you were looking for an opportunity to enter the markets after the insane bubble of 2020, know that the retail mania is dead.
It’s absolutely true that millennials love stocks as a pastime, but they now understand that 2020 was a fluke and not the norm.
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As you can see, the retail investor is not fazed, even after this.
Buying the dip always feels like a sucker’s game when in the middle of a correction, but timing the market is not as important as time in the market.
Fundamentally, what’s happening in the markets is the notion that in the next year (2022), inflation will still be high, but that the trend is weakening, so 2023 and beyond will be deflationary.
Because of this, tech growth stocks that aren’t profitable yet are being sold off. Inflation is the enemy of growth since it means that paying for future profits must discount the depreciation in fiat currency.
On the flip side, value stocks that distribute a dividend are highly praised.
If you’re buying disruption stocks, prices now are very cheap, but they might stay like that for a whole year, so be strategic about it.
Markets are certain that the Federal Reserve will raise rates in June 2022, and we think that this won’t be a surprise. Gold is already pushing forward, and I think we might be nearing an important bottom.
If we get one last sell-off, I’ll be there buying my favorite mining stocks and going into what I think is going to be a wild 2022 for miners.
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