The Weekend Podcast - It's an opportunity but take your time!
Episode 2495, Jun 18, 2022, 09:08 AM
The best time to make a lot of money in the stock market is after a bear market but I want to preface this with a few caveats. Not many investment strategies work well in the down phases of a bear market.
Bitcoin
Crossing $20k - 70%
Last time it did this, was on the way up, on 16th December 2020. Currently $19,300 Next support level? $BTC
House of Cards event
Bear Markets
The best time to make a lot of money in the stock market is after a bear market but I want to preface this with a few caveats. Not many investment strategies work well in the down phases of a bear market.
I do think the economy is going into a difficult recession BUT this mustn't be confused with the stock market. As soon as the market sees peak inflation, i.e. figures not getting worse, a rally will happen. I do not believe this will be THE recovery rally but it should be a very decent, strong bounce, which will hopefully mean we've hit a bottom.
I do not think this will be the end of the volatility and the market will still experience big drops but not beyond previous lows. This volatility will likely continue for months. Inflation will not go down in a straight line.
So the market will not go up in a straight line. Therefore this market will provide many opportunities to buy, on sell offs, and to sell companies you want to reduce a position on, or exit altogether, on rallies. But don’t buy at the highs (because sell offs will happen and could be deep and last for weeks) and don’t sell at the lows and take losses as there will be big rallies, maybe not this week or next week but they will happen. Bear markets have spectacular rallies because we get into big oversold periods and then people think the bounce is a recovery and the markets rally into overbought periods, where they rollover.
You've just got to think beyond the bear market and see what company's will be valued like in more normal times and accept it may take some time to get there.
If you are going to invest, after a sell off, scale in.
A bear market provides plenty of time to research, very few companies rise significantly in a short space when the general market is going down. This market can provide excellent returns over the next couple of years but you have to focus on the company’s you know that are improving and scale in at sensible levels. When I say improving I mean the company's reported fundamentals are getting better. Think: I.N.V.E.S.T.
I - Improving: Growth (topline 20%+ with good margins) N - New (does the co have something new to offer, a USP, a claim to fame) V - Value (are they good value) E - Earnings (are they profitable or have cash to get there) S - Scalable (can the company scale to multiples of their current market cap) T - Trending (are they in a megatrend, is their end market big, commercial & growing)
——
Inflation is the cure for inflation. You add rising interest rates to this, then people get squeezed from all angles. On all their borrowings from mortgages to credit cards. Then on prices they on all goods.
You imagine a family of four with a mortgage, if it isn’t a fix rate, their mortgage goes up as does their national insurance. They drive to the supermarket ,the price to go there using a car goes up. They get to the supermarket all the prices are up. What are they going to do? Cut back. They buy less & travel less. This means the supermarket sell less, so they buy less, they need less staff who in turn go onto benefits and so can’t buy as much as they used to. The governments bill goes up and they are collecting less tax.
It’s a vicious cycle.
Companies margins also get squeezed due to higher input costs from energy to raw materials to higher wages from inflation and then the cost of their debt increases with interest rates too. So if people are buying less, less needs to be produced and less people need to be employed.
Less people employed means less spending power, less get bought and less needs to be produced. This will eventually hit energy costs but this cycle takes a long time to play out and in the meantime the economy will contract.
It’s already happening.
People struggling with the soaring cost of living are cutting back on food and car journeys to save money, according to a BBC-commissioned survey.
More than half (56%) the 4,011 people asked had bought fewer groceries, and the same proportion had skipped meals.
The findings reveal the widespread impact of prices rising at their fastest rate for 40 years.
Many people have cut spending on clothes and socialising.
Therefore is people are buying less, less is produced.
Also Warwick University academic Prof Andrew Oswald has noted, almost every postwar recession has been preceded by a rise in oil prices. The cost of crude rose sharply in 1973, in 1979, in 1990 and in 2007. All were followed by recessions, though sometimes dearer energy was not the only factor.
Crossing $20k - 70%
Last time it did this, was on the way up, on 16th December 2020. Currently $19,300 Next support level? $BTC
House of Cards event
Bear Markets
The best time to make a lot of money in the stock market is after a bear market but I want to preface this with a few caveats. Not many investment strategies work well in the down phases of a bear market.
I do think the economy is going into a difficult recession BUT this mustn't be confused with the stock market. As soon as the market sees peak inflation, i.e. figures not getting worse, a rally will happen. I do not believe this will be THE recovery rally but it should be a very decent, strong bounce, which will hopefully mean we've hit a bottom.
I do not think this will be the end of the volatility and the market will still experience big drops but not beyond previous lows. This volatility will likely continue for months. Inflation will not go down in a straight line.
So the market will not go up in a straight line. Therefore this market will provide many opportunities to buy, on sell offs, and to sell companies you want to reduce a position on, or exit altogether, on rallies. But don’t buy at the highs (because sell offs will happen and could be deep and last for weeks) and don’t sell at the lows and take losses as there will be big rallies, maybe not this week or next week but they will happen. Bear markets have spectacular rallies because we get into big oversold periods and then people think the bounce is a recovery and the markets rally into overbought periods, where they rollover.
You've just got to think beyond the bear market and see what company's will be valued like in more normal times and accept it may take some time to get there.
If you are going to invest, after a sell off, scale in.
A bear market provides plenty of time to research, very few companies rise significantly in a short space when the general market is going down. This market can provide excellent returns over the next couple of years but you have to focus on the company’s you know that are improving and scale in at sensible levels. When I say improving I mean the company's reported fundamentals are getting better. Think: I.N.V.E.S.T.
I - Improving: Growth (topline 20%+ with good margins) N - New (does the co have something new to offer, a USP, a claim to fame) V - Value (are they good value) E - Earnings (are they profitable or have cash to get there) S - Scalable (can the company scale to multiples of their current market cap) T - Trending (are they in a megatrend, is their end market big, commercial & growing)
——
Inflation is the cure for inflation. You add rising interest rates to this, then people get squeezed from all angles. On all their borrowings from mortgages to credit cards. Then on prices they on all goods.
You imagine a family of four with a mortgage, if it isn’t a fix rate, their mortgage goes up as does their national insurance. They drive to the supermarket ,the price to go there using a car goes up. They get to the supermarket all the prices are up. What are they going to do? Cut back. They buy less & travel less. This means the supermarket sell less, so they buy less, they need less staff who in turn go onto benefits and so can’t buy as much as they used to. The governments bill goes up and they are collecting less tax.
It’s a vicious cycle.
Companies margins also get squeezed due to higher input costs from energy to raw materials to higher wages from inflation and then the cost of their debt increases with interest rates too. So if people are buying less, less needs to be produced and less people need to be employed.
Less people employed means less spending power, less get bought and less needs to be produced. This will eventually hit energy costs but this cycle takes a long time to play out and in the meantime the economy will contract.
It’s already happening.
People struggling with the soaring cost of living are cutting back on food and car journeys to save money, according to a BBC-commissioned survey.
More than half (56%) the 4,011 people asked had bought fewer groceries, and the same proportion had skipped meals.
The findings reveal the widespread impact of prices rising at their fastest rate for 40 years.
Many people have cut spending on clothes and socialising.
Therefore is people are buying less, less is produced.
Also Warwick University academic Prof Andrew Oswald has noted, almost every postwar recession has been preceded by a rise in oil prices. The cost of crude rose sharply in 1973, in 1979, in 1990 and in 2007. All were followed by recessions, though sometimes dearer energy was not the only factor.